The road of AR is very difficult, but Xu Chi still wants to know what the destination looks like. | WAVES

Entering XREAL's office in Beijing, one can see several superhero figurines placed in the most prominent position, including Iron Man, Thor's Hammer, Thanos' Gauntlet, and so on. These are all Xu Chi's personal collections.
 

A sense of individual heroism runs through Xu Chi's entrepreneurial history and is prominently reflected in his latest product release.

On December 5, XREAL released a new AR glasses product and named it XREAL One, which is the world's first consumer-grade AR glasses that supports native 3DoF. In the AR industry, where there have been few technological changes in recent years, this is big news.

In 2017, Xu Chi left Magic Leap and returned to China to establish XREAL (formerly Nreal) to research, develop, and manufacture consumer-grade AR glasses. Up to now, XREAL has accumulated more than 300 million US dollars in financing. The investors include Alibaba, Kuaishou, NIO Capital, iQIYI, Sequoia, Gentle Monster, etc. According to the evaluation of industry analysis agencies, after completing the latest 60 million US dollars strategic financing round, XREAL's valuation has exceeded 1 billion US dollars.

But the other side of the story is not so smooth. The XR industry emerged in 2015 but has not yet experienced a large-scale explosion. This track is extremely competitive and bloody. Even industry leaders like Apple announced the discontinuation of Vision Pro just 16 months after its launch.

For many startups in various fields, developing their own chips and building their own factories are overly heavy strategies. However, for AR companies that are still in the early stages and have an incomplete supply chain, as long as they want to improve the user experience, this is something they have to do.

"Have you noticed that I don't simply enjoy the success of entrepreneurship? In other words, I'm not the kind of person who only cares about the result and will do anything as long as it succeeds. I can't randomly change directions today and switch to another track tomorrow; what I really want is the real achievement in AR." During the interview, Xu Chi suddenly summarized himself in this way.

And the release of this self-developed chip is like a benchmark for Xu Chi and the entire AR industry.

Xu Chi

"WAVES" is a new column of Hidden Undercurrents. Here, we will present you with the stories and spirits of a new generation of entrepreneurs and investors.
 

 

The Heavy Strategy of Startup Companies

In the past, the complaints about AR glasses were mainly focused on the technical level, such as excessive latency or overly severe screen jitter. In Xu Chi's view, these are the problems that the X1 chip is going to solve.
 

Xu Chi told "Hidden Undercurrents Waves": Thanks to the X1 spatial computing chip that they spent nearly three years developing, XREAL One can reduce the latency to 3 milliseconds. In contrast, Apple's Vision Pro is 12 milliseconds. Moreover, thanks to the X1 chip, native 3DoF spatial anchoring can finally be achieved, meaning that the screen is fixed in front of the user and does not move with the person.

A 3-millisecond latency is a great boon for gamers, and spatial anchoring is designed to enable more users to use AR glasses as a productivity tool, a stable extended screen.

The difficulty of developing a self-developed chip is self-evident, not to mention in the "extremely difficult track" of AR. But XREAL seems to have decided to make things difficult for itself from the very beginning. In the third year of its establishment, Xu Chi established his own display supply chain in Wuxi, which is also the world's first fully automatic AR optical production line.

As a startup company, why choose such a heavy strategy?

Probably people who do hardware have the same sense. Three years ago, when Xu Chi first met Li Bin, the conclusion after the other party tried the glasses was "You need to make chips." At that time, Xu Chi was preparing to invest the newly raised money in chip development.

Xu Chi told "Hidden Undercurrents Waves": 60% of the components of the XREAL One generation are customized by themselves, which is rare among startups. Because usually only an industry Alpha would do this. Most startups would choose to purchase from the supply chain, but the consequence is that the ceiling of the supply chain is your ceiling.

"This is like the difference between Apple and other mobile phone manufacturers. Only Apple's chips, display screens, and links are custom-made by themselves. This is the essential difference between the Alpha and the followers, and the user experience is completely defined by the industry Alpha."

The above is a rather idealistic statement. The other side of the story is that there are many giants in the AR industry. Meta and Apple are aggressive, and Google, ByteDance, and other domestic giants are also eyeing this market. For startups squeezed in this industry, outperforming the supply chain may be the only barrier. Because if the supply chain develops completely, companies like Huawei and Xiaomi can easily enter this track and take the best pipelines, leaving no room for small companies to survive.

At the beginning of his entrepreneurship, Xu Chi estimated that the AR industry would experience an explosion in 2020 - 2021. Now it seems that this is obviously too idealistic.

After experiencing more ups and downs in the industry, Xu Chi concluded that the XR is still in the first half. If compared to the development of smartphones, 2012 is the midpoint watershed. Before that, everyone was competing in hardware technology, and after that, everyone was competing in consumption and marketing capabilities.

Therefore, although time is the enemy of startups, Xu Chi still invests more funds in the direction of technology development with a longer return period and heavier assets.

 

"Those Without Ideals Won't Be Heartbroken"
 

"If you were to write about me, it would probably be about how an idealist struggles in the real world." At the end of the interview, Xu Chi made a summary of himself.
 

Xu Chi feels that his life was smooth sailing in the first 20 years. Because he is smart and hardworking, he could almost get anything he wanted. He was admitted to Chu Kochen Honors College at Zhejiang University and went to the University of Minnesota to pursue a Ph.D.

"Later, I entered a low point in my life, such as suddenly losing a lot. This made me realize that many things do not depend on your personal success or status."

This is true in life, and the same is true in work and career. On his first day at NVIDIA, Xu Chi was full of ambition to apply the CPU and GPU theoretical knowledge he learned during his studies to the future architecture of NVIDIA.

On the same day, his senior gave him such advice: Do practice questions and go to Google or Facebook, because many things have nothing to do with your ability. Going to the software industry can earn you more than 100,000 US dollars more than staying in the chip industry for a year.

Xu Chi was disappointed during his days at NVIDIA because everything he studied during his doctoral period and thought was valuable had already been verified at NVIDIA. As an engineer, the actual changes he could participate in were very limited.

Until Xu Chi went for an interview at Magic Leap. It is a very mysterious company. Before the interview, one needs to sign a confidentiality agreement. After five rounds of interviews, he was still at the company's front desk. The employee name tags read scientists, artists, or magicians, "but you can see that there is a fire in everyone's eyes."

The fire in everyone's eyes reminded Xu Chi of his "iPhone moment" in life. Xu Chi first saw Steve Jobs' iPhone launch on the second day after the live broadcast. In an era that had not yet entered the mobile Internet era, people still needed to download the launch video to watch, but this did not prevent him from being shocked by the technological and experiential innovation of the iPhone. Xu Chi's second decisive moment occurred at Magic Leap. When he tried their AR prototype product, he firmly believed that this was the next terminal to replace the mobile phone.

In 2017, Xu Chi resigned and returned to China to establish XREAL. At that time, the domestic XR industry was at its peak, and such enthusiasm has not been seen for many years since then.

It is worth mentioning the ending of Magic Leap. In July of this year, Magic Leap underwent a large-scale layoff and announced the cessation of independent research and development of head-mounted displays, drawing a conclusion to the story of this "star company degenerating into an AR fraudster".

Xu Chi later participated in a debate on "Why Magic Leap Failed" on Clubhouse. Everyone had different opinions, such as being too eager for quick success or being able to do from 0 to 1 but not from 1 to N.

"But if you ask me, it must be the fault of the CEO. All companies that make mistakes can be blamed on the CEO." Xu Chi said.

Xu Chi is a CEO with the functions of a CTO. And in his view, in all companies that are currently making disruptive product innovations, the top leader must understand the technical boundaries. This is the reason for the success of Steve Jobs in the past and Elon Musk today. In contrast, the failure of Apple's Vision Pro is "If Steve Jobs were still alive, this thing with 10 sensors would never have come out."

A classic superhero story probably needs to have these elements: talent, encountering a low point, persevering and standing up, and finally defeating the villain.

Xu Chi loves such stories, partly because he finds his own shadow in them. At least in the first half of the story.

 

It Takes Time

"Let me tell you a story." Xu Chi said.
 

"There are a group of people sharing how they went from the first floor to the fifth floor. Some say it's because they kept doing push-ups in the elevator; others say it's because they remained still in the elevator. But we all know that the elevator's ascent has nothing to do with them."

Unfortunately, the AR industry has never really managed to squeeze into that elevator. But the fortunate thing is also this: because this elevator is slowing down, it will become very difficult to squeeze in, and even some people will be thrown out. How to adapt to the change in the speed of the times has become a topic for a generation, and XREAL and the AR industry it is in have long been accustomed to the pain of walking and climbing the stairs.

"XREAL's strategy from the first day was to first complement the mobile phone and then gradually talk about substitution. So the first-generation product is a lightweight split type. XREAL has made many mistakes, but this is a crucial step we got right." Xu Chi told "Hidden Undercurrents Waves": "Since I started my business, I have realized that if you need to get every step right to be successful in starting a business, then you must have chosen the wrong track and time."

But what makes Xu Chi frustrated is that investors often value time more than he does. The most common question he hears from investors is: "In which year will this industry explode?" It seems that if the explosion is one year later, the funds should enter one year later.

At this time, Xu Chi often asks in return: "When Microsoft invested in OpenAI, did they ask this question? Because if the ChatGPT thing is so important, then is it really that important whether it is one year earlier or one year later?"

In Xu Chi's view, AR is an equally important thing. Just like Kevin Kelly predicted, in the future, everyone will have an AR device. He even uses Plato's Cave Allegory: The devices we currently use are 2D planar, just like people who have been facing the wall all their lives, only to turn around and find that the real world they are in is three-dimensional. "It is unreasonable to compress the information world into a small box. I think the upgrade of interaction, display, and computing is inevitable." Xu Chi said.

During the interview, Xu Chi mentioned "it takes time" many times, but this is not only limited to evaluating his own career but also applies to a broader context and group.

Xu Chi recalled the point when he returned to China. China was experiencing the golden decade of the mobile Internet, and the Copy to China model was highly successful. For venture capitalists who have reaped the benefits, this has become a path dependence for a long time. But unfortunately, this dependence is losing its effectiveness.

Xu Chi has also met many people who have achieved great success, but in the end of the debate, he found that the success they are most proud of is ultimately due to luck. Luck is indeed part of strength, but one cannot always use the logic of luck to enter the crossroads.

This year is the seventh year since XREAL was established. Many companies that were once compared by investors at the beginning of their entrepreneurship have gradually disappeared. Just like a moving bus, some people get on and off, and some people go all the way from the starting point to the destination. Xu Chi wants to know what the destination looks like, but he also clearly understands that this does not depend on his personal success or status. Just like the release of this X1 spatial chip, no one can look back after the New Year and determine whether this will be a disruptive change or just a splash in the bottomless waterway of AR.

But perhaps this will eventually become less important to Xu Chi. "I now hope that when I reach the destination, I will see that this is a very big track. If it's not, I'll accept it, and then we can just enjoy the process." Xu Chi said.