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June 16, 2019
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Part fund, part accelerator, Contrary Capital invests in student entrepreneurs

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First Round Capital has both the Dorm Room Fund and the Graduate Fund. General Catalyst has Rough Draft Ventures. And Prototype Capital and a few other micro-funds focus on investing in student founders, but overall, there’s a shortage of capital set aside for entrepreneurs still making their way through school.

Contrary Capital, a soon-to-be San Francisco-based operation led by Eric Tarczynski, is raising $35 million to invest between $50,000 and $200,000 in students and recent college dropouts. The firm, which operates a summer accelerator program for its portfolio companies, closed on $2.2 million for its debut, proof-of-concept fund in 2018.

“We really care about the founders building a great company who don’t have the proverbial rich uncle,” Tarczynski, a former founder and startup employee, told TechCrunch. “We thought, ‘What if there was a fund that could democratize access to both world-class capital and mentorship, and really increase the probability of success for bright university-based founders wherever they are?’ “

Contrary launched in 2016 with backing from Tesla co-founder Martin Eberhard, Reddit co-founder Steve Huffman, SoFi co-founder Dan Macklin, Twitch co-founder Emmett Shear, founding Facebook engineer Jeff Rothschild and MuleSoft founder Ross Mason. The firm has more than 100 “venture partners,” or entrepreneurial students at dozens of college campuses that help fill Contrary’s pipeline of deals.

Contrary Capital celebrating its Demo Day event last year

Last year, Contrary kicked off its summer accelerator, tapping 10 university-started companies to complete a Y Combinator -style program that culminates with a small, GP-only demo day. Admittedly, the roughly $100,000 investment Contrary deploys to its companies wouldn’t get your average Silicon Valley startup very far, but for students based in college towns across the U.S., it’s a game-changing deal.

“It gives you a tremendous amount of time to figure things out,” Tarczynski said, noting his own experience building a company while still in school. “We are trying to push them. This is the first time in many cases that these people are working on their companies full-time. This is the first time they are going all in.”

Contrary invests a good amount of its capital in Berkeley, Stanford, Harvard and MIT students, but has made a concerted effort to provide capital to students at underrepresented universities, too. To date, the team has completed three investments in teams out of Stanford, two out of MIT, two out of University of California San Diego and one each at Berekely, BYU, University of Texas-Austin, University of Pennsylvania, Columbia University and University of California Santa Cruz.

“We wanted to have more come from the 40 to 50 schools across the U.S. that have comparable if not better tech curriculums but are underserviced,” Tarczynski explained. “The only difference between Stanford and these others universities is just the volume. The caliber is just as high.”

Contrary’s portfolio includes Memora Health, the provider of productivity software for clinics; Arc, which is building metal 3D-printing technologies to deliver rocket engines; and Deal Engine, a platform for facilitating corporate travel.

“We are one giant talent scout with all these different nodes across the country,” Tarczynski added. “I’ve spent every waking moment of my life the last eight years living and breathing university entrepreneurship … it’s pretty clear to me who is an exceptional university-based founder and who is just caught up in the hype.”

Twitch Prime adds its first non-gaming ‘loot’ with access to anime streaming service Crunchyroll

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Twitch Prime, the game streaming service’s version of Amazon Prime, has typically focused on offering subscribers free loot and other game-related perks since its debut a few years ago. Now, that’s changing. Twitch Prime is today rolling its first-ever non-gaming “loot” — a 30-day subscription to the anime streaming service Crunchyroll Premium.

Crunchyroll is a top destination for watching anime online, with over 45 million registered users and 2 million paying subscribers who usually pay $7.99 per month for its “Premium” tier. The service’s library includes over 1,000 series and 30,000 episodes. And the wider Crunchyroll brand includes things like mobile games, events, merchandise, and more.

The two companies, Twitch and Crunchyroll, already had a long-term relationship before today. For the past two years, Crunchyroll made the game streaming site the exclusive live streaming home to its annual Anime Awards show, for example, and it operates its own Twitch channel. This past year, Twitch also streamed an exclusive pre-show anime marathon where over 1.3 million online viewers watched a collective nearly 19 million minutes. The official Twitch stream of the Anime Awards show also reached nearly half a million unique viewers.

Given the clear interest from Twitch’s audience in anime, a partnership that could potentially convert some of those fans to paying subscribers makes sense for Crunchyroll.

Meanwhile, for Twitch, the move serves as a way to test expanding Twitch Prime offers to a new category — free trials of subscriptions. The larger subscription market is booming, with some saying how everything from transportation to entertainment to groceries will eventually become subscription-based. Helping those companies reach Twitch’s younger demographic — and specifically those who are already paying for a subscription with Twitch itself — could help a service boost sign-ups.

