Feb 22, 2023 · 1h 3m · a16z
The Challenge of Replicating Reality with Steve Zhao from SandboxVR
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In this episode of the a16z podcast, host Steph Smith explores the rise of Sandbox VR through a hands-on venue experience and an in-depth interview with founder and CEO Steve Zhao. The discussion covers Steve's journey from early game development to surviving the VR winter and Chapter 11 bankruptcy, highlighting how Sandbox VR built a thriving out-of-home full-body virtual reality ecosystem.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The host holds 38.6% of the talking time here. How this is scored →
The host as informed peer 2.5 Guest teaching 2.6 Guest disagreement 0.2 The host pushing back 0.3
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 51:42 Reframing VR Novelty and Industry Competition
Steve gently rejects the host's premise that VR is trapped as a novelty, reframing out-of-home VR as a distinct category that maximizes immersion rather than competing with in-home headsets.
Hardest push from the host ▶ 51:42 Challenging VR's Novelty StatusSteph directly challenges the trajectory of the VR industry, asking Steve how VR can escape being seen as a temporary novelty and instead become a daily necessity.
Biggest teaching moment ▶ 30:55 Landlord Tenant Allowance EconomicsSteve educates Steph on real estate financing mechanisms, detailing how Sandbox leveraged post-pandemic foot-traffic data to convince landlords to fund 100 percent of retail buildout costs despite Chapter 11 status.
The host holds their own ▶ 1:01:13 Probing Pricing Power and Margin PotentialSteph demonstrates strong analytical expertise by evaluating Sandbox's value proposition against traditional entertainment, pushing Steve on whether they have unexploited pricing power to raise ticket prices to $80-$100.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Disclosures and Driving to the Sandbox VR Location | 0 | 0 | 0 | 0 | This is a intro monologue and experience recap segment where the host describes visiting a Sandbox VR location. Per instructions for monologue/housekeeping segments, host-side scores are set to 0. | |
| In-Game VR Onboarding and Safety Mechanics | 0 | 0 | 0 | 0 | Host monologue describing the mechanics of the in-game VR experience and onboarding process before introducing the guest. Host-side scores remain 0 according to monologue scoring rules. | |
| Steve Zhao's Childhood and Early Passion for Gaming | 1 | 2 | 0 | 0 | Steph prompts Steve about his early childhood and founding Blue Tea Games during the 2001 dot-com crash. Steve politely explains how shareware games funded his university tuition. | |
| The 2016 Founding Vision for Sandbox VR | 1 | 2 | 0 | 0 | Steph asks Steve about transitioning from Blue Tea Games to Sandbox VR in 2016. Steve explains his motivation as a fear of missing the VR wave and building a minimum viable matrix. | |
| Navigating the VR Winter and Investing Life Savings | 1 | 3 | 0 | 0 | Steph asks about navigating the 2017 VR winter and Steve's decision to bet his life savings. Steve details how institutional investors passed and his team voted to keep fighting. | |
| Hardcoding the First Prototype and Viral Video Solution | 2 | 3 | 0 | 0 | Steph asks how Steve built an MVP for a complex hardware-software location business under severe constraints. Steve outlines hardcoding the initial product and securing cheap real estate in Hong Kong. | |
| Early Retail Traction and Viral Engine Success | 2 | 2 | 0 | 0 | Steph asks about marketing a brand new category to first-time customers. Steve shares how positioning as a hyper-reality escape room and leveraging viral videos drove 100 consecutive sold-out days. | |
| Pandemic Crisis, Layoffs, and Chapter 11 Reorganization | 2 | 3 | 0 | 0 | Steph inquires about surviving the COVID-19 pandemic and Chapter 11 reorganization. Steve explains losing over 100 percent of revenue, executing layoffs, and pivoting focus to markets reopening earlier like China. | |
| Post-Pandemic Turnaround and Landlord Partnerships | 3 | 4 | 0 | 0 | Steph asks about post-pandemic turnaround strategies. Steve explains optimizing video processing times from 20 minutes to 2 minutes and negotiating landlord-funded tenant allowances despite recent bankruptcy. | |
