This is part of a series of broad explainers aimed at demystifying complex exponential technologies impacting the world and driving Fuel Venture Capital investment thesis and prospects.

Imagination and reality have never been as intermingled as they are today, thanks to the development of the immersive technology known as Extended Reality (XR), a segment that includes virtual reality (VR), augmented reality (AR), and mixed reality (MR). Let’s break down the differences among these.

Virtual reality (VR), the most widely known, constitutes of products that immerse users in a fully artificial digital environment created by computers. An example of this is Facebook’s Oculus Rift experience, Sony’s Project Morpheus and the Samsung Gear VR.

Augmented reality (AR) is more ingrained in our lives as it places virtual objects on top of a real environment. The popular mobile game Pokémon Go demonstrates augmented reality, with simulated Pokemon placed in a real-world landscape.

Mixed Reality (MR) brings together AR and VR, thus allowing users to interact with both physical and digital elements in real time. XR is an umbrella term covering all three realities (AR, VR, MR) and any future digital reality those technologies may bring.

The strongest demand for AR/VR has come from the creative industries, specifically gaming, live events, video entertainment, and retail. However, wider applications have gone well beyond consumer segments with a reach that extends across the enterprise world in industries as diverse as health care, manufacturing, the military and real estate. The MR market has also begun to demonstrate potential and will evolve in the years ahead.

Over the past years, the key factors driving the expansion of the digital reality market are the growth of the mobile app market together with the increased use of smartphones, the improved network connectivity, and the reduced average selling price along with improvements in hardware design. However, to reach mass adoption, it still requires significant improvement in user experience (such as bulky hardware, battery life, technical glitches), an increase in the number of content offerings, and faster mobile connectivity with 5G development. The market size of extended reality is expected to grow eightfold from $27 billion to more than $209 billion by 2022.

Tech giants such as Facebook, Microsoft, Google, and Apple are aggressively patenting tech related to AR and VR and making acquisitions in this space. However, annual venture investment in digital reality still looks modest compared to other spaces.

We believe that although AR/VR/XR are still in their infancy stages, they promise enormous potential. The technologies represent since the fourth major platform shift (after PC, web, and mobile) and will fundamentally alter how we interact with content. As a result, we are in the final stages of due diligence with a very exciting XR upstart based on the West Coast.

Stay tuned.

Jeremy On is a junior at Emory University, pursuing a degree in economics. He was part of Fuel Venture Capital’s Summer Intern Class of 2019. Follow Fuel Venture Capital on social media, via Instagram, Twitter and LinkedIn.