While most streaming subscriptions today offer a free trial to interested users, smaller players often still struggle with discovery amid a growing number of new entrants on the market ranging from live TV services to video-on-demand and soon, to big-name newcomers like Apple TV+ and Disney+, for example.

Twitch and Crunchyroll didn’t say what sort of revenue share would take place if Twitch Prime members chose to continue with a paid subscription when the free month wrapped.

“While we constantly focus on delighting Crunchyroll fans, we also feel it’s our responsibility to continue to proliferate the popularity of anime to new audiences,” said Eric Berman, head of partnerships at Crunchyroll, in a statement. “We pride ourselves on working with like-minded, fan-focused partners and are excited to offer all Twitch Prime members a free pass to Crunchyroll right in time for the huge spring anime season,” he added.

Where top VCs are investing in media, entertainment & gaming

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Most of the strategy discussions and news coverage in the media & entertainment industry is concerned with the unfolding corporate mega-mergers and the political implications of social media platforms.

These are important conversations, but they’re largely a story of twentieth-century media (and broader society) finally responding to the dominance Web 2.0 companies have achieved.

To entrepreneurs and VCs, the more pressing focus is on what the next generation of companies to transform entertainment will look like. Like other sectors, the underlying force is advances in artificial intelligence and computer power.

In this context, that results in a merging of gaming and linear storytelling into new interactive media. To highlight the opportunities here, I asked nine top VCs to share where they are putting their money.

Here are the media investment theses of: Cyan Banister (Founders Fund), Alex Taussig (Lightspeed), Matt Hartman (betaworks), Stephanie Zhan (Sequoia), Jordan Fudge (Sinai), Christian Dorffer (Sweet Capital), Charles Hudson (Precursor), MG Siegler (GV), and Eric Hippeau (Lerer Hippeau).

Cyan Banister, Partner at Founders Fund

In 2018 I was obsessed with the idea of how you can bring AI and entertainment together. Having made early investments in Brud, A.I. Foundation, Artie and Fable, it became clear that the missing piece behind most AR experiences was a lack of memory.

Douyu, China’s Twitch backed by Tencent, files for a $500M U.S. IPO

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Douyu, a Chinese live streaming service focused on video games, has filed with the U.S. Securities and Exchange Commission as it prepares to raise up to $500 million on the NYSE less than a year after its archrival floated on the same stock market.

Wuhan-based Douyu, whose name translates as “fighting fish”, is the second Twitch -like service backed by Tencent to go public in the United States. Its direct competitor Huya, who has a similarly fierce name “tiger’s teeth” and also counts Tencent as a major investor, raised $180 million from its NYSE listing last May.

It’s not surprising for Tencent to hedge its bets in esports streaming, given the giant relies heavily on video games to make money. For example, Tencent can use some of its portfolio companies’ ad slots to get the word out about its new releases. Indeed, Douyu’s filing shows it received a hefty 27.48 million yuan ($4.09 million) in advertising fees from Tencent last year.

As Douyu warns in its prospectus, its alliance with Tencent can be tenuous.

“Tencent may devote resources or attention to the other companies it has an interest in, including our direct or indirect competitors. As a result, we may not fully realize the benefits we expect from the strategic cooperation with Tencent. Failure to realize the intended benefits from the strategic cooperation with Tencent, or potential restrictions on our collaboration with other parties, could materially and adversely affect our business and results of operations.”

But there are nuances in the giant’s ties to China’s top two live streaming services that could mean more affinity between Tencent and Douyu. The social media and gaming behemoth is currently Douyu’s largest shareholder with a 40.1 percent stake owned through its wholly-owned subsidiary Nectarine. Over at Huya, Tencent is the second-largest stakeholder behind YY, the pioneer in China’s live streaming sector that had spun off Huya.

When it comes to the financial terms, the rivaling pair is in a head-on race. In 2018, Douyu doubled its net revenues to $531.5 million. Huya held an edge as it earned $678.3 million in the same period, also doubling the amount from a year ago.

Huya may have learned a few things about monetizing live streaming from 14-year-old YY as it managed to pull in more revenues despite owning a smaller user base. Douyu claimed 153.5 million monthly active users in the fourth quarter compared to 134.4 million in the year-earlier period. Huya clocked in 116.6 million MAUs in the fourth quarter, up from 86.7 million a year ago.

