(Bloomberg) -- Before HQ Trivia ran out of money earlier this month and abruptly shut down, the once-promising startup appeared to be on the brink of a dramatic victory. It had an acquisition offer from a media company called Whistle. The deal would have given HQ the cash it desperately needed to keep the lights on. Whistle was still doing its due diligence, but it already knew that HQ Trivia had been declining in popularity in recent months. It was familiar with the company’s history of managerial infighting, and it was aware of the shocking death of its 34-year-old co-founder from a drug overdose.

Then, earlier this month, Whistle pulled out unexpectedly. HQ’s board members were blindsided, according to two people close to the company who asked not to be identified discussing private conversations. The company’s chief executive officer, Rus Yusupov, sent an email to its 25 employees on Valentine’s Day, telling them they were losing their jobs.

That day, users got a bitter push notification on their phones. “HQ is live,” it read. “Just kidding. We’re off-air indefinitely.”

The story of how one of the most promising companies in entertainment got to this point is a singular example of a clever idea derailed by what former employees describe as mismanagement and seething boardroom drama. In 2018, the New Statesman declared that “HQ Trivia—not Netflix—is the real future of television.” This year, by the time it was talking to digital video maker Whistle about a deal, HQ parent Intermedia Labs was on the verge of not being able to pay out promised prize money, people familiar with the company said.

In nearly a dozen interviews with former employees, industry experts and others close to the startup, a portrait emerged of a company whose problems ran deeper than has been previously reported. In Silicon Valley, it’s not uncommon for good ideas to be stymied by managerial dysfunction. But HQ displayed a degree of personal animosity between staff and management—and among managers themselves—that’s rare even by tech startup standards. Yusupov, his board members and key employees all declined requests for comment. Most people who agreed to speak requested anonymity in order to protect their relationships, and prospects of getting another job in the industry.

Now, the company is fighting for a second chance. On February 18, four days after declaring HQ was over and out of money, Yusupov tweeted that a new buyer had emerged. People familiar with the situation also say that a deal is close, though not finalized, and could become official as soon as early this week. Still, some who worked at the startup remain skeptical that HQ will ever make a comeback.

Its most famous former employee, quiz show host Scott Rogowsky, tweeted a post-mortem for the company the day after it shut down. “HQ didn’t die of natural causes,” he wrote. “It was poisoned with a lethal cocktail of incompetence, arrogance, short-sightedness & sociopathic delusion.”

On paper, the guys who founded HQ Trivia made a pretty good team. Yusupov and Colin Kroll had previously created Vine, the short looping video company. It became a force on the internet, minting now-famous influencers like viral provocateurs Jake and Logan Paul and musician Shawn Mendes. Vine was acquired by Twitter in 2015 for $30 million.

But that integration into Twitter proved to be the first major setback for the promising duo. Kroll and Yusupov were