Caffeine, a Redwood City-based social broadcasting startup that has partnered with Drake and the Ultimate Rap League (URL), raised $113 million in Series D funding earlier this month.
The ad-free livestreaming platform hosts free events that are attended by tens of thousands of viewers, who are encouraged to make comments in real time and purchase virtual props, like popcorn, and the profits are split between Caffeine and the livestreamer.
VCs at Andreessen Horowitz think that Caffeine can tap into new revenue streams that have monetization models that are superior to those that depend on ads, subscriptions, donations, and partnerships.
Last weekend, Business Insider attended NOME X, the most important battle rap event of the year, to see what it's like to get the inside scoop on Caffeine's platform.
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The 2002 film 8 Mile, which was loosely based on rapper Eminem's life, made millions of people familiar with battle rap, a form of rapping where rappers level insults at their competition and boast about their own successes. Eminem, who started his multimillion-dollar career as a battle rapper, placed second in the 1997 Rap Olympics, which is how rapper Dr. Dre and Interscope Records CEO Jimmy Iovine discovered his now famous EP, Slim Shady.
Now, Silicon Valley is taking a shot at making battle rap mainstream, using livestreaming technology to push the bellicose bars directly onto people's phone and computer screens.
And with much of the world stuck at home waiting out the coronavirus, VCs are betting the time for dueling MCs has never been better.
Caffeine, a Redwood City-based social broadcasting startup that has scored a collaboration with Canadian rapper Drake and the Ultimate Rap League (URL), raised $113 million in Series D funding this month to help give battle rap an audience of more than 2 million viewers.
While Caffeine offers programming in entertainment, gaming, and sports, including ESPN and college sports, the platform's "anchor content is rap," Ben Keighran, a former Apple employee who cofounded the startup in 2016, recently told Bloomberg.
Caffeine, which officially launched in September 2019, was first backed by Silicon Valley VC firms Andreessen Horowitz and Greylock Partners, who also participated in the startup's latest funding round. Andreessen Horowitz was also an early backer of Genius (first launched as Rap Genius), the Hip-Hop-focused startup that saw the resignation of its disgraced co-founder Mahbod Moghadam in 2014, after he published and annotated excerpts from a mass murderer's 141-page manifesto on the startup's website.
On the heels of its partnership with Drake and the URL, which became official in February 2020, Caffeine received another influx of cash in June from big players in the media industry, Fox Corp and Cox Enterprises, Inc., as well as Sanabil investments, a Saudi Arabia-based investment firm.
The coronavirus pandemic, which has led to the cancellation of live music events, including high profile music festivals like Coachella, has only increased the demand for live streamed entertainment, and it seems that investors have noticed.
Live streaming, which saw its origins with professional and amateur gamers, has also become a way for musicians, athletes, and lifestyle influencers to make money. Platforms like Twitch, YouTube live, Instagram, and Caffeine have allowed a new generation of personalities—from make-up artists to battle rappers—to find a fresh audience, all while making some cash.
Now more than ever, it seems that VCs are also thinking about the different strategies that startups can use to generate profits from live streams.
The lag time is less than 190 milliseconds
Jonathan Lai and Andrew Chen, both Andreessen Horowitz partners, said in a blog post that platforms like Caffeine, which host live entertainment and programs that are in-tune with the moment's pop culture, are "the future of live video entertainment."
What makes Caffeine so special is that the platform can "drive both rabid engagement and instant monetization," Lai and Chen said. Unlike most live streaming platforms, which can lag for up to 1 minute or more, Caffeine's live streams are much faster, streaming at an unprecedented speed of "sub-190-milliseconds"—think quicker than FaceTime, but with the potential to host an event for hundreds of thousands of viewers, who are free to make comments and purchase digital props in real time. Caffeine's live streams are much faster than Twitch's, which can lag for up to 30 seconds.
To get an inside look at why Caffeine has attracted the attention of so many investors, Business Insider attended NOME X, URL's biggest battle rap event of the year, which was hosted on the livestreaming platform this weekend.
In the first round of the day, battle rappers Jey the Nitewing and Fonz took the virtual live streaming stage and rapped about topics that resonated with our current moment: social distancing, Game of Thrones Season 8, and Lebron James leaving the Cleveland Cavaliers.
Audience members, identifiable by their usernames and photographs, can be seen commenting on the battle and purchasing virtual props such as popcorn, which viewers can give to their favorite rapper in real time to show their support.
Currently, Caffeine makes money when viewers purchase virtual props, which resemble emojis. Performers receive a cut of the sale as well, though the specific portion of sales rapper receive is unclear. Caffeine viewers spend, on average, $78 on digital props every 3 months.
By allowing users to make comments and purchase props in real time, "Caffeine connects entertainers with world-class technology so that they can create content that is authentic and connects culture and community," said Caffeine CEO Ben Keighran, per Reuters. And every week, tens of thousands of viewers are tuning in to live battles.
American Idol popularized the idea of calling in to vote for your favorite contestant in real time on broadcast television, which helped lead the show to its unprecedented success. Now, Caffeine allows audience members to see others' reactions even before the winner is declared, creating a sense of virtual camaraderie among live stream attendees.
And as soon as Fonz was declared the winner of the battle last weekend, viewers were able to react to the news as well as see what others had to say about the decision, including jokes about how much of the $25,000 prize Fonz will take home after taxes.
Like many venture-backed startups, Caffeine is not profitable, but revenues are on the rise, according to Bloomberg. There are not currently any ads on Caffeine, and the content is free to watch for viewers.
VCs are betting that Caffeine will keep finding innovative ways to monetize viewer engagement as people stuck at home during lockdowns look for new forms of real-time, online entertainment.
Twitch's Just Chatting category, which, like Caffeine, includes live streams where streamers are able to talk to their viewers, "has grown nearly four times as quickly as Twitch overall," according to Lai and Chen, per their blog post. And with growth comes new opportunities for generating revenue. Caffeine does not disclose its number of active users, but it says that 2 million new users registered to use the service in the past year.
In general, professional live streamers become popular because of their personalities and their ability to engage with an audience, including loyal fans, and battle rappers especially benefit from boasting about themselves and airing out their competitions' dirty laundry.
"Lifestyle streamers are often intimately acquainted with their followers," Lai and Chen said in their blog post, "so much so, that many greet returning fans by name and take suggestions for their daily agenda."
The question now is whether the cult of the live streaming personality will be powerful enough to generate profits from viewers' direct engagement.
And whether Caffeine, just like Eminem, might soon find its way from battle rap to millions in profit. SEE ALSO: The big winner of Uber's $2.65 billion Postmates acquisition is Spark Capital, a small VC firm that's enjoying a streak of hits in a gloomy 2020.
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