While large entertainment companies scramble to catch up to streaming content platforms, more fundamental upheaval is headed their way as a result of technological advances in artificial intelligence and 5G.
Former ProSiebenSat.1 executive Kevin Baxpehler (based in Tel Aviv) and former Google Ventures partner Eze Vidra (based in London) launched Remagine Ventures earlier this year with a $35 million fund that bridges the gap between technologists at the forefront of change and the largest owners of content.
Backed by a roster of multi-billion-dollar media companies in Europe, Asia and the U.S. as its limited partners, their firm operates independently (and focuses on financial return) but aims to provide strategic value to portfolio companies and insight into the future for its LPs. Vidra referred to it as “a multi-corporate Google Ventures type of model.”
The firm’s focus on entertainment technologies has a B2B bent, with a geographic focus on Israel as its primary hub and with most of its initial portfolio selling to enterprise media companies. That makes Remagine’s ability to guide entrepreneurs through the halls of traditional media giants highly relevant; it also means it can gauge whether traditional media companies are likely to buy a startup’s product before they invest.
I spoke with Baxpehler and Vidra to learn more about their playbook and why they believe a wave of entertainment tech companies is about to come out of Israel. Here’s the transcript of our conversation (edited for length and clarity):
Eric Peckham: Are there specific investment theses within entertainment that you are hunting for startups in?
Kevin Baxpehler: Our investment thesis is based on two main drivers: new advancements in so-called AI technologies — specifically deep-learning, computer-vision and NLP — coupled with new consumer trends such as esports, visual search, and engaging with computer-generated imagery (CGI) like Lil Miquela.
We believe that recent technological developments such as GANs (generative adversarial networks), coupled with new powerful computing power like new microprocessing chips and 5G, will change how brands, consumers, and stars/influencers will all interact. It creates tremendous opportunities to invest.
Eze Vidra: Remagine Ventures invests independently in seed and pre-seed startups at the intersection of entertainment, tech, data and commerce. Seed investing is particularly hard for corporates to do directly (because of a combination of reasons including speed, signaling risk and the challenges of deal flow for corporates) so we specialise at that stage by sourcing real time feedback from the market.
We are seeing industries and disciplines converge and find the intersections to be the most ripe areas of opportunity. For example, content + commerce, AI + entertainment, gaming + live stream tech giving us esports as a cultural phenomenon changing consumer behaviour.
Give me some examples of what startups at these intersection points will look like.
Vidra: The two core tenants of our thesis are 1) changing consumer behavior — for example, how esports is moving young viewers to engage with gaming — and 2) new technologies that make new forms of entertainment possible, primarily driven by AI.
Our portfolio company Syte is an image-recognition and computer-vision company that recognizes the products inside images and videos with a very high degree of accuracy. They are working with top retailers globally and Samsung selected them to power the Bixby assistant and is rolling them out globally. It’s been tried before, but the difference with Syte’s product is the level of accuracy.
We invested in HourOne, which is a synthetic video company using generative adversarial networks to generate video without the camera. It has multiple use cases, from reducing the cost of video production to programmatic video, to text-to-speech to gaming.
Another example is Vault, which uses deep learning to predict the success of scripted projects, whether it’s movies or TV shows down to the box office opening Rotten Tomatoes scores, the probability of there being a season two, the demographics that are most impacted, etc. So bringing a more data-driven approach to marketing films and shows.
Being vertically-focused means that we can attract relevant dealflow from both entrepreneurs and co-investors. As we evaluate startups, we look for interesting teams that are leveraging new technology (or taking an interesting consumer angle) that can scale and we focus on helping them open doors internationally.
To what extent is your interest focused on startups selling their technology to enterprise media companies versus startups building tools for the broader landscape of small content creators?
Baxpehler: Most Israeli companies are enterprise sales-oriented. That is a big part of the DNA here. That said, it is changing — our portfolio company Minute Media is a good example — and we are agnostic as to whether a startup is B2B or B2C. Often the companies are B2B2C.
Vidra: In entertainment, there’s a huge use case for automation because it’s very data-heavy and a lot of the processes are manual. These are large companies with large workforces that can be optimized. On the B2B side, we are looking at startups specifically targeting entertainment companies and also industry agnostic startups for whom we can provide a beach head into entertainment. Corporate media is cash-rich but future-poor. They are getting disrupted and need to reinvent themselves aggressively.
