Investor Letter

From: John Zhao - Founder & CEO

CC: Eric Leu, Jie Xu - Co-Founders
To: All Qatter Investors
Date: June 7, 2022

Hello,

We have made the difficult decision to disband Qatter and return all investor capital with
immediate effect.

All successful startups are alike but every unsuccessful startup fails in its own way, to
paraphrase Tolstoy.

In this letter, I will explain why Qatter failed, lessons learned, and reflect on the journey that
brought us here. I accept full responsibility for our outcome, and am sad to leave our vision of
an audio-first creator platform unfulfilled.

I. Acknowledgements

First, I want to thank each and every one of you. No company could exist without its earliest
supporters - you took a leap of faith in believing in us as founders and in our vision for bringing
something new into the world.

Accepting your hard-earned dollars as investment is a recognition of your faith in us, a solemn
responsibility we do not take lightly. It is with an eye towards honoring that responsibility that we
have determined that the right thing to do is to return your money.

I am immensely proud of our team and what we’ve built to-date. Entirely bootstrapped with only
pluck, determination, and grit, we created a 0→1 product, onboarded hundreds of early users,
built a library of 20+ hours of user-created content, and developed a nascent creator community.

Thank you Jie and Eric for being partners with me in this journey. Qatter would be nothing
without you.

II. Reason for failure

The proximate cause of death is that we failed to raise sufficient funding to de-risk the business
and allow us to reach our next fundable objectives. Our goal was for a $XX seed, with a
minimum target of $YY. We raised a bit under $ZZ. In our judgment, limping forward with an
undercapitalized business would be a futile squandering of time and resources.

We also counsel our decision with knowledge of the following:

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 1. Macroclimate - as of mid-2022, we are in a difficult time for tech broadly & VCs
specifically that make it unlikely for sizeable outside funding to materialize in the
short-to-medium term.

2. Business model - as a two-sided consumer / creator platform (like a TikTok, IG, etc), we
are very far off from being able to monetize and generate revenue, and even farther from
profit. Self-funding through the income statement is not an option.

III. A brief history of time

(feel free to skip ahead if you don’t want to read our founding story)

We first kicked around the idea for Qatter in Feb 2020, pre-pandemic, before Clubhouse ever
launched, before social audio was even a thing. A casual discussion over beers became an
excited back-and-forth of ideas, and we soon were pulling frenetic all-weekend hackathons
trying to bring this alive.

Our first MVP was a web-based app with basic record, upload, listen abilities coupled with
airpods integration. It was janky, but demonstrated the core concept. We applied to
YCombinator with dreams of fast-tracking ourselves towards building the next TikTok.

We were rejected (rightly so). Instead of doubling down, grinding hard, we dawdled and did
nothing. Sat on our hands. We watched Clubhouse announce their $10M Series A in May,
validating actual consumer & investor demand for social audio, and thought nothing more of it.
We were all working on this as a side-project at the time, and as life’s demands intervened and
our day jobs intensified, weeks turned into months. No progress was made.

Then in January 2021, Clubhouse raised a $100M Series B at $1B post. Suddenly we lit a fire
under our own butts, threw ourselves back into the project, and shipped an actual v1 prototype,
this time built as a mobile-native iOS app.

Wanting to give this a proper run, I took on the CEO job full-time, incorporated the company,
and set out to raise a preseed in summer 2021. Amidst the heady highs of 2021, we were
talking to fellow founders raising at astronomical $15M-post preseeds with only 1-pager memos
in hand. Caught up in the rush, I started reaching out to investors and pitching.

Buoyed by the general mass exuberance at the time and fevered speculation around
Clubhouse-for-X clones (every VC was extolling the future of audio, etc etc), we were met with
initial success. We reached a few partner-level decision meetings with VCs and even had a
verbal commit for a $500K check from one VC, and $300K from another. But they all turned us
down eventually when they played with our buggy v1 prototype and compared against our steep
asking price ($15M-post, in retrospect LOL what were we thinking, we didn’t know any better).

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I pulled the plug on our fundraise in August before burning more investor intros, and agreed on
a plan with the team: we would hunker down, ship a fully-fleshed v2 product that would look &
feel like an actual social app, onboard 100 early users, and then return to our fundraise.

We executed on that, shipping a much improved v2 with a proper signup & onboarding
workflow, push notifications, friend finder, etc. All the trappings of a real app. We received great
user feedback, and promising early PMF metrics (>20% D30 retention, 60% WAU/MAU).

By now, it was late 2021, early 2022. The market had changed. We were able to attract angels
($1-20K checks) but every VC passed. Clubhouse’s faltering growth had poisoned the well on
all audio startups, consumer-minded VCs had pivoted focus to Web3, and the earliest signs of a
broader tech slowdown were creeping in.

Fast forward half-a-year to now, and we see no signs of any change in fortune forthcoming. VCs
have retreated inwards on tending to their portfolio, writing very few new checks, and definitely
not writing checks to a non-revenue generating startup.

Having worked on Qatter for over two years, full-time for one, and with no light on the horizon,
we reluctantly must conclude our journey here.

IV. Lessons learned

Our failure is the result of a collection of factors - many self-made mistakes and unforced errors,
and some outside our control. Here’s what we learned and would do differently.