| Competitive Matrix and Experiential Content Model | 3 | 3 | 1 | 1 | Steph prompts Steve on competitive positioning relative to movie theaters and console gaming. Steve reframes Sandbox as competing with theatrical movie releases and providing relationship-building social spaces. | |
| Content Pipeline and Platform Scaling Strategy | 3 | 3 | 0 | 0 | Steph asks about game production cycles and content expansion strategies. Steve details their 12-month development timeline and how wireless streaming unlocked major IP partnerships like Squid Game. | |
| Achieving True Believability and Emotional Immersion | 4 | 3 | 0 | 0 | Steph shares detailed observations regarding emotional immersion, haptics, and spatial perception from her own experience. Steve responds with customer demographic insights and stories about scream-induced noise complaints. | |
| Technological Foundations: Low Latency and Full-Body Tracking | 3 | 4 | 0 | 0 | Steph asks what technological elements differentiate Sandbox from off-the-shelf headsets. Steve details outside-in tracking, low-latency rendering, and proprietary prediction algorithms for full-body tracking. | |
| Hardware Evolution and White-Label Operating System | 4 | 3 | 0 | 1 | Steph tests the boundaries of Sandbox's business model by proposing non-gaming applications like VR surfing simulations. Steve explains their white-label operating system designed for third-party developers. | |
| The Future of VR: Out-of-Home vs. In-Home Computing | 5 | 4 | 2 | 2 | Steph pushes Steve on whether VR remains trapped in a novelty phase and how to transition it to a necessity. Steve reframes the premise, arguing out-of-home VR trades accessibility for maximum immersion and competes with out-of-home entertainment rather than home headsets. | |
| Scaling to Millions of Tickets and Social Media Resonance | 3 | 3 | 0 | 0 | Steph asks about scaling ticket sales from 1 million to 10 million and unexpected consumer behaviors. Steve points to location expansion as the core bottleneck and highlights organic TikTok virality. | |
| Founder Lessons, Focus, and Unit Economics | 5 | 3 | 0 | 1 | Steph demonstrates business acumen by probing unit economics and suggesting pricing power could allow ticket prices of $80 to $100. Steve confirms fast location profitability and explains their value-based pricing progression. |
Statements from this episode (28)
Steph Smith: Sandbox VR uses in-game software for player onboarding
“Once you were in the experience, the game itself onboarded you.”
Steph Smith: Sandbox VR simulates vertical motion using virtual elevators
“One fascinating aspect of this experience was they're bringing you up these elevators and it really does feel like you're moving up, which of course you're not.”
Steve Zhao: Build for what users will want in two years
“One of the biggest lesson I learned from mobile games is you don't create what's popular today. Because by the time you're done, it's going to be 10 months too late. So our job is to figure out what do people want in a year or two.”
Steve Zhao: Multiplayer gaming is about social interaction, not environments
“You know, great thing about games, it's really about playing a game with each other, right? The game object isn't the environment. It is your friends.”
Steve Zhao invested 95% of his life savings into Sandbox VR
“So that's when I decided to basically take my life saving and put it into you know, Sandbox. And I remember the moment I did that was at the bank. Even the bank executive was like, are you sure you want to do that? That's like, 95% of your savings. I'm like, y…”
Sandbox VR launched with under $300k and six months of runway
“What we had back then was just 200,000 dollars, 300,000 dollars with six people with a lifeline of six months left.”
Sandbox VR's first venue was a 16th-floor unit with broken pipes
“We ended up getting a location in Hong Kong. Even though Hong Kong has seven million people, we were able to find a building with zero foot traffic, and the rent was insanely cheap. You know, the water pipes were broken, and we were on a 16th floor. There was …”
Sandbox VR achieved 100% occupancy for 100 consecutive days initially
“So what happened was, pretty soon, we booked out our space, you know, a hundred percent a hundred days in a row.”
Sandbox VR lost 110% of revenue during COVID pandemic closures
“For us, we lost a 110% of our revenue, because not only did people, we couldn't open any of our stores, so there was no sales, but we also had to refund everyone that booked.”
