Quibi RIP
Image: Quibi / Protocol

Don’t blame Silicon Valley for Quibi

Protocol Index

Hello! This week: What Quibi tells us about the VC model, what Netflix's earnings tell us about the COVID bump, and your earnings schedule for next week.

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  • "Great entrepreneurs thrive in down periods when tectonic shifts are occurring in how business is done. Resetting periods allow visionaries to do more with less." — Impellent Ventures' David Brown explained why founder-led companies are outperforming CEO-led ones.
  • "I don't think it makes much difference for Bitcoin." — Consult Hyperion's David Birch doesn't think PayPal's crypto experiment is that big a deal for the currency.
  • "We will make sure our interest rate will be the lowest among our peers." — Bright Smart Securities CEO Edward Hui is one of many competing for retail investors' custom ahead of the Ant Group IPO by offering margin loans.
  • "There's no doubt that European tech IPOs are behind the U.S. and Asia, that's always been the way." — Balderton's Suranga Chandratillake said he hoped more European firms would list in Europe, rather than New York.
  • "Increasing AI readership motivates firms to prepare filings that are more friendly to machine parsing and processing." — Georgia State and Columbia academics found that corporate disclosures are increasingly written for algorithms.

The Big Story

Quibi's failure says nothing about the Valley

Quibi's failure was demonstrative of lots of things. The arrogance of its leaders, perhaps; or the superiority of bedroom-made TikToks over Hollywood-produced Golden Arms. But one thing it didn't show? That Silicon Valley is bad at its job.

  • Inevitably, people turned on the Bay Area, lambasting just how much VC money was wasted on an idea that everybody said would fail.
  • But as others pointed out, Silicon Valley investors were mostly absent from Quibi's cap table. (The one exception was Breyer Capital, though even that's more of a one-man show than a traditional venture firm.)
  • "The media likes to blame Silicon Valley for failures like Quibi or Theranos, but if you actually look at the cap tables, Silicon Valley VC firms did a pretty deft job of avoiding these failures," Craft Ventures co-founder David Sacks told me via email.

In reality, Quibi didn't fit with the Silicon Valley ethos. "Venture capital is a very particular funding model," analyst Benedict Evans told me. It's one that requires particular ownership structures and return profiles, and "the Quibi model didn't really fit that funding model," he added.

  • That's down to the way it tried to do things. "They didn't try and do it incrementally," Evans said. Quibi's thesis was about spending a ton of money to get a great launch slate, the argument being that there wasn't any other way to launch such a company. "This is very different to the way that Silicon Valley tends to build companies," Evans said.
  • Tribe Capital co-founder Arjun Sethi neatly summed up the VC way of doing things: "At the very earliest stage of a product, the goal should be to achieve some level of product-market fit … [That] cannot be achieved with capital alone." That approach lets investors "escalate funding as the company achieves milestones," Sacks said. "The idea of investing a billion dollars before product launch is absurd."

Quibi's failure would suggest that the VC model works best, and that incremental growth is better than exploding onto the scene.

  • For one thing, when things go wrong, less money is wasted.
  • But it also allows for better ideas to surface. "We have found that building a bottom-up view of a company's product-market fit reduces the chance that traditional biases (like celebrity status or following hot money) might disproportionately influence investment decisions," Sethi said.
  • The model also allows for higher returns. "When prelaunch companies raise capital at <$50M valuations it leaves lots of room for 10-100x outcomes," Sethi said. "Raising at over $1B dramatically caps that possibility."

But it's not as clear-cut as that. "You could propose that what [Quibi] should have done is done some tests on YouTube; they should have started with some content partnerships, they should have slowly built out, and wait until they've got a critical mass," Evans said. "I don't know if that would have been a good idea, either."

  • Some companies just might not be suited to the VC model. Quibi's failure might not necessarily be an indictment of everything other than VC. It might just be an indictment of, well, Quibi.

One thing it certainly is an indictment on is Madrone Capital, Quibi's biggest backer. That's the Walton family's investment fund, perhaps most famous for its other big investment in … Theranos. Safe to say it might need a better diligence process, I think.



Strengthening healthcare interoperability and cybersecurity in the Covid era

A stronger healthcare system means connecting people, data and technology for a frictionless experience across care settings. At Philips, we're developing interoperable solutions that seamlessly transfer data so clinicians can stay focused on what matters most: the patient.

Learn more.

