In the first days of 2017, Osterhout Design Group arrived at CES with a two-story booth and huge promises. The startup’s founder, Ralph Osterhout, wanted to take the small San Francisco-based company even further past its military contractor roots in AR, building out major enterprise and consumer businesses with flashy new product lines. The company had just raised $58 million, and the Las Vegas electronics show served as its launchpad for its R-8 and R-9 augmented reality glasses lines that Osterhout hoped would bring “glasses to the masses.”
Less than a year later, however, the company had burned through its funding and couldn’t pay employees. By early 2018, ODG had lost half of its workforce as it sought loans to pay back employees. Today, a skeleton crew awaits a patent sale less than a week away after acquisitions from several large tech companies, including Facebook and Magic Leap, fell through, multiple sources tell TechCrunch.
Ralph Osterhout, 73, founded ODG 20 years ago as a high-tech toy company, built after his previous venture, Machina, collapsed in what a Wired report at the time called “a spectacular bankruptcy.” After underwriting ODG with $14,000 of his own cash, Osterhout kept the startup plugging along on its own merits before he decided that it was time to reach for outside funding to turn his company into a powerhouse in the burgeoning augmented reality industry. At the end of 2016, the company raised a $58 million round led by 21st Century Fox.
ODG was already getting thousands of orders for its R-7 glasses, an enterprise-focused product that it billed as a head-worn Android tablet that could help workers go through checklists, review documents and share live video feeds hands-free. Osterhout wanted to get AR glasses into the hands of consumers and take advantage of new tech advances, even as Magic Leap was teasing the release of its own heavily hyped consumer product.
“I hope Magic Leap is a huge success. I want everyone in AR to be a huge success,” Osterhout said in an interview with TechCrunch in 2017. “[Augmented reality] is going to be transformative.”
Months later, a large Chinese firm approached ODG with an offer north of the company’s $258 million Series A valuation, a source tells TechCrunch. Talks fell through, but ODG’s leadership was at their most ambitious and felt like they couldn’t be stopped.
At the same time, following the CES 2017 product unveil, some employees wondered whether having three distinct product lines under development aimed at roughly the same customer was the right direction for the company with around 100 employees. Ralph Osterhout’s strong internal popularity kept these concerns at bay even as the company faced double-digit return rates from customers of its current-generation R-7 glasses due to manufacturing issues.
“That’s a little bit the story of ODG and Ralph, in general: everything is a prototype, nothing is finished, and before one thing is 60 percent done, you’re already onto the next one,” a former employee tells TechCrunch. “I think the heart of ODG’s downfall was its lack of focus.”