Magic Leap Valued at $4.5 Billion With Funding From Alibaba

  • Google, Qualcomm also participated in $793.5 million round
  • Funding will accelerate and scale production to get to market

Magic Leap Inc., the secretive startup working on a device that simulates reality, has raised a new round of funding led by Alibaba Group Holding Ltd., valuing the company at $4.5 billion.

Magic Leap added $793.5 million to its arsenal, the company said Tuesday. That will provide a long enough runway to get to sustainability and help accelerate bringing the company’s first product to the market, Chief Executive Officer Rony Abovitz said.

“We can avoid some of the problems a startup might usually have,” such as running out of money before or during a product launch, he said in an interview.

Magic Leap is promising to create a headset that would use a type of light-field technology to simulate 3-D images superimposed on the real world -- providing what the company calls mixed reality. The proprietary technology would project patterns of light to the eye, enabling it to perceive virtual objects similarly to the way people naturally see existing things. 

Along with the hardware, Magic Leap is also building the software that would support its device, including cloud and Internet services, a unique user interface and experience and customized operating system components, as well as connections to link to and work with the existing platforms, Abovitz said. 

‘Frantic Pace’

Though Magic Leap hasn’t revealed its headset yet, the company is working at a “frantic pace” to set up a plant that will make key components of the device, Abovitz said, without providing specifics on the timing or pricing of the product. The company has also been in talks with manufacturers and suppliers about production contracts, he said. 

Magic Leap has already been working with outside developers to create software for the platform and plans to expand that circle, he said. Before bringing the device to the public, the first step will be to reach pilot production and do user and customer testing, he said.

“When we ship our first product, that is the first product -- it’s not a beta version,” Abovitz said. Other virtual and augmented reality headsets, including Facebook Inc.’s Oculus Rift and Microsoft Corp.’s Hololens, first publicly released prototypes to developers to spur software creation.

Magic Leap’s Google-led investment of $542 million in 2014 was the biggest virtual or augmented reality funding deal at the time, according to data from research firm Pitchbook. Facebook that same year spent about $2 billion to buy Oculus VR, which had raised about $93 million before being bought, according to Pitchbook data. The latest round pushes Dania Beach, Florida-based Magic Leap’s total funding to almost $1.4 billion.

Magic Leap will eventually bring its product to China through Alibaba’s sites, which boasts more than 400 million users, according to a statement from the company. The company plans to use Alibaba’s business and cultural knowledge of China as well as expertise in Internet services to inform how it enters the market, Abovitz said.

Alibaba has invested in about five U.S. startups a year since 2013, according to CB Insights data. Alibaba Chairman Jack Ma said last year that the company would help fund technology startups in the U.S. with plans to help them expand to China. Over the past five years, the three biggest Chinese Internet companies -- Alibaba, Baidu and Tencent -- have invested in 52 startups, according to CB Insights.

Joe Tsai, Alibaba’s co-vice chairman, will join Magic Leap’s board, which includes Google Inc. CEO Sundar Pichai, Abovitz said. Other new investors include Warner Bros., Fidelity Management and Research Co., JPMorgan Chase & Co. and Morgan Stanley Investment Management, according to the statement. Existing investors -- Alphabet Inc.’s Google, which led a previous funding round, and Qualcomm Ventures -- also participated. Magic Leap currently has more than 500 employees in locations around the U.S. and the world, Abovitz said.

Allen & Co. served as financial adviser to Magic Leap for the round.

Before it's here, it's on the Bloomberg Terminal.