Up to Speed

  • Monday: Alibaba bought a controlling stake in Sun Art for $3.6B, and offered $2.2B to existing shareholders. SK Hynix bought Intel's NAND business for $9B. Juniper bought 128 Technology for $450M. IBM earnings matched expectations. Billtrust said it would go public via a SPAC at a $1.3B valuation.
  • Tuesday: The DOJ sued Google. Netflix earnings disappointed investors. Snap earnings beat expectations. Texas Instruments earnings beat expectations. Logitech earnings beat expectations. Splunk acquired Plumbr and Rigor. Didi Chuxing was reported to be considering a 2021 Hong Kong IPO at a $60B+ valuation. Faire was reported to be raising over $100M at a $2B+ valuation. 58.com was reported to be in talks to buy Renreche for $1,290.
  • Wednesday: Tesla earnings beat expectations. Ericsson earnings beat expectations. Xilinx earnings beat expectations. McAfee's IPO raised $740M at an $8.6B valuation. ThredUp filed for an IPO, reportedly aiming to raise up to $300M. Tekion raised $150M at a $1B+ valuation. Ant Group got final approval for its IPO. Huawei was reported to be lobbying China to block the Nvidia/Arm deal.
  • Thursday: Intel earnings beat estimates, but disappointed investors. AT&T earnings beat expectations. LG Display earnings beat estimates. McAfee shares fell 7% on their debut. Tibco acquired Information Builders. BitTorrent acquired DLive. Lufax said it aims to raise $2.36B in its IPO. Yuanfudao raised $2.2B at a $15.5B valuation. Applied Intuition raised $125M at a reported $1.25B valuation. PayPal was reported to be in talks to acquire BitGo.

Diving Deeper

The COVID bump is over

After the first batch of tech earnings this week, one thing is clear: Tech's COVID boost is over.

Look at Netflix and Intel: Both companies saw COVID tailwinds earlier in the year, but this week both showed signs of that coming to an end.

  • Netflix's subscriber adds missed its already conservative expectations, proving that the company's gains in the first half of the year have simply jumped it along the growth curve. Netflix may be "transitioning from a growth stock," Rosenblatt's Bernie McTernan wrote, arguing that the company's estimates for next year "seem too high" given the "impact from the pull forward."
  • Intel's results painted a similar picture. Data center revenue from enterprises and governments plunged 47%, a dramatic change from the 30%+ growth it reported in the previous two quarters. And cloud revenue was up just 15%, compared to last quarter's 47% growth.

Companies that did well didn't do so because of COVID. Tesla reported its fifth consecutive profit, but didn't mention COVID at all in its earnings call. And Snap's monster quarter, which sent its shares up by more than 20%, was more attributable to a COVID recovery in the ad market than any stay-at-home tailwinds.

  • Snap's results, by the way, bode well for Facebook and Twitter next week.

One thing that hasn't changed: geopolitics. The U.S. and China dispute raged on in the last quarter, markedly reshaping the telecoms equipment industry. Huawei reported dramatically slowing growth, with U.S. sanctions to blame. But when one company loses in this kind of situation, another wins: Ericsson's profit smashed estimates, with the company picking up some of Huawei's business.

  • CEO Börje Ekholm smartly noted that there's more to his company than Trump's tweets, though, saying that most of Ericsson's market share gains "come from non-Chinese competitors."

Coming Up

  • Get ready for a very busy earnings week. Twilio and SAP report Monday, followed by Microsoft, Sony, AMD, NXP and Akamai on Tuesday. Wednesday brings Samsung, eBay, Pinterest, Etsy, WesternDigital and Yandex. Thursday's the big one: Apple, Alphabet, Facebook, Twitter, Shopify, Spotify, Activision, Ubisoft, Comcast, Atlassian and LG Electronics all report. And then there's Mediatek on Friday.
  • Meanwhile, Ant Group will price its IPO on Tuesday, with the offering closing on Thursday. Get up to speed ahead of that with our guide.



Strengthening healthcare interoperability and cybersecurity in the Covid era

A stronger healthcare system means connecting people, data and technology for a frictionless experience across care settings. At Philips, we're developing interoperable solutions that seamlessly transfer data so clinicians can stay focused on what matters most: the patient.

Learn more.

Thoughts/feedback/tips? Email me — shakeel@protocol.com — or tips@protocol.com. And subscribe to get Index in your inbox every week. Thanks for reading — have a great weekend, and see you next week.

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