“I think there’s a way out of this.” I confided to a close friend.
But who was I kidding? It was April 2020, the pandemic had made its way to the US. With a nationwide lockdown and all our retail locations mandated to close, our revenue plummeted by 100%. Sandbox VR was going to run out of money in a couple of months, while $10m of debt payments was set to trigger later that year.
And I had to turn this company around.
Fast forward 16 months, all of our locations have reopened and our revenue has soared to new heights. We just launched in Las Vegas and Shanghai, and for the first time in our company’s history we’re operating profitably. With our renewed momentum we went out to raise our Series B, led by a16z Growth, bringing $37m in new capital and a renewed optimism for our future.
But this story almost didn’t happen. This is the story of how Sandbox VR survived the global pandemic and came out the other side stronger than ever.
Our San Francisco flagship store, newly launched right before the pandemic
2020 began with optimism: to better position Sandbox VR for the future, I decided to step back ahead of our Series B and appointed my friend and our President Siqi Chen to the CEO role; new locations were launching every month; and we lined up a pipeline of great investors ahead of our Series B.
Although the news of COVID was already brewing, our team had been heads-down focused on fundraising. It didn’t take long before we knew things were going to get bad. Very bad.
First, our in-person investor meetings started getting cancelled. Since we showcased our experiences in physical retail locations, this put our Series B on indefinite hiatus. Soon after, all Sandbox VR locations were mandated to shut down and all our revenue disappeared overnight.
Siqi poured his heart out trying to secure funding to save Sandbox. But with the emerging pandemic, it was a near impossible job. We had a long talk and I decided to reassume the CEO position. Before COVID, I’ve already acclimated to a non-CEO role, but with the company hanging by a thread, I needed to assume full control again. The task of founding Sandbox VR was also a journey with impossible odds, and I felt that if I did it once, I could do it again.
Right away we cut costs to the bone. I made the decision to freeze all payments — rent, vendors, utilities, etc. And as expected, angry emails came pouring in.
To preserve the little cash we had left, we went through an incredibly difficult process of letting go 80% of our team, including people who’ve been with us since the beginning. The remaining team then took a drastic pay cut where some, including myself, took no pay at all.
An empty SFO, April 2020. Getting ready to fly back to Hong Kong to be with the team
Morale was at an all time low, but these actions brought us a few crucial weeks to figure out a plan to survive the pandemic. In the end, we worked backwards and distilled our plan to a few key things:
- Sandbox is a beloved product with strong economics, so as long as we can survive the worst of the pandemic, we should come roaring back.
- Survival requires extending our runway with new capital while minimizing debt.
- The stakeholders for these boil down to investors, lenders, and landlords.
The plan we proposed required simultaneous support from all stakeholders, and if any group was to fall through, it would be the end. With a detailed plan around franchise and operational growth in place, Alibaba, Andreessen Horowitz, and Craft stepped in to support us, along with other key investors. Next, we convinced our lenders to push back their debt schedule with the promise of new capital.
However, we were not able to convince our landlords, who’ve been dealing with the unprecedented upending of retail. It was clear we wouldn’t survive incurring rent while our locations remained closed, so we sought out advice from a few trusted people. In the end, we found that the only way out was to restructure our remaining debt through a Chapter 11 bankruptcy.
The remainder of the year was traumatizing for the team and myself: running a near death startup during the worst crisis possible while undergoing an emotionally taxing bankruptcy process, with the team barely getting paid at all. It’ll only take a few bad results to kill the company, so many times we had to fight hard and execute as best we could to get our desired outcomes.
Nonetheless, by June we managed to secure enough capital and runway to last at least six months, enough to execute on our plan, get out of bankruptcy, and hopefully weather out the pandemic.
The team all breathed a collective sigh of relief, but unbeknownst to us the worst was yet to come.
