Actuality Systems was founded in 1997 to develop and commercialize 3D display technology. It raised $15 million total in venture funding and had 20 customers and $1 million in government grants at its peak. However, the company struggled to find a large sustainable market and laid off its remaining employees in 2009. Its patents were acquired by Optics for Hire in late 2009. One of the patents was eventually sold in 2011, providing an exit for the founders.

1. Case Study:
Actuality Systems
6.14.19With Gregg Favalora

2. Confidential & Proprietary @underscorevc
Gregg
Favalora:
Principal,
Optics for
Hire
Founder of Actuality Systems
@gfavalora

3. Confidential & Proprietary @underscorevc
Building and
Commercializing
3-D Display
Products:
Startups are Hard
April 2013
Gregg Favalora
Principal, Optics for Hire
Founder, Actuality Systems (1997-
2009)
gregg@opticsforhire.com

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Actuality
Systems,
Inc.
● Founded 1997
● At its peak, 23 employees
● Laid everyone off: Friday, Apr. 24, 2009
● Product: Perspecta Spatial 3D System
○ Developer tools, Perspecta medical, Perspecta
Viewer
● Target Markets: Medical Imaging, Military, and
Entertainment
● First product released on less than $2M
● Total Raised: $15M
● 20 customers, $1M in government grants
● 19 patents - strongest 3D Portfolio in the sector
● Assets acquired by Optics for Hire: December, 2009
● Real exit: 2011 patent sale

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Actuality Systems
Actuality
Medical
Acquisition
by OFH
Patents
sold to “X”
1997 2004 2009 2011
Series A
$1.5M
Note
$0.8M
Series B
$3M
Series C
$6.5M
Note
$2.5M

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Case Study:
Actuality
Systems
(Basic)
● Setting the Scene: 1997
○ Market Need
○ Technology: Spacial 3D
○ Company: Initial fight for $$$
● Three Lessons Learned for Startups
● Getting your foot in the door with
prospects
● Four challenges at Actuality and
how we overcame them
● Things we were glad we did a lot of
● Things we wish we had done
differently
● Regarding optics, imaging
● The 3D industry

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● Setting the Scene: 1997
○ Market Need
○ Technology: Spacial 3D
○ Company: Initial fight for $$$
● Three Lessons Learned for Startups
● Getting your foot in the door with
prospects
● Four challenges at Actuality and
how we overcame them
● Things we were glad we did a lot of
● Things we wish we had done
differently
● Regarding optics, imaging
● The 3D industry
Case Study:
Actuality
Systems
(Basic)

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The First Few Years:
Harder Than You’d Ever Think
What to expect when starting up

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Actuality Systems
Actuality
Medical
Acquisition
by OFH
Patents
sold to “X”
1997 2004 2009 2011
Series A
$1.5M
Note
$0.8M
Series B
$3M
Series C
$6.5M
Note
$2.5M

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I Started
Working
in 3D in
1988

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T -3 Years
Before
Funding:
1996 -
Prototype

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1997 -
Met
Chairman,
entered
Bplan
comp.

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In 1997, people actually said “cyber-”

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1998
and
1999

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1999:
Met key
journalist
at MIT

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Getting
Your
Ducks in
a Row for
Funding
● Get an amazing mentor who made VCs richer
● Have a clue about your market!!
● Read Crossing the Chasm so that you know all the elements of a product
● IP
○ Have and use an NDA to avoid messing up your patent rights
○ File several provisional applications (See: Patent it Yourself,
Pressman)
○ Do a decent prior-art search
○ After funding, when you’re filing patent applications, remember:
attorneys will agree to cap their fees!
● References: talk to warm-blooded customers who like you, and get money
or purchase orders from them. And ask them to be references to investors.
● Plan for future expenses: get quotes on key components and processes
● Founders work for free to make prototypes, and sell whatever you can
● Don’t pitch any investors until you’ve practiced your pitch on “friendly fire”
● “Consultants” - Don’t rack up $$ in payables -- investors won’t want to pay it,
and you’re probably not getting anything in return anyway.

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Build it,
baby!
2000-2004
Actually, a ton
of fun!
● 6 full-time employees
● Tiny office in Reading (128)
● Engineering
● Ship betas and product
● Rounds of funding
● Winning awards, getting grants
and customers
● Bringing in seasoned executive
team
● ...a whole new set of challenges
and excitement!

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How do we do this?
Technical Interlude

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Under the
Hood
(ca. 2001)

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12-Year
Fishing
Expedition

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12-Year
Fishing
Expedition
● For many years, a few employees and I searched “wide and
deep” for a market that would sustain Actuality, while we
improved the core 3D product. This felt backwards.
● Every one of these markets seemed like a good fit, but
ultimately, none felt the $100k ASP provided good ROI:
○ Virtual prototyping
○ Molecular visualization
○ C4I/battlefield visualization
○ Air traffic control
○ Diagnostic medical imaging (PET, orthopedics, cardiac)
○ Interventional medical imaging
○ Radiation therapy
○ 3D luggage scanning
○ Video games
○ Petroleum

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Traditional
Radiation
Therapy
Pinnacle3 (Philips Medical Systems)

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Beam
Planning

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PerspectaRAD

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We won technical
awards, but
markets and larger
investments weren’t
materializing.

