Technology

Local newspapers may be shuttering and people may be consuming most news on social media, but don&t tell Alex Mather that a subscription news publication can&t grow like a unicorn startup. His 2-year-old sports publisher The Athletichas gained over 100,000 paid subscribers (60 percent under age 34) and has a 90 percent retention rate.

Having already raised $30 million in its short life, the company announced a new $40 million Series C yesterday, led by Founders Fund and Bedrock Capital. It reportedly values The Athletic around $200 million.

I interviewed Alex Mather (The Athletic CEO) and Eric Stomberg (partner at Bedrock Capital) to understand whatbehind the breakout success, and why they think this publishing startup can scale to become a multi-billion dollar company.

EP: Bedrock makes concentrated, contrarian bets. Explain how The Athletic fits that.

ES: I first met Alex and Adam in 2016 during Y Combinator. The popular view then, as it remains now, was that people just aren&t willing to pay for content online and that to win in media you have to put out a high volume of free articles on social.

The Athletic took the opposite approach. Ita narrative violation. Everything is part of a paid subscription, with the belief that instead of writers needing to post 3-4 pieces per day, they should focus on deeper stories that add value to paid subscribers over time. That worldview resonated with us. If you can create content at scale that people are willing to pay for, thata powerful economic engine.

Thereso much sports coverage already out there, by professionals and amateurs alike, so why are people willing to pay for The Athletic

AM: While there appears to be an abundance of content, most of it is aggregated, shallow content for abroad audience. We produce fewer stories and target a diehard fan. Our subscribers consistently tell us that no one else produces the same depth on a daily basis.

How did you determine the $60/year price point

AM: We think of $60/year ($5/month) as less than the average NBA ticket. Ita meaningful price but not prohibitive, especially when we do discounts in the first year. Like all subscription companies, whether we like it or not, we have to consider how our pricing stacks up against Netflix. For $10/month, you can subscribe to Netflix which is spending $8 billion per year in content.

Is The Athletic profitable

AM: We expand by launching in local markets. We are in 47 thus far. The operational focus is on building a local team and becoming profitable in each local market. I can tell you that most markets are profitable in the first year — currently all of our markets over one year old are profitable and most of those over 6 months old are profitable.

(Photo by Thearon W. Henderson/Getty Images)

Explain your growth strategy in terms of coverage: Which sports did you start with and at which level (local versus national)

AM: Direct-to-consumer businesses have to really work to earn their subscribers& hard-earned money. We have to obsess over where we can be different. In the beginning, that was with hockey and baseball, because those have been de-prioritized by the bigger players. That shifted as we gained more subscribers: we needed to become comprehensive. We hired folks to cover the NBA, to cover the NFL, to cover soccer.

Do subscribers usually come just for one local sport or for the broader bundle

AM: We&ve built a powerful bundle. A local newspaper has local politics, local restaurants, and then local sports. We have just the sports, but add a national perspective and a nationwide bundle. Most of our subscribers are &super bundlers,& meaning they subscribe to content from multiple cities plus at least one national product and usually a college product thatnot local. We provide all that for significantly less than competitors.

Eric — as a VC looking for multi-billion-dollar exits, how are you analyzing the potential scale of a subscription publication like this Even most people who are bullish on subscriptions believe ita choice of going for a niche audience and staying small.

ES: There are two things we look for in a subscription business: retention and a positive flywheel.

Retention. In any subscription business, the key question is: can they maintain their subscribers over time Most of them don&t. Spotify does, Netflix does, and The Athletic does as well. The Athletic is off the charts, which sets it up for scale. You want to see deep engagement over a very, very long period of time — years.

A positive flywheel. The more you build your subscriber base, the more you build your revenue base. That allows you to get better content, to hire unique writers, to build greater depth. In doing so, you attract people who weren&t ready to subscribe in the early days but now you have writers they follow and content they want. Technology is important here too: as you build a bigger platform with more content, serving the right content at the right time to each user is a key advantage. When this flywheel is working itactually quite hard to put a ceiling on the business.

Most publishers did a so-called &pivot to video& over the last couple of years. You&re anchored in writing. Why not more video at the start

AM: We&re obsessed with the consumer and all our research in the beginning said that people still like to read books and articles. Advertising with text may not be as good as with video, which may be why so many other companies &pivoted to video,& but we think the written word is still the best way to convey certain types of stories. Itstraightforward, it doesn&t require headphones.

Therean incredible amount of talent out there that can produce these stories and that has been cast aside by many entities. We saw it as an opportunity to give them great jobs and bring value to our subscribers. That has paid off for us.

What are your plans for video or other content formats in the future

AM: We raised this Series C with audio and video in mind. We can tell even more stories when we add in audio and video possibilities. Our goal is to serve the subscriber: some love to read, some love to listen, others prefer to watch. We look up to things like The Ringer, Andre the Giant on HBO, VICE News, Gimlet, and The Daily by The New York Times all as incredible storytelling, and we ask ourselves &how can we do sports versions of those&

Why focus on hiring experienced, full-time writers rather than a stable of contributors or curating from the vast pool of content by fans Lots of amateurs pay close attention to sports.

AM: Whatreally important to us is a growth mentality — that by Day 100 on our team a writer is thinking very differently. We&re providing lots of data, lots of feedback. We invest in great people who will figure this out with us over time. Also, scaling so quickly from 0 to 300 editorial staff was possible because we recruited experienced talent who know what to do already.

We do have about 400 contributors as well. These are folks who may be lawyers or accountants but are passionate about the teams they cover. We are a way for them to reach a premium audience. We can pay them really well and give them world-class editors formerly with Sports Illustrated and ESPN.

How are you acquiring your subscribers

AM: When we expand into a new market, we gain new subscribers by hiring writers who have a following already and by word of mouth from existing subscribers. Then like any direct-to-consumer brand, we are acquiring subscribers through Google, Facebook and Twitter.

You financially incentivize your writers based on them acquiring new subscribers through their articles or by promoting The Athletic with their followers online. That is very uncommon in publishing. Explain that strategy.

AM: It ties back to our focus on building for the long term and investing in talent that will grow with us. We like to assign incentives that give us the best chance of building a sustainable business and we think about compensation in that way. We give our team equity in the company and for many, we tie a portion of their comp to the performance of their team, sport, city. Ita great way to share in the responsibility and success of the business.

At the bottom of articles, you ask readers to rate each story as &Meh,& &Solid,& or &Awesome.& I wish every publisher did this. How do you use this data How do a writerscores impact them

AM: Itabout feedback loops. Our writers gauge feedback when they share on Twitter. This is another data point. It helps paint a more complete picture. NPS alone isn&t enough of course though. We look at whether articles drive new subscribers, drive deep engagement, drive comments, etc. We don&t use pageviews, but we certainly use metrics. Usually, this results in a writer producing very different work on Day 100 than they were on Day 0.

Explain the interaction between subscribers. Itnot unique to have a comments section: there are bad comments sections, good comments sections and comments sections that go unused. At a tactical level, how do you think about building community

AM: My co-founder and I met at Strava, the social network for endurance athletes. I ran the product team and we were obsessed with community. We see an incredible connection between community engagement and subscriber retention. The question that drives us is how can we connect users in an authentic way, how can we connect users to our staff in an authentic way, how can we connect users to athletes in an authentic way. We&re doing a lot of experimentation here. We have a distinct opportunity because of our paywall: most of the comments on The Athletic are saying substantive things.

TechCrunch has an exclusive look at the companies participating in 500 Startups‘ 24th startup accelerator batch, which kicked off last week.

Through its four-month seed program, the Silicon Valley seed fund invests $150,000 in exchange for 6 percent equity. The companies below include a mix of industries from cryptocurrency to digital health to e-commerce. 500 Startups says 40 percent of the companies have a female founder, 50 percent have a black, mixed-race or Latinx founder and 31 percent are headquartered outside the U.S.

Herea closer look at the 22 companies, which will demo their tech to investors on February 28:

• Alba: A Santiago, Chile-based mobile marketplace for babysitters in emerging markets.
• Assemble: A Los Angeles-based digital platform for automating video content production.
• Back Office: A Palm Beach, Florida-based financial software provider focused on streamlining personal bookkeeping.
• BlockVigil: A San Francisco-based platform for building and scaling blockchain applications.
• Cambridgene: A Cambridge-based developer of clinical-genomic software for personalizing cancer therapy in hospitals.
• Celer Network: A platform for building and scaling decentralized applications.
• Crowdz: Headquartered in Sunnyvale, the blockchain-based B2B marketplace builds digitized supply chains.
• HAMAMA: A San Francisco-based provider of microgreen kits for growing healthy food at home.
• IOTW: A Hong Kong-based IoT-connected cryptocurrency mining platform.
• Kura Tech: A San Francisco-based developer of augmented reality glasses with micro-display and variable focus.
• Memoir Health: A Boston-based behavioral health startup providing physical and virtual mental wellness and substance use services.
• MessageCube: Headquartered in Sunnyvale, the companyis building an integration for people to discuss and purchase shared experiences over chat.
• Ovation: A Provo, Utah-based online portal for restaurant reviews meant to help businesses measure customer experience.
• PantyProp: A New York-based seller of underwear and swimwear for women to wear while menstruating.
• Pilleve: A Winston-Salem, North Carolina-based startup using data to help care providers lower the costs associated with opioid addiction.
• Savion: A Livermore-based aviation company bringing green, long-range private jets to the middleclass.
• SnapShyft: Headquartered in Indianapolis, the startup provides an on-demand labor marketplace focused on the food and beverage industry.
• Thrive Agric: An Abuja, Nigeria-based crowdfunding platform for farmsand farmers in Africa.
• TripAfrique: Headquartered in Paris, theonline booking platform helps travelers arrange trips to Africa.
• UTRUST: A Zurich-based cryptocurrency payments platform that offers buyers protection, instant transactions and more.
• Zeuss Tech: Headquartered in Palo Alto, the blockchain-based anti-money-laundering platform targets cash-intensive industries.
• No information is available on the final company, which is in stealth mode.

Herea look at 500 Startups batch 23, 22 and 21.

Facebook virtual reality arm may soon find itself in the unfamiliar position of playing catch-up with hardware competitors.

Last week, TechCrunch reported that Oculus co-founder Brendan Iribe had decided to leave Facebook partially due to his &fundamentally different views on the future of Oculus& and decisions surrounding the cancellation of a next-generation &Rift 2& project.

The companyprototype &Rift 2& device, codenamed Caspar, was a &complete redesign& of the original Rift headset, a source familiar with the matter tells us. Its cancellation signified an interest by Facebook leadership to focus on more accessible improvements to the core Rift experience that wouldn&t require the latest PC hardware to function. Iribe did not agree with the direction, with a source telling us that he was specifically not interested in &offering compromised experiences that provided short-term user growth but sacrificed on comfort and performance.&

Former Oculus CEO Brendan Iribe sharing details on the Oculus Rift in 2015

In the wake of the overhaulcancellation, the company will be pursuing a more modest product update — possibly called the &Rift S& — to be released as early as next year, which makes minor upgrades to the devicedisplay resolution while more notably getting rid of the external sensor-tracking system, sources tell us. Instead, the headset will utilize the integrated &inside-out& Insight tracking system, which is core to Facebookrecently announced Oculus Quest standalone headset.

The &Constellation& tracking system on the current-generation Rift offers precise accuracy thanks to the static external sensors that track the headset and Touch controllers. While the Insight system would likely offer users a much more simplified setup process, a clear pain point of the first-generation product, &inside-out& tracking systems have greater limitations when it comes to the lighting conditions they work in and are generally less accurate than systems with external trackers.

While Oculus has long led the way on hardware advances, this release could be seen as the company playing catch-up with competitors like Microsoft, which has partnered with OEMs including Samsung, Lenovo and LG to release headsets on its Windows Mixed Reality platform that also feature inside-out tracking as well as higher resolution displays than the Oculus Rift.

&While we don&t comment on rumors/speculation about our future products, as we shared last week, PC VR remains a part of our strategy and is a category we will continue to invest in. In addition to hardware, we have a robust software roadmap and are funding content well into 2020,& an Oculus spokesperson told TechCrunch.

Facebook CEO Mark Zuckerberg introducing the $399 Oculus Quest

There are some clear benefits for Oculus pushing iterative hardware in an iPhone-like &S& manner, especially around affordability, as a more drawn-out device life cycle gives both Oculus and PC component manufacturers time to reduce VRhigh barrier to entry in terms of cost.

The cancellation of its Caspar &Rift 2& project does suggest a less aggressive pace of innovation for the company with its flagship premium VR product. The move away from a redesign could alienate early adopters and send them to other platforms. It also could lead Oculus into a situation where new titles that take advantage of the latest systems aren&t compatible with Rift hardware.

At its Oculus Connect developer conference, Facebook CEO Mark Zuckerberg shared that the Oculus Rift, Quest and Go represented &the completion of its first-generation of VR products.& As Zuckerberg continues to double-down on his long-term goal to bring 1 billion users into VR, the need to build the Oculus user base is growing more important, but itunclear how essential the company believes leading the high-end PC VR market is to defining that early mainstream success.