From Two Months of Runway to $80M: How Steven Zhao Proved VR Skeptics Wrong

When investors told Steven Zhao that his VR concept "might work in Asia, but probably not in the US," it didn't discourage him—it pissed him off.

That defiant moment would become the catalyst for one of the most dramatic business pivots in recent memory. Zhao's company, Sandbox VR, went from near-bankruptcy with just two months of runway to building a $80 million annual revenue business with 47 locations across multiple countries—all in just five years.

In this candid interview, Zhao reveals the brutal reality behind the glossy success story: **how he survived the "winter of VR," navigated Chapter 11 bankruptcy during COVID, lost 80% of his team, and still managed to emerge stronger than ever.** His journey offers raw insights into resilience, the power of contrarian thinking, and why sometimes the best business strategy is proving everyone wrong.

Steven Zhao: My name is Steven Zhao. I am the founder and CEO of Sandbox VR. So what we do is we provide a full body VR experiences for friends to play together in our retail spaces. So we create our own technology that enables that. We also create our own content and we both open our own locations and franchise them out. Today we have 47 locations, so we grew pretty quickly.

We have 8 pieces of original IP. We're also working with Netflix. So Squid Game is in Sandbox. Rebel Moon is gonna come out later this year. We hope to continue to partnership with them and other IP holders.

Steven Zhao: So I grew up in San Francisco as a child, I spent a lot of time pretty much alone just like do a lot of reading, sometimes playing games, and part of it is the immigrant stories. Both my parents immigrated here when I was a child and they work long nights, so I have a lot of time to myself just kind of doing my own things.

But luckily at a young age, my parents got a computer and then I really started to kind of figure out how to use that machine and one day my friend showed me a game creation software which I put into the computer and I started making games and it started becoming a hobby of mine. So since 12 years old, I've been building games.

Steven Zhao: So I studied in UCSD, University of California, San Diego in electrical engineering. After college, I moved to Hong Kong to build a gaming studio called Blue Tea Games, where we made PC and mobile games. We grew from 2 people to 40 people. It was pretty successful for a time and during that period, PC was pretty hot. People download the game on the computers, but the shift to mobile created like a brand new way of playing experience.

For me personally, I didn't adapt fast enough. I was late to the mobile space and because of that, when we transitioned to mobile, we didn't catch up and weren't able to create games that was able to be successful. So that was a pretty big learning for us is always look at what is trending in terms of technology and how do you build for that future.

Steven Zhao: So when you build a game, it's important to not build what is popular today. Because by the time you finish, you know, you'll be 9 months too late. What is going to be popular 1 or 2 years down the line? From my first startup at Blue Tea, we failed to do that and we weren't able to scale and it was around 2015, we saw that VR was becoming very hot. So we decided to say, hey, why don't we take our learning as a game developer and bring it to a whole new medium, double down on VR and we decided to do that with a brand new company. So that was essentially how Sandbox was formed.

Steven Zhao: So when we started the company, we were doing two things. Number one, we were building games on the VR consumer market. A part of us also took our learning back at Blue Tea, which was you always want to build for the future. What do people want 25, 10 years in the future? And we felt like the consumer VR headset itself wasn't enough. We want to be fully immersed. We want to be able to interact closely with friends.

And to us, like, you know, I grew up watching The Matrix. It's like, hey, do we have the technology to actually create the Matrix? And then we look back. It's like, hey, we do. So, we did a regular consumer game and we basically iterated on what the Matrix looked like.

Steven Zhao: Come the end of 2016, we launched a consumer game. It was like a top 10% best selling game, but the market just wasn't there. Like we weren't able to make enough revenue to keep the company going. So, at the end of 2016, like all our bet was putting into building this other project, which is basically, it's now Sandbox VR, location-based VR expense for a group of friends to play together, but for us, that was our pivot.

Steven Zhao: At that time, it was what we call the winter of VR. The Christmas sale didn't live up. People thought the hype of VR, us trying to raise in 2017 was essentially impossible. So we had just two months of runway left and then I really wanted to build, you know, this physical space in VR. None of the investors came in.

One of them, investors would ask us, well, you're just a team of six people. We didn't have a big team. So that was one big challenge we had. The second challenge we had was, you were not located in the US. There's a geography challenge, you know, our team is based in Hong Kong and it comes with a certain type of perception, but really like, you know, you're not in the dominant market. How do we know that this is something that can work in a different country?

Steven Zhao: So for us we have to build our technology, build our content and build our retail location. So there's not a lot of money to come around. We have to be very resource creative and you know, for us is how do we use technology to solve something that can be replaced by using a lot of hardware. So for instance, in order to do full body tracking, you need a lot of cameras, but each camera were very expensive, so we spent a lot of time figuring out how to use software to minimize the amount of cameras and this turns out to be a blessing because it was very important later down the road as we scale that every location will be as low cost as possible.

Another challenge we had was in terms of being resource constrained, we try to figure out how to, you know, get people to come to our location, you know, one of the hardest thing is marketing our business as a small company, you don't have a big marketing budget. So we had to be very creative. Like, how do we get people to come? So we decided that, hey, why don't we productize it? Why don't we make it so that we create a software, video that after you come and play, we'll give it to you. And this video is gonna be captured the most embarrassing and funny moment of you playing with your friends, and then you can easily share on social media. And when we created that, every customer that comes in, start putting it on social media and it generated an insane word of mouth.