1. Commit early & decisively, or not at all

Had we all quit our jobs in 2020 when we first started working on Qatter, built heads
down for 6-months, and then fundraised in 2021, I have no doubt we’d be VC-backed
and well on our way towards success.

Instead, we made tepid, halting steps forward, wading in one leg at a time, only diving in
too little too late rather than jumping into the deep end from the start. The biggest cost in
life is opportunity cost. Time is unrecoverable. We failed to appreciate that.

2. Build it for yourself, by yourself

The founding team must be able to build the core product for themselves by themselves,
without any outside help or funding.

We knew we had all the expertise needed for Qatter - iOS development, data
warehousing, etc - except one. We didn’t have anyone on the founding team with design
experience, a must-have not a nice-to-have for the product we needed to deliver.

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 We thought we could just eventually hire for this, but it was a fatal mistake - we were
never able to produce a product to our own satisfaction with the right look & feel of what
we knew this idea deserved and needed.

We knew it, users knew it, and I’m sure VCs knew it too.

3. Social proof, validation, signaling

It’s naive to think that if you have a good idea, tidy deck, a working product or even
users, that anyone will care.

When people look at you, all that matters is - do I believe in you, and by extension, does
anyone else believe in you.

That can take many forms - maybe you went to Stanford, or you’re a YC alum, or you
worked at Uber or Stripe, or you already have someone high-profile and respected
backing you.

But if you don’t have any social proof (and we definitely did not), you need to get it one
way or another. Quickly.

4. Understand VCs

The job of a VC is not to take risk, be contrarian, whatever. It is to make money for his or
her LPs.

You don’t need to have a complicated understanding of markups, stage-dynamics, check

sizing, etc to know that VCs want to 1. fund something that someone else will also fund
12 months from now and 2. pattern match to an example of something-like-this that has
returned a fund before (>100x for a seed investment).

In the whole history of tech, there have only been a handful of successful consumer
social companies - FB, IG, YT, TikTok, Snap, Twitter. Only one was founded in the last
decade. VCs are understandably wary of taking a flier on odds like that.

It’s incumbent on you as a founder to understand VC incentives and make a compelling

case for your startup. We fell short of that bar.

5. Timing is everything

Being early is the same as being wrong. Late, and you’ve missed the boat.

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 Every founder understands that when it comes to product-market fit, but it’s just as
important for investor-company fit.

Imagine trying to raise for an early-stage blood testing startup after Theranos imploded,
or a coworking concept after WeWork. No matter how strong you are, you can’t swim
against the tide of a high-profile failure in your sector. It’s not fair, but it’s reality.

6. Why are you fishing alone?

When you’re at a pond where others are already catching fish, you know there’s fish to
be caught. Hopefully you brought a better rod, or maybe the fish are multiplying fast
enough that there’s plenty to go around for everyone. That’s what it feels like to build in a
crowded but growing space like vertical SaaS, productivity tools, developer APIs, etc.

But what if you’re standing at a pond, alone.

1. Either you’re the first one there, and about to make the catch of a lifetime
2. Or, others have tried fishing there before and come up empty
a. If so, is it an empty pond?
b. Or did they just bring the wrong bait?

Social audio is the 2nd scenario (plenty of dead or pivoted startups that tried social
audio, short form audio, audio creator platforms, building for airpods, synchronous and
async audio, Netflix for audio, etc).

I think it’s 2b, but I don’t fault everyone else for thinking it’s 2a. We didn’t make a
compelling case quickly enough that it’s 2b, and that’s our fault. We didn’t move fast
enough nor understand just how high the burden of proof was.

7. Survivorship bias & setting expectations

There’s a now-common meme of a polka dot airplane (see appendix) that symbolizes
the importance of survivorship bias. When you see a founder announcing a raise or
growth milestone or whatever, you have to be aware of the hundreds of other ones who
died and never got to tweet about their triumphs.

Don’t set false expectations for yourself.

8. Building a consumer product is playing on hard mode

There’s a common trope of founders who first tried building a consumer startup (who
doesn’t want to help people?!), failed, and then built some super successful B2B SaaS
or dev tool company. Now we know why :)

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V. Parting Thoughts

We don’t regret our failure, and with new learnings in hand, would happily jump headfirst into a
new venture. We don’t quite know what that’ll look like or when that time will be, but hope that
when it comes, we can look forward to your renewed support.

It has been a joy building Qatter, getting to work alongside & learn from my partners Jie & Eric,
and to meet all of you. Thank you for the privilege.

Sincerely,
John Zhao
Founder & CEO

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VI. Appendix

Exhibit 1: Qatter timeline

Exhibit 2: Fundraising pipeline

Exhibit 3: Selection of VCs who took a pitch meeting

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Exhibit 4: Selected VC feedback - Partner @ A16Z

Exhibit 5: Selected VC feedback - Partner @ General Catalyst

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Exhibit 6: Selected VC feedback - Partner @ Lightspeed

Exhibit 7: Selected VC feedback - Partner @ SignalFire (via a friend who intro’d us)

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Exhibit 8: Polka dot airplane, survivorship bias meme

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