Explain your geographic focus here as partners split between two countries. How does that shape your deal sourcing?
Vidra: Our core focus is Israel, but we will also be investing throughout Europe. Since these countries are small markets, they expand internationally very quickly. Just from our small portfolio of six Israeli companies to date — one of them the CEO is based in London and the others have offices in London or in U.S. cities like New York, Los Angeles and San Francisco. We haven’t invested in a European-based company yet, but we’re looking and it will happen.
Baxpehler: Europe is also interesting because compared to Israel and the U.S. it is undercapitalized. We will be opening our London office and I expect we will be more active in Europe when Fund II comes around.
Eze, in TechCrunch’s article covering Remagine’s launch, you said entertainment startups are a “relatively new market in the Israeli ecosystem.” Why hasn’t Israel been a stronger hub for media and consumer startups in the past? And what’s the new opportunity you see for focusing your fund on Israel?
Vidra: Success breeds success. Historically, Israeli startups have achieved excellent results in Cybersecurity, semiconductors and so on. The acquisition of Waze by Google for $1.1 billion was a turning point. Israeli entrepreneurs (and VCs) not only saw it’s possible to grow a consumer startup in Israel, but also that it can be financially attractive.
There have since been numerous examples of successful Israeli startups in the entertainment and consumer sectors: Lemonade, Houzz, Moovit, Fiverr (recently went public), or Minute Media (which Remagine invested in).
Even so, the entertainment sector (gaming, esports, video, AR/VR, content, etc) is less covered than other sectors in Israeli tech, partly because it’s an amalgamation of several sectors (gaming, sports, video, consumer). We are working to better define entertainment tech by creating content and hosting events (we launched Israel’s first esports meetup for example) and we see an opportunity in leveraging Israel’s technical talent and applying their technical expertise (particularly AI technologies) into this exciting sector.
Within the scope of entertainment startups, how do you compare the deals you’re seeing in Israel versus in London? Do you see differences in the type of companies founders are building in each?
Eze: Both markets are great ecosystems for startups. Israel has been focused on tech for longer and certain units in Israeli Defense Forces (IDF) basically serve as a regular supply of high-quality talent that is very inclined towards entrepreneurship as a career choice. There’s a strong flow of AI/ML/computer vision startups. Less activity on the consumer side.
London has great caliber of talent coming from all over Europe and plenty of success stories in the consumer space. The London ecosystem is strong in fintech, health fashion and retail tech as well as adtech. There’s a solid pool of talent coming out of the top universities and corporates alike.
Israelis are great technologists but could get better at storytelling and business etiquette, and European entrepreneurs have attention to detail, but they should think internationally from day one and take more risks.
You mentioned synthetic media, which could become a major use case for AI in the content business — using GANS and other AI methods to artificially create visuals or audio that looks or sounds authentic. The term for this in a sinister context is “deepfakes.” How do you guys think about both the opportunities and the challenges here? There will inevitably be a wave of companies focused on detection of synthetic media from a defensive standpoint, no?
Baxpehler: Ethical guidelines are very important here and they are part of our discussion with potential investments. HourOne, for example, is committed to staying out of politics as a customer category. They’re not going to create campaign videos. Their use of synthetic media is fits a vision for how content will be personalized in the future.
Vidra: Video is predicted to account for 90% web traffic by 2025, if I’m not mistaken, so there is a huge need for production costs to go down. Especially when you think about ephemeral video that quickly becomes obsolete. So if you can generate video without shooting with cameras that’s impactful. We’re staying away from all fake stuff, like from platforms that are open for anyone to use this.
I imagine given Israel’s strength in cybersecurity, that it will be a hub for startups focused on the detection side here.
Baxpehler: Certainly. There are a couple already. We’ve looked at a few companies in the detection space and there’s some with a couple of really good ones here.
Having said that, the detection of fake defects and fake news is really a problem for social platforms more so than media companies. This poses a tremendously big problem for Facebook and Google and Twitter as open platforms. It’s going to huge their ad revenue if brands feel they are advertising next to sinister deepfakes. That’s why I think they will most likely be the ones who solve it.