A Silicon Valley startup blames the trade war for going bust

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SAN FRANCISCO (Jan 18): A breakout star of the 2016 TED conference was an Israeli technologist named Meron Gribetz. He wore an augmented-reality headset onstage and wowed the crowd with the gadget’s ability to manipulate holographic images.

Gribetz’s TED Talk especially resonated in China. Two of the country’s most recognizable technology brands, Lenovo Group Ltd and Tencent Holdings Ltd, wrote checks to Gribetz’s Silicon Valley-based company Meta Co, which would raise more than US$80 million, said research firm PitchBook Data Inc. The reliance on Chinese money would ultimately contribute to the startup’s downfall, according to Gribetz.

On Friday, Gribetz plans to disclose details of Meta’s foreclosure and the sale of its assets to a company he won’t name. In an interview, Gribetz said concerns over escalating tariffs between the U.S. and China, and scrutiny of foreign deals left his company without funding he’d been anticipating. He referenced a previously reported US$20 million investment that fell through last fall.

“Due to the trade war, the Chinese blocked this deal at the last minute,” Gribetz said. “We did not succeed in attracting new funding, and the company ran out of resources.”

While Chinese tariffs have punished American electronics makers big and small, gadget startups face fundamental challenges apart from politics. In particular, augmented-reality headsets that project digital images onto the wearer’s view of the real world have yet to live up to expectations. Some of the biggest proponents were in China. Funding for augmented reality or virtual reality startups involving Chinese investors reached nearly US$1 billion in 2017, according to researcher CB Insights.

The hype has since come down. Global investment in AR or VR startups declined 35% last year, CB Insights said. Magic Leap Inc, the most hyped of them all, finally released a product last summer after years of toiling away in secret and sucking up more than US$2 billion from investors in the U.S., China and elsewhere. Reviewers weren’t impressed. A much smaller maker of augmented-reality glasses, Osterhout Design Group, is reportedly planning to sell off its patents.

Meta had been working on its headset for several years before Gribetz’s TED Talk. The company sold the device for US$1,495 through its website and pitched the product to architects, designers, auto manufacturers and other professionals who could use it to manipulate 3D holograms with their hands for visualizing data and prototypes. Meta had been exploring plans to open a Chinese subsidiary near some of its main investors, Gribetz said.

In September, Gribetz said Meta had a commitment from a Chinese private-equity and real estate firm for US$20 million, which would anchor a funding round of US$150 million. But the lead investor backed out, he said, at the behest of a Chinese official who cited the trade war and actions from the Trump administration. As a result, other investors withdrew, he said. Meta furloughed two-thirds of its 100 or so employees.

Without additional funding, Meta was unable to pay debt obligations, and the lender seized the San Mateo, California-based company, Gribetz said. The assets were sold at a value below the outstanding loan amount, according to a court filing in a patent infringement lawsuit against Meta. “I got hit with this trade war, and it was a very surprising and shocking thing,” he said. “I tried to do my best.”

The new owner will continue to support Meta’s customers, Gribetz said. The company’s website remains online and appears to still be taking orders for the headset and a US$199 branded leather canvas messenger bag. “Meta’s assets are surviving, and they have a new home, which means they have some form of a future,” Gribetz said. “I don’t know their intentions moving forward or what they plan to do with the employees that were part of the old entity.”