A slide in our June 2020 all-hands deck
Our plan was to build up a pipeline of franchise operators that would start scaling once the market recovered, but the economy had only gotten worse as COVID escalated globally, leading to travel restrictions, slowing down businesses and governments, which impaired our ability to close leads. Although our prospects loved our product, they were also uncertain about the future given COVID, and inevitably they began falling out one by one.
At the same time, the fluctuation of COVID cases meant most stores remained closed, and reopened stores were mandated to shut down again from local COVID spikes. Throughout 2020, revenue barely trickled in and our runway started to quickly dwindle to nothing.
During this same period, we established and executed towards a North Star — to relentlessly optimize store unit economics. We believed this deep focus would reverberate across the rest of the company and set a foundation for how we operate on the other side of the pandemic.
In the beginning, the tasks were obvious, such as cost cutting across the board. But over time, we challenged product and operational assumptions that resulted in deep process optimizations, development of impactful new platform features, remastering our experiences, and the cutting down of all possible waste and inefficiencies.
As the holidays rolled around, we scored our first big win — the courts fully granted our debt restructuring plan. It was a brutal six month process of convincing all landlords to support our plan while fending off an opposing counsel looking to tear it down. Yet, our victory was short lived as the winter months saw the worst COVID surge yet, resulting in closures across all of our retail locations. Any revenue that we hoped to earn during the holidays was completely gone, and the eventual realization became clear — with only months of runway left, we weren’t going to make it.
December was also a particularly dark time in my life with the loss of my grandma, who contracted COVID from an outbreak in her nursing home. She stayed in an isolated ICU while relatives set up Zooms to observe our final goodbyes. I continued to plan ahead while this year from hell came to a close.
As 2021 rolled around, with the promise of vaccines, we felt hopeful for a new normal — but Sandbox VR might not have the runway to see it. In a last ditch effort, I went out to raise an emergency note and secured a work-for-hire project for our team to buy us a couple more months.
It wasn’t until April of this year, one full year after the nationwide lockdown, that all of our locations were allowed to reopen again. The outcome of our North Star, the relentless pursuit of unit economics optimization, kicked us into high gear and reverberated across every function — marketing, content, product, and operations — and the results were spectacular.
It felt like everything we’ve prepped for led us to this moment
If what doesn’t kill you makes you stronger, we certainly felt like having one of the strongest companies in the world at this point.
Revenue started growing every week, and grew 20x over the ensuing months. Retail profit margins soared to new heights, with a couple stores achieving margins comparable to internet software companies. All this time we’ve still maintained a lean, highly efficient team.
Soon, landlords and operators saw the numbers and started betting on us, enabling us to launch new locations and build up a formidable expansion pipeline. Eventually, we hit operational profitability and went out and kickstarted our Series B.
Sandbox VR’s journey in one graph
I’d like to take this opportunity to thank Andrew, Ben, and Marc and the whole a16z partnership team for continuing to believe in us. We’re also indebted to Alibaba, Gobi, Craft, Quiet, and Duro for their unwavering support at the onset of the pandemic, and Sulmeyer Kupetz for guiding us through Chapter 11. And of course, none of this would have been possible without the immensely resilient Sandbox VR team.
There’s still much work to be done, but I couldn’t be more excited to help lead Sandbox VR in its hyperscaling phase:
- We’ll continue to build great experiences while fostering close partnerships with IP owners and content studios, as we transition to publishing.
- We’ll invest deeply in our technology, towards increasing holodeck fidelity and wireless development
- We’ll continue to scale Sandbox VR locations across the world, working closely with our landlords and franchise partners.
Our experiences will connect to interoperable online worlds, where our guests will one day be able to step into a Sandbox space and embody their persistent virtual avatars, becoming fully immersed in the worlds that they know and love, together with their friends and community.
In short, we’re building a future where Sandbox VR will become the Portal to the Metaverse.
If you enjoy this article and would like to be a part of our journey, please take a look at our careers opportunities