Steven Zhao: So at that time, I took all the money I had and I put it into a sandbox, and then in 6 months' time, we built the technology infrastructure and we opened a really small shop in Hong Kong. And I remember vividly, there's a story where we try to hire a game producer and he asked, how can Sandbox beat Sony or Nintendo or any big VR players in the United States? And of course, coming from a Hong Kong company where we've never seen success in Hong Kong that scale, that was a very valid question.

And what I told him was, I always believed that in order to make a big change, you have to have a direction that's uniquely different. And for us, we believe that what we are building is something that no one else in the world is doing right now.

The moment we felt like we had a product market fit was during a test run before we even launched a product. My friends came and play and with inexperience, they were like screaming and yelling and so loud to the point that the neighbors came knocking on the door saying, hey, is everything all right? Like we didn't know the type of visceral reaction that customer would get, and we felt like that visual reaction is something that has never been done before. We're like, OK, there's probably something there.

Steven Zhao: So after we got in a product market fit in our one Hong Kong location, we got funded by Gobi, Alibaba, that allowed us to really build our location to really fine tune our unique economics, to restart franchising. And at that time, things were going well, but one of the biggest feedback that we've gotten is like, well, this works in Hong Kong, it could work in Asia, but this probably would not work in the US that kind of pissed me off.

So I thought, OK, you know what, we're gonna bring this to the US and we decided to open in San Mateo in the heart of Silicon Valley. We put the location there and people came and played. Many of the people there, if not all of them, it's like, wow, we never experienced anything like this before. And pretty soon, I remember, Mark Andreessen and Ben Horowitz, they came and tried it out. The partners did, and they're like, Yeah, this is really awesome. We're gonna bet on you. And that became my Series A.

Steven Zhao: The funding was able to allow us to really scale up the business and open about nine locations across the US and I remember we're sitting here in the San Francisco downtown location. This was at December 2019. We're like very excited, you know, this is our flagship store. We're able to share this with the world and of course we're ready for the next stage, which is get to Series B, but a couple months later, the whole world shut down.

Steven Zhao: Around March, April 2020 when the pandemic hit, all the stores that we had had to close right away. And we didn't know how long this was gonna last. I thought it was like it was like a funny joke. It's already really hard to run a startup and it's really hard to run a retail startup.

The first thing we did as a company, which unfortunately was we had to downsize, it was pretty dramatic. We lost about 80% of our team and you can imagine morale was like an all time low and the people that stayed like in the months following that, a good amount of them left as well. So it was really number one we had to do was keeping the team motivated, kind of having that vision of like, hey, we can survived COVID, what does this mean for Sandbox? What does this mean for us?

And it's just repeating that message and just kind of like being a cheerleader and be like, hey, we can fight through this, you know, this is one of the biggest tests for any of us. It's a tough story, something that you'll be proud about, even if you fail. And that's what we wanted to set was having that really strong story of the future.

Steven Zhao: And the last part is we had to go through Chapter 11 bankruptcy because as a retail business, we have a lot of leases and there's no way to get out of the leases at that time. So we had to go through Chapter 11 to get an emergency and work through with our landlord to figure out how do we survive out of this. That was just a lot of collaboration with people that we owe money to. We work with different lawyers across different groups, but during that period, we also took the opportunity to really fine tune our business, like to the minor, minor details, like how can we build the most economically strong retail that we can, you know, in terms of how we improve our technology, our operations, our content, so that when we do open back up again. Not only will we have a very strong, people will come back and drove, but we also have very strong profit margin because that's what we need to come out of this.

Steven Zhao: And around that same time in 2021 is kind of when the world started to open up again, especially for our stores in California, and the moment they did, people came back and drove. I remember there was an incident where the mall was completely empty, but 100% of the customers book it online. We had to wait for customers in the parking lot to guide them inside an empty mall to our store and we seen that across other locations and very soon the locations are filled up.

Customers are happy to have a place where they can share with their friends and family, and then we're able to take that traction to open more locations by working with landlords who can fund us by grabbing those traction, we're able to kind of paint, hey, this is how sandbox is gonna look in the next few years. And fortunately, we started fundraising again. They've seen our progress. They know everything that we've been through. It's like, OK, you guys survived the worst, future looks bright, we're gonna back you, and they did a Series B.

Steven Zhao: So after we got a Series B funny in 2021, we had about maybe 13 locations. Today we have 47 locations, so we grew pretty quickly. We see Sandbox VR as pretty much like the new movies. This is something where we believe that people will go out for. They will go with their friends and family and and colleagues instead of just watching it on the screen. You get to live in it, embody it. It's a very social experience that you really get to share, and it creates a lot of team bonding moments.

For us is how do we create a repertoire of amazing experiences, you know, on a regular cadence to get people to come back again and again and how do we continue to open up more locations so that we can have a sandbox in every neighborhood and our strategy for that is to continue to build up our franchising because the more locations we have, the more we can reinvest back into our technology into building better and bigger content to have more content which in turn will help create more demand and with more demand we can have more locations and go from there.

Steven Zhao: So the next big thing for Sandbox is two-prong is how do we build better content and that's just a very iterative process, but also just working with strong IP holders to bring their world in the Sandbox in a really organic way that works best for our platform.

What I see in 10 years is you have what you get at home, home consumer or that gets better over time. The headsets gets lighter, better quality experiences. That's something that you would likely just do, you know, multiplayer, and you can play on hours on end. And then for us out of location is in 10 years' time having thousands of locations, one in your neighborhood where you have a reason to go out and play with your friends.