Sandbox VR laid off 80% of staff with three months runway
“We were trying to raise that Series B during the early 2020, and we had about three, three months of runway left. So we had to let go most of the folks. We let go about 80% of our team.”
Steve Zhao: Handing customers highlight videos before exit boosts sharing tenfold
“If you were able to hand them the video before they leave they have a tenx chance of just talking about it, sharing it going about it”
Steve Zhao: Sandbox VR convinced landlords to fully fund new buildouts
“We were able to convince landlord to fund our project entirely.”
Steve Zhao: 100% of Sandbox VR Chicago customers booked online
“We're able to open in our Chicago location. And during that time, we were in a mall that had zero foot traffic. But a hundred percent of our customer booked ahead online.”
Sandbox VR titles hit average US theatrical movie box office revenues
“We're starting to have experiences that are starting to hit box office numbers. Our titles are starting to hit, like, theatrical releases, the average US theatrical domestic box office release revenue.”
Steve Zhao: Sandbox VR players replay zombie game over 12 times
“There is a very small subgroup that would chase a high score, and we've seen people play our zombie experience over, like, 12 times just to get a certain outcome.”
Steve Zhao: Sandbox VR takes 12 months to develop a title
“So generally, it takes about 12 months to build a title. Internally, three months of pre-production nine months of production work, but we also work post-production to make sure things look goes according to plan or any changes that we make while it's live to …”
Steve Zhao: Wireless streaming transforms VR like sound transformed silent films
“I think an analogy that we would use is what sound is to silent films? It's what the wireless streaming is to our VR platform. Because once you add a sound, there's a genres that wasn't possible before that you can utilize now.”
Sandbox VR partnered with Netflix for a Squid Game VR experience
“And that is why we decided to partner with Netflix on Squid Game.”
Steve Zhao: Half of Sandbox VR's first title audience was female
“When we launched that, we were surprised that half the audience were female.”
Early New York Sandbox VR location forced 5 PM closure from screaming
“In the early days we worked with IMAX to bring a sandbox in the New York space. It was right next to the theater. And we found out that we had to shut our store by five PM. I was like, why? And they said, well, because people were screaming so loud that all th…”
Steve Zhao: Shared-space VR requires environmental tracking over headset tracking
“In a shared space, it needs to be tracked from the environment rather than from the headset, which is inside our technology, which is tracking, you know, from a single, like cameras within a headset.”
Sandbox VR built proprietary motion prediction algorithms and wireless data batching
“We're able to create this prediction algorithm, which actually allows people to be able to move and, Being VR, even if they're being blocked. So that was one component to it. And the other component was we're able to batch the data, how, how we send wirelessly…”
Sandbox VR is rebuilding its OS for third-party white-label development
“So one of the things we're doing is actually, we're creating, we're rebuilding our operating system so that it's white labeled, that other developers can actually build on top of our system.”
Steve Zhao: Sandbox VR will double down on deep immersion over accessibility
“For us, we're gonna double down on immersion. We're gonna make it as real as we can, and just do a lot of tricks in our bags, We haven't used yet.”
Steve Zhao: Out-of-home entertainment must be 10x better than at-home options
“And whatever you have that's out of home must be 10 X of what you can get at home. Otherwise, people will just do this at home.”
Steve Zhao: Sandbox VR guest TikTok clips reach up to 15M views
“Nowadays, people are splicing our videos and putting it on TikTok, and we're getting like, ten million views, fifteen million views, and it turns out that what we created was sort of an expression that they can use to, you know, to showcase themselves and the …”
Steve Zhao: Sandbox VR locations reach profitability within two months
“Every location that we open up in about within two months of operations are profitable. There are some locations that the profit margin is comparable to a software company.”
Steve Zhao: Sandbox VR scaled ticket pricing from $30 to $50-$60
“We started at 30 dollars, and then during the weekend, it was booked out two, three weeks in advance, so we try to, like, control the volume, and then we adjust it, and it kind of peaked around 38, 40 dollars, and then the pandemic happened, and then we made a…”