Spotter raises $200M to invest $1B in YouTubers back catalogs – TechCrunch

Startups

How do YouTubers earn their living? Usually through a combination of merchandising, membership programs or maybe even a custom product. But YouTube ad revenue is a significant part of the pie chart.

A YouTuber’s back catalog becomes a financial asset – every month they know they will get a payoff due to the increasing engagement with their past content. Now, Los Angeles-based startup Spotter wants to help creators scale their channels faster by offering them large sums of cash up front in exchange for the future ad revenue from their existing uploads.

Since its launch in 2019, some of YouTube’s biggest creators, such as MrBeast and Like Nastya, have made deals with Spotter. The company says Spotter has licensed its customer base—which also includes Dude Perfect, Aphmau, Smokin’ & Grillin’ with AB and others—to content that generates more than 40 billion views per month.

Today, the company announced that it has raised an additional $200 million in Series D funding from SoftBank Vision Fund 2, valuing the startup at $1.7 billion. Before that, Spotter raised $555 million in three undisclosed funding rounds. Funders in these three rounds include Access Industries, HighPost Capital, CoVenture, GPS Partners and Crossbeam Venture Partners.

Spotter’s business model is a contemporary interpretation of the ‘Bowie Bond’, which is becoming increasingly popular among startups with a creative economy. It’s no different from venture capital investment: you give a promising company (or person) the money they need to grow, assuming you eventually recoup your investment and make a significant profit. Jellysmack, another creator-focused startup funded by Softbank Vision Fund 2, also just set aside $500 million for back catalog licensing on YouTube. Jellysmack’s back catalog license expires after five years, the same length as Spotter’s contracts, and uses an algorithm to determine whether or not to invest in a maker.

Spotter claims to be on track to have a cumulative total of $1 billion invested in creators by mid-2023, four years after the company was founded. In 2022 alone, COO Nic Paul told TechCrunch that Spotter plans to spend $500 million to license creators’ back catalogs. So far, Spotter has closed about 200 such deals – some creators, such as MrBeast, the top YouTube creator in the US, have made multiple deals with Spotter over the years.

“Creators have signed second and third deals with us, so it’s not a one-off,” said Aaron DeBevoise, Founder and CEO of Spotter. “Six months later they have [do another deal] because they see the success of reinvesting in themselves.”

According to Spotter, MrBeast used his cash to fund a Spanish-language channel, where his viral videos are dubbed to reach a Spanish-speaking audience. Spotter said that since they started working with MrBeast a few years ago, he has grown his viewership by more than 300%, which equates to 1.35 billion monthly views across all of his channels.

If a creator wants to work with Spotter, the company analyzes their channel’s stats to make an offer for their back catalog. DeBevoise said engagement metrics are most important to Spotter, including how much time viewers spend watching a creator’s content and what percentage of a video viewers actually watch before dropping out. Spotter also takes into account metrics that the YouTube algorithm directly rewards, such as the number of likes, shares, and comments. Another consideration is the type of content. Spotter will not invest in YouTubers who make videos about news and politics, for example.

Once a creator makes a deal with Spotter, the company will use that analytics to advise them on how to grow their channel. This also benefits Spotter, as increased traffic on a creator’s channel can lead to more ad revenue from the back catalog the company has licensed – even better, the creator may want to license even more of their content to Spotter, which may outperform their previous uploads.

“So that could be, ‘Hey, let’s focus on what your video retention rate is,’ right? And if you improved the retention rate, what would that mean for the value of those videos and the amount of money you deserves?” DeBevoise told TechCrunch. “So it’s critical that we help them build the business and reinvest the capital.”

The average deal size from Spotter is about $1.5 million, but some smaller channel deals can be as low as $15,000. These payouts are not loans – Spotter offers cash upfront, which the creators don’t have to pay back. But in exchange for this quick capital, creators must be willing to license their content to Spotter for five years. While Spotter won’t take any copyright or intellectual property — that would be a huge red flag for creators — the company is buying ownership of all future ad revenue the videos generate.

“Our target return, in terms of getting the money back, is about four years,” DeBevoise said.

Spotter customers are thus presented with a challenging business question: do you want to earn about four years in ad revenue up front, but never see a dime of those videos again, or do you prefer to bet on earning more money over a longer period of time? time, but sacrifice some growth potential?

The answer to that question differs from maker to maker. MrBeast needs exorbitant amounts of money to make his stunt videos, often giving away six figures in cash, so this upfront capital helps him produce content faster as he doesn’t have to wait for his old videos to generate enough advertising money. But not every YouTuber has a business like MrBeast’s. While cash advances can help any creator quickly expand their resources and grow their channel, it’s hard to bet on whether it’s better to grow your business more slowly while preserving all of your future ad revenue.

Before founding Spotter, DeBevoise was an executive at Machinima, where he worked between 2006 and 2014, according to LinkedIn. Once a potent player among YouTube gamers, Machinima shut down in 2019, deleting more than a decade of content on his channel, which hosted thousands of videos. Machinima operated as a multi-channel network, meaning creators would partner with the channel in exchange for the fame of their network. Several former Machinima creators claim that their contracts often had unclear end dates, leaving young, naive YouTubers locked into long-term agreements.

“The outcome of Machinima’s closure further showed me the importance of providing creators with the resources and capital necessary to grow and remain independent at all stages of the creators’ journey,” DeBevoise said. “I saw firsthand how makers with enough capital could transform from creating as a hobby to creating full-time and that got me excited to accelerate that movement even further. I also learned how important it is for creators to remain independent, both in their creative process and in the transformation to an enterprise level.”

In a recent conversation about the creative economy in general, attorney Quinn Heraty told TechCrunch, “What a lot of these young creators don’t realize at the beginning is that when you get a contract, that contract is 100% written for the benefit of the company that gives it to you, and not to your benefit.”

DeBevoise’s new venture Spotter advertises itself as a company that “prefers people over profit” acting with the interests of its partners in mind. But as more venture capitalists and venture-backed startups invest in the creative economy, it’s always a good idea for creators to make sure they understand what they’re getting into when closing a deal.

Currently, Spotter only deals with creators it deems big enough to grow with their capital infusion – right now they want potential partners to get about a million views per month.

“I don’t think we would ever make a deal that wouldn’t benefit everyone,” DeBevoise said.

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