The Incredible Crash of Quibi: A Cautionary Tale for Investors

A company called Quibi has been in the news this week – not in a good way – and I wanted to share some observations. I’m doing so because there are lessons to be learned for investors as well as startups and I found value in the postmortem review on Quibi from This Week in Startups. ​

Quibi is a short-form (10 minute) media platform designed for smart phones founded by Jeff Katzenberg, chairman of Walt Disney Studios, and Meg Whitman, a board member for Procter & Gamble and Dropbox and previous CEO at HP. Quibi raised $1.8 billion from media investors and launched the product in February 2020. Neither VCs nor angel investors participated in the investment. This week Quibi announced they were closing the company and returning remaining funds to investors. They Built it, but people did not come: the cautionary tale of Quibi. 

Here are my observations:

First, this is a case-study in launching a product before you have product-market fit. After raising the funds, Quibi founders didn’t do any testing with their target market to see if this would be something of value. Instead, Quibi created content – a whopping 175 episodes. The emergency podcast from This Week in Startups (link above) suggests that a fraction of the funding could have been spent to determine product market fit if someone had taken the time. There was an amazing team with more than enough resources and a meaningful step was skipped when it came to finding out market interests (see an iceberg that could have been avoided –  The Titanic Effect – Chapter 4 – Marketing Ocean). There was an untested hypothesis about user-generated content and whether there was a market for a format longer than TikTok’s 6 seconds and shorter than traditional 30-minute TV episodes. 

Second, the value of having a process to evaluate opportunities is critical to loss prevention and risk mitigation.  An evaluation process for early stage companies can and likely should include:

  • The team and looking for a Hipster (ideas), Hacker (technician), and Hustler (sales) and ability to execute on a plan that creates value
  • Product status, how much more development is needed before it can generate revenue? (Oxygen, Aspirin or Jewelry)
  • Market size and personas
  • Decision-making process for personas in the market
  • Business model evaluation and identification of key assumptions
  • Exit hypothesis, comparables and the funding history and revenue of those
  • Deal terms – does the current round limit chances of a down round?
  • Who are the incumbent providers, competition, substitutes, or suppliers? What are their resources?

I encourage you to check out the postmortem review by This Week in Startups. It truly is a cautionary tale of what NOT to do when founding and investing in startups. It’s also why VisionTech Angels has such a thorough screening and due diligence process for de-risking our investments. I’d love to hear your thoughts!