How the two make money also diverge slightly. In the fourth quarter, 86 percent of Douyu’s revenues originated from virtual items that users tipped to their favorite streaming hosts, with the remaining earnings derived from advertising and more. By contrast, Huya relied almost exclusively on live streaming gifts, which made up 95.3 percent of total revenues.

Screenshot of a Douyu live streaming session

As Douyu grows its coffers to spend on content as well as technologies following the impending IPO, competition in China’s live streaming landscape is set to heat up. Just earlier this month, Huya raised $327 million in a secondary offering to invest in content and R&D. Like many other businesses anchored in content, Huya and Douyu depend tremendously on quality creators to keep users loyal. Both have offered sizable checks to live streaming hosts, promising to grow the internet celebrities into bigger stars.

And they’ve extended the battlefield outside China as emerging media forms, most exemplified by short video services Douyin (TikTok’s China version) and Kuaishou, threaten to steal people’s eyeball time away. Both bite-size video apps now enjoy a much bigger user base than their live streaming counterparts.

“We intend to further explore overseas markets to expand our user base through both organic expansion and selective investments,” noted Douyu in its IPO filing.

In a similar move, Huya’s overseas expansion is also well underway. “In addition to our vigorous domestic growth, we have successfully leveraged our unique business model to enter new overseas markets. We believe we are delivering long-term value through strategic investments in overseas markets in 2019 and beyond,” said Huya chief executive Rongjie Dong in the company’s Q4 earnings report.

Twitch’s first game, the karaoke-style ‘Twitch Sings,’ launches to public

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Amazon-owned game-streaming site Twitch is today publicly launching its first game. But it’s not a traditional video game — like those the site’s creators stream for their fans. Instead, the new game is called “Twitch Sings” and is a free karaoke-style experience designed for live streaming.

The game, which was launched into beta last year, includes thousands of karaoke classics that players can sing either alone or in a duet with another person. In addition, streamers can choose to sing as themselves in a live camera feed, or they can create a personalized avatar that will appear in their place. (The songs are licensed from karaoke content providers, not the major labels.)

But unlike other karaoke-style apps — like TikTok or its clones — Twitch Sings is designed to be both live-streamed and interactive. That is, viewers are also a part of the experience as they can request songs, cheer with emotes to activate light shows and virtual ovations and send in “singing challenges” to the streamer during the performance. For example, they could challenge them to sing without the lyrics or “sing like a cat,” and other goofy stuff.

“Twitch Sings unites the fun and energy of being at a live show with the boundless creativity of streamers to make an amazing shared interactive performance,” said Joel Wade, executive producer of Twitch Sings, in a statement. “Many games are made better on Twitch, but we believe there is a huge opportunity for those that are designed with streaming and audience participation at their core.”

The game is designed to not only capitalize on Twitch’s live-streaming capabilities, but to also engage Twitch viewers who tune in to watch, but don’t stream themselves.

More notably, it’s a means of expanding Twitch beyond gaming. This is something Twitch has attempted to do for years — starting with the launch of a section on its site for creative content back in 2015. It has also in the past tried to cater to vloggers, and has partnered with various media companies in order to stream marathons of fan favorites — like Bob Ross’s painting series or Julia Child’s cooking show, for example. Its own studio has produced non-gaming shows like the one about sneakers. Last year, Twitch partnered with Disney Digital Network to bring some of its larger personalities over to Twitch, as well.

Those efforts haven’t really helped Twitch break out with the non-gamer crowd.

Karaoke may not do the trick either. In reality, this “game” is more of a test to see if Twitch can turn some of its platform features — like its chat system and custom interactive video overlays — into tools to help increase engagement among existing users and attract new ones. It still remains to be seen if and how the game actually takes off.

The game was unveiled today at TwitchCon Berlin, where the company announced it had added more than 127,000 Affiliates and 3,600 new Partners in Europe since the beginning of 2018.

The company also detailed a few other updates for Twitch creators, including those across payments, streaming and discovery tools.

Starting Monday, April 15, Twitch will pay out in just 15 days after the close of the month, instead of 45, eligible creators that reached the $100 threshold. In May, it will make the Bounty Board (paid sponsorship opps) available to Partners and Affiliates in Germany, France and the U.K., and will partner Borderlands 3, Tom Clancy’s The Division 2 and Unilever, in Europe.

In June, Twitch is also rolling out faster search, automated highlight reels (recaps) and the ability to sort through channels in a directory by a range of new options — including lowest to highest viewers, most recently started or suggested channels based on their viewing history.

TwitchCon Europe 2019 is streaming live this weekend at twitch.tv/twitch.

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