Lightspeed Venture Partners, the lead investor in Pocket’s Series D, believes the audio content platform can compete with the world’s best in using AI to deliver automated and curated content

When Indian audio platform Pocket FM raised USD 103m in Series D funding last week, local media lit up with anonymous sources pegging the valuation at north of USD 1bn. This coincided with renewed buzz around a snowballing expansion in the US, where in less than 18 months, 10m new users have added USD 100m in annual recurring revenue to the overall business.

For Lightspeed Venture Partners, such milestones are a sideshow compared to a broader narrative about artificial intelligence (AI) applications emerging from the start-up’s engineering room.

Lightspeed, which led the latest round, first backed Pocket in a USD 65,000 seed round in late 2018 and has re-upped in every subsequent funding except a USD 65m Series C in 2022. The VC firm contributed about USD 90m to the Series D – the only other institutional investor was StepStone Group – ticking up its exposure to around 25%. Total funding to date is USD 196.5m.

“Pocket FM’s story has been almost like a wake-up call about what AI is going to do to various industries,” said Harsha Kumar, an India-based partner at Lightspeed, who sits on the Pocket board.

“AI has played a big role in their trajectory, in scaling content density and identifying blockbusters faster and more efficiently. I know the headline here is about an Indian start-up doubling revenue and scaling in the US, but the real story that we need to pay attention to is that AI is about to change things in meaningful ways.”

Pocket, which focuses on serialised fiction for passive listening, claims its use of AI has enabled a 10x increase in the pace at which it launches pilot scripts. At the same time, the company says it has achieved a 3x improvement in accuracy in terms of its ability to identify which pilot scripts will become a hit with audiences.

The cost of producing and testing pilots – a significant budget outlay for any content provider – is said to be down 50% thanks to AI.

Kumar noted that even among global content giants such as Netflix, this level of AI-driven efficiency in the creative process is unmatched, although eventually the technologies and techniques will be standardized by the industry.

Perhaps most impressively, Pocket is touted as being able to transform a writer’s script from basic text to a fully produced audio series with AI-generated voices “at the click of a button,” according to Kumar. She clarified that scripts are not written by AI as yet, but this appears to be on the cards for the foreseeable future – in theory, at least.

“Content is a lot about supply and demand matching. People have nuanced tastes, and you need to match that. Getting enough supply that matches the audience’s different tastes is hard. There are always more consumers than creators, and that’s why AI plays a big role in balancing that equation for content platforms,” Kumar said.

Pocket’s content library includes around 2,000 audio series, with more than 400,000 episodes. Much of this is developed in-house, but there is also a consumer-generated arm of the business, and some content is licensed. The company leverages a network of more than 250,000 writers globally.

Pocket claims it has been growing at 57% quarter-on-quarter since a concerted monetisation push in early 2022 and currently generates USD 130m in annual recurring revenue. The listener base – spanning 10 countries dominated by the US – has doubled to 130m since the Series C. Further expansions in Europe and Latin America are planned for 2024.

The key to the enterprise was a shift from a subscription model to a micro-transaction model inspired by the gaming industry.

The idea is that consumers are not accustomed to the style of programming Pocket offers, so expecting large upfront payments is unreasonable. By allowing users to sample episodes piecemeal, the platform eases them into the format and encourages surfing from one show to the next as a subscriber might.

“I don’t think there’s anybody else in this segment. They’ve created a new entertainment format,” Kumar said. “There are enough people out there who want to consume audio content passively, but they don’t have a lot of choice other than music or knowledge. That’s the gap.”