Plagued with growth issues, Quibi, a short-form mobile-native video platform, is shutting down, according to multiple reports. The startup, co-founded by Jeffrey Katzenberg and Meg Whitman, had raised nearly $ 2 billion in its lifetime as a private company. Quibi did not respond to requests for comment from TechCrunch.
The company’s prolific fundraising efforts spanned prominent institutions in private equity, venture capital and Hollywood, all betting on Katzenberg’s ability to deliver another hit. The startup’s backers included Alibaba, Madrone Capital Partners, Goldman Sachs and JPMorgan as well as Disney, Sony Pictures, Viacom, WarnerMedia and MGM, among others.
Their pitch was highly produced bite-sized content, packed with Hollywood star power, and designed to be “mobile-first” entertainment. For the YouTube’s and Snap’s of the world producing mainstream content on a shoestring budget, Quibi wanted to be an HBO for smartphones. Investors and pundits questioned the firm’s ability to monetize this vision, and it became clear soon after launch that the company had miscalculated.
Rumors that Quibi was shutting down began early this week. The Information wrote that Katzenberg has told people within the industry that the company might need to shut down, after unsuccessfully pitching itself as an acquisition to Apple, Facebook, and Warner Media.
In its first few months, Quibi was downloaded 3.5 million times and had 1.5 million active users. While those figures aren’t too shabby, the company had to adjust its original projections, which put the service on a trajectory to reach 7 million users and $ 250 million in subscriber revenue in its first year. Admitting that the launch hadn’t gone as planned, Katzenberg blamed the coronavirus for the streaming app’s challenges.
The company expanded in Australia in August with a free ad-supported tier for users. It is unclear if the tweak in the business model brought Quibi success, or if the problems for the app had to do with the business model in the first place.
Netflix earnings from earlier this week suggest that the pandemic entertainment boom is slowing. The consumer video service disappointed on new paying customer numbers, and shares were down sharply yesterday after it released its earnings report. Those numbers also potentially showcase just how crowded the market for subscription video content has gotten in the past 12 months, with players like Apple, Disney, HBO and NBC each launching new services and collectively spending billions to acquire rights to past television hits.
We recently invested in a team of co-founders who had voluntarily made their own vesting longer than four years. Four-year vesting is the industry standard. Why would someone voluntarily make it longer for themselves?
Their answer: “These days, with companies taking seven to 10 years to reach exit, it would make sense for founders to be on a similar schedule.”
This matters because the four-year co-founder vesting schedule frequently harms startup founders’ interests. Sometimes it damages their startup irreparably.
A growing number of founders are starting to realize this. I talked to quite a few about this over the last two years. Mostly, the “longer-than-four-years-
Importantly, this group of founders assumes they are going to be the ones actually building the company. They created the company. They are the company. Nobody is forcing them out. I suspect founders who already believe this about their own startup will find this post most helpful.
Given the massive implications of co-founder vesting schedules, all startup founders should consider co-founder vesting lengths more carefully and then choose what makes sense for them. You make this decision around the time of incorporation but feel the effects over the lifetime of your company.
4-year vesting schedules are anachronistic
As far back as the 1980s, the standard startup vesting schedule was four or five years, with five being more prevalent on the East Coast. Nobody seems to remember a time it was anything different. The closest I’ve gotten to a logical answer on why it’s four years today stretches back to a pre-401(k) era, from before Reagan’s tax reforms in the ’80s. Prior to then, tax rules incentivized big company pension plans to have vesting periods of at least five years.
Startups didn’t offer traditional pension plans. Instead, startups offered employees stock, vesting over four years instead of five as a competitive move. That is all moot today. It has no relevance for startup founders in 2020.
More relevantly, time from founding to exit has gone from four years in 1999 to eight years in 2020. Yet founder vesting remains stuck at four. This is dangerous.
Hedging against the crash of ineptitude
My team and I created a technology which turned into three software-based companies over the past 24 months. we created a small company a year before that that generated enough capital for us to focus on building out the other businesses im our extra time without taking any capital. we developed these other technologies in niche recession insulated industries
Covid took place and hurt our original company which was essentially our living expenses and during covid our VC we had lined up backed out. Essentially over committing our work forces.
We're at a point where the main team is working 100hrs a week but we may not have the man power to deliver on the other contracts which are very profitable long term agreements. 6fig/m profit by Q3 2021 I have drained my personal finances and credit to get this 90% completed but we might not been able to fulfill. This contract has us supporting thousands of commercial locations via national distribution company partnerships. I can't pull resources from the other company.
I've never raised money at all and I'm concerned given the state of my personal finances affecting the ability to get the needed capital. Which we would need fairly quickly 30-45 days to meet the deadline.
I'm unsure if we should try to take just enough to get the current contracts completed with a small buffer or maybe pursue a larger amount for a reserve runway.
Does anyone have any advice or have been in a similar situation it's greatly appreciated.
Sadly this week we had to kick off with a correction as I am 1) dumb, and, 2) see point one. But after we got past SPAC nuances (shout-out to David Ethridge), we had a full show of good stuff, including:
- Y Combinator Demo Day is going virtual, as before, and its coming iteration will also be live. The Equity crew all agree that this is the right thing to do, and probably more fun, to boot. And now the founders can sweat a live event, too! What fun.
- Speaking of live events going digital, Disrupt is coming up. And it is going to be great. Read more here.
- A group of Stanford business school students are putting together an investment vehicle to invest money into themselves, which is a good idea and something that is highly risible. Luckily, Danny and Natasha had good things to say about the effort.
- Ro raised $ 200 million, and any jokes that were inappropriate are Danny’s fault. The company’s $ 200 million valuation makes the news that its competitor Hims could go public via a SPAC all the more exciting.
- I covered a neat round: $ 20 million for Instrumental, a super neat startup that has me hyped.
- Facebook is still hunting up ways to get a better look into growing startups — this time via investments in venture capital funds.
- And, finally, there were some hearings this week, you might have heard. We’re working on something neat that you are going to love on just that topic, so stay tuned.
And that’s Equity for this week. We are back Monday morning early, so make sure you are keeping tabs on our socials. Hugs, talk soon!
In Zero To One Peter Thiel said: "There’s a dead zone between the expensive products that call for personal sales strategies and inexpensive products that can do fine with traditional advertising. A product selling for, say, $ 1,000 isn’t really worth the expense of paying sales staff. The ideal customer for the product is probably the small business owner; mass marketing is a very inefficient way to reach this market."
I am in that situation. This particular type of deal falls into an unfortunate bracket, where the size of the deal doesn't justify sending a salesperson to close it. On the other hand, because my target audience is a small businesses rather than an individual, conventional forms of advertisement is hard to exploit. E.g: My potential SME clients are spread over many industries. There is no radio show which is listened by majority of these SME owners. The target audience is small, about 5000 persons per year, too small for Ads on Google or Facebook. I can’t do email marketing without having the email address in the first place and I could just guess the email, but then I shell out spam.
Thiel doesn't offer advice on how to escape the dead zone, so I need to get creative with my distribution channel.
I would love any advice you may have for alternatives. Thank you for your insights and ideas!