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Actuality’s
Financing
Rounds
1999-2008

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Acquisition
● 2004: CEO transitioned out. I was asked to be CEO during the search
● 2005: Frankly, a very difficult year for me -- large team, 70% travel, etc.
● 2006-2009: Pivot: new CEO stops 3D displays, contemplates merger, and
starts work on software for prostate cancer treatment
● Mar. 2009: The financial market tanks. CEO exits to help reduce burn
● Apr. 2009: I lay off remaining staff
● 2009: Not a good year for selling IP!
● Dec. 2009: A flurry of patent attorneys
● Dec. 31, 2009: Formal decision for OFH to acquire Actuality Systems
● Jan. 2010: Acquisition

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While
working
at OFH
Summary: I got a job at product-engineering firm OFH.
We approached 150 prospects to buy the ex-Actuality
patent portfolio. One deal came close to completion,
and collapsed a few months later. About 6 months
after that, a buyer was identified. We were all quite
happy about this exit.

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Happy
Ending:
2011

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● Setting the Scene: 1997
○ Market Need
○ Technology: Spacial 3D
○ Company: Initial fight for $$$
● Three Lessons Learned for Startups
● Getting your foot in the door with
prospects
● Four challenges at Actuality and
how we overcame them
● Things we were glad we did a lot of
● Things we wish we had done
differently
● Regarding optics, imaging
● The 3D industry
Case Study:
Actuality
Systems
(Basic)

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3 General
Lessons
for
Hardware
Startups
In my opinion:
● “Technology looking for a market” is very hard
● It is very difficult to raise money for hardware plays.
Best bets are savings*, SBIR, and angels. The exception
is if your CEO already made money for VCs. Convince
your accounts to become paying customers.
● And…
*Be prudent about this. Do not risk your family’s savings!

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● Setting the Scene: 1997
○ Market Need
○ Technology: Spacial 3D
○ Company: Initial fight for $$$
● Three Lessons Learned for Startups
● Getting your foot in the door with
prospects
● Four challenges at Actuality and
how we overcame them
● Things we were glad we did a lot of
● Things we wish we had done
differently
● Regarding optics, imaging
● The 3D industry
Case Study:
Actuality
Systems
(Basic)

39. Confidential & Proprietary @underscorevc
Sales for
Dummies
● One-paragraph, iPhone friendly email intro, “I’m a student…”
● Explicitly respect people’s time
● In demos, “you,” not “I”:
○ NO: “With our feature-rich software, I can click here…”
○ YES: “You can learn about your customers with ClientSort
2.0…”
● Use less techno-jargon
● The two best words are “for example”
● Smile, use first names, talk about happy things
● Email their PR people
● Email one of their VCs
● Try to Shopify it -- sell prototypes (FCC/UL though)
● Don’t use gimmicks! E.g., don’t use Re: unless it really is
● Go to the account’s office and show up day after day, because
that’s not creepy or anything, but I hear it works
● On landing SBIRs

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● Setting the Scene: 1997
○ Market Need
○ Technology: Spacial 3D
○ Company: Initial fight for $$$
● Three Lessons Learned for Startups
● Getting your foot in the door with
prospects
● Four challenges at Actuality and
how we overcame them
● Things we were glad we did a lot of
● Things we wish we had done
differently
● Regarding optics, imaging
● The 3D industry
Case Study:
Actuality
Systems
(Basic)

41. Confidential & Proprietary @underscorevc
Advice
for
optics,
imaging
● Takes a lot of money and time for prototyping
● Our best computer graphics people were
mathematicians
● ITAR/DFARs/customs
● Investor contracts are (for better or for worse) not
etched in stone. Later-stage investors often require
amendments to early-stage investment contracts, e.g.,
“Hey, you can have 100% of a $0 company, or 2% of a
potentially $100M company, take your pick.”
● Government money and audits
● The creative process
● Components are not solutions

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Try to sell
systems
instead of
components !=

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What
Went
Right
● Went for it! Low-risk at first
● Extraordinary luck at hiring engineering team
● Incredible IP portfolio - so good, we sold it twice!
● Broke four world records in display technology
● In early years, publicity from CNN to Wired
● Numerous Product of the Year awards
● Supported 23 people and their families for over a
decade
● Acquired and now happily working for acquiring
company

44. @underscorevcConfidential & Proprietary
Contact me
anytime
Gregg Favalora, Principal
Optics for Hire
Arlington, MA
gregg@opticsforhire.com

45. Case Study:
Actuality Systems
6.14.19With Gregg Favalora