The founders of HQ, the popular trivia app, have been trying to capitalize on the startup’s white-hot status by raising a new funding round, hoping to land a valuation as high as $100 million.
Considering Silicon Valley’s obsession with finding and funding the next big thing, and the app’s popularity — more than 680,000 people played the game show on Sunday night just two months after its launch — that valuation seems attainable.
But many well-known venture capitalists aren’t participating in the deal, and not because it’s too crowded. While many are concerned with the app’s longevity and business prospects, there are deeper issues with the app’s founders.
At least three prominent investors have decided against funding the startup after finding troubling conduct on the part of the founders they uncovered during due diligence, multiple sources say.
These investors were particularly concerned about how HQ’s founder Colin Kroll managed people during his time at Twitter, as well as a reputation he’s garnered for exhibiting inappropriate behavior toward women, according to the sources.
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Kroll, who was Vine’s general manager for a short stint in early 2014, was fired from Twitter for being a bad manager just 18 months after the company acquired his other startup Vine, according to three people with direct knowledge of the situation.
Separately, he also earned a reputation while working at Vine for exhibiting “creepy” behavior toward women that made them uncomfortable, according to numerous former colleagues, a reputation that is hurting HQ’s fundraising efforts.
This behavior turned off at least one investor who considered putting money into HQ. A second investor who passed on the deal looked into the founders’ backgrounds and described Kroll’s behavior as “egregious,” but declined to elaborate. Numerous former Twitter employees who worked with Kroll told Recode that they also heard that Kroll exhibited creepy behavior toward women while working at Vine.
Recode is not aware of any sexual harassment complaints that were filed with Twitter about Kroll. He declined to comment through a company spokesperson. A Twitter spokesperson also declined to comment.
Jeremy Liew, an investor with Lightspeed Venture Partners and a board member at Intermedia Labs, the company behind HQ, also heard from investors concerned about Kroll’s behavior during the fundraising process. He has conducted his own investigation, and sent Recode the following statement.
“We heard back from a couple of firms that they were not going to move forward, specifically because of rumors of what was characterized as womanizing on Colin’s part. I was concerned that this might be code for sexual harassment. So in my capacity as a board member, I conducted an investigation to find out what actually happened. I spoke to about a dozen current and former Twitter execs. The investigation was exhaustive and included the most knowledgeable primary sources. I found a good deal of negative sentiment about Colin and the Vine team and some discomfort with his behavior, but I did not find evidence that warrants his removal from the company.”
The fundraising effort is still ongoing, and HQ’s parent company Intermedia Labs is still in talks with potential investors.
A company spokesperson says the startup is in the process of implementing a zero-tolerance policy regarding workplace harassment and discrimination.
That reputation aside, Kroll was also difficult to work for in his role leading the Vine team, according to conversations with more than 15 former Vine and Twitter colleagues. They described him as abrasive and disinterested, and said he could be verbally abusive to colleagues. Kroll was also known, at times, to show up late to work, hungover and disheveled, according to five former colleagues. This all factored into his dismissal, sources say.
Rus Yusupov, HQ’s other co-founder who also founded Vine with Kroll, was also fired from Twitter in October 2015 at the same time Twitter had a series of layoffs.
Yusupov, who was originally Vine’s creative director, lost most of those responsibilities to colleagues over time. He never ran the Vine team while at Twitter. He is the CEO at the duo’s new startup, Intermedia Labs, which created HQ. Yusupov declined to comment through a company spokesperson.
Firing founders for poor management is unusual in Silicon Valley, an industry that often prizes innovation at the expense of executive experience. Founders are often given a pass for weak business ability if their product signals the next big thing.
In the case of Vine, the firing was especially notable given Twitter acquired the startup only 18 months earlier for tens of millions of dollars. Many of Silicon Valley’s most successful companies were founded by weak managers, and investors have a tendency to see beyond those problems if a business looks promising.
But we live in a different world now thanks to Susan Fowler, the former Uber engineer whose blog post about sexism and toxic company culture led to a major executive team overhaul, including the ousting of its CEO. And after Harvey Weinstein, investors are simply taking extra precautions.
Even after Vine sold to Twitter for millions, its founding team seemed unhappy at Twitter almost from the start, according to numerous sources. When Twitter shut down Vine in late 2016, Yusupov tweeted, “Don’t sell your company!”
Twitter’s plan was to let Vine run as a separate product, at least initially. Twitter management, particularly co-founder Jack Dorsey, thought of Vine as the company’s response to Facebook acquiring Instagram, which Twitter had also wanted to buy.
But even with those parameters, Kroll, Yusupov and third co-founder Dom Hofmann were fiercely independent and resisted any kind of efforts to link the two companies, even culturally, sources say.
Adding to the separation: Vine’s offices were in New York City, across the country from Twitter management in San Francisco. The co-founders even refused help from Twitter engineers, and also refused to move Vine over onto Twitter’s back-end infrastructure and servers. Ultimately, when Twitter decided to add a video feature to its core app in late 2015, it built an in-app camera instead of integrating Vine.
It’s unclear if Kroll or Yusupov left money on the table when they were fired, though most acquisition deals include earn-outs and retention bonuses that require employees to hit certain benchmarks and to stay with the acquiring company for at least two years.
At HQ, Yusupov hasn’t given investors much confidence that things have changed. He recently flipped out on a reporter from The Daily Beast last month after she interviewed the trivia show’s host Scott Rogowsky without Yusupov’s “permission.” He later apologized, but multiple investors pointed to the article and interview in discussions with Recode as evidence that management problems still exist.
There are other reasons some investors are avoiding HQ, even though it’s the most-talked-about app of the last few weeks. The main one: Concerns about whether or not HQ can turn a twice-daily trivia show into an actual company, not just a hit with a limited lifespan.
—By Kurt Wagner, Recode.net.
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Source: Tech CNBC
HQ Trivia is struggling to raise funds after investors learned of its founders' alleged misconduct