Magic Leap: The WeWork-Theranos Level Fiasco You Never Heard About
Fort Lauderdale Florida — a town often dubbed with the nickname Fort Frauderdale because of a high frequency of white-collar crime in a region of the United States that is already infamous for being built on the back of financial crime — is a sun-soaked, pseudo tropical paradise with an augmented reality company that is raking in billions of dollars in funding for trailblazing a new frontier in entertainment. Magic Leap, and its charismatic founder Ronny Abovitz, managed to sell high profile investors (the likes of Alphabet, Andreessen Horowitz, Warner Brothers, and AT&T) on a future of consumer-oriented AR products. Since 2014, the company has raked in $3.5 billion in investor cash.
At this point, it’s only become too clear after numerous high-profile start-up failures that irrational investor exuberance plagues institutional investors in the same way it does retail investors. The pro’s make bad bets, but the difference is that when institutional investors make bad bets, they have more options to recoup their investments= the usual approach, find some other sucker to hold the bag.
Magic Leaps troubles started to become evident long before the eve of the COVID-19 pandemic disrupted the world. At its height Magic Leap had a private valuation of $6.7 billion, today it is privately valued at $2 billion after it latest funding round of $500 million. In April 2020 the company reportedly laid off 1,000 employees a month later Ronny Abovmitz was forced out after founding the company in 2011. Board and investor confidence and patience had worn thin with missed milestones and missed production targets, development cost overruns.
The line between overpromising, an inability to deliver and fraud on something that has never been done is blurry. Some of Magic Leaps tactics are eerily reminiscent to the likes of companies like Nikola and Theranos. The most compelling evidence for this was its “demo” material, it wasn’t billed as a concept video, but arguably deceitfully as a demo. A marketing stunt comparable to Nikola rolling its electric truck down a hill. It created the perfect story, a visionary tech upstart clouded in secrecy. It’s bold marketing stunts repeatedly using videos of a life-sized whale jumping out of a gymnasium floor was entirely developed in a studio. It’s talent recruitment videos, fake, untrue assertions.
In 2016, a largely overlooked piece by the verge was published something that the company likely was able to brush off to investors.
“You ultimately, in engineering, have to make tradeoffs,” Abovitz stated.
Magic Leap had made a bold bet on fiber-optic scanning displays. The company essentially needed to miniaturize the technology from the size of a MINI Cooper to something handheld, but it wasn’t working. The biggest Magic Leap seems to be the magic leap of faith it would take to both successfully develop the product and bring the price point down to something commercially affordable this decade.
The fate of Magic Leap will likely be a move institutional investors know all too well, i.e., opting to take the company public via a SPAC offering and dumping it off onto the public markets or offloading the company to other unwitting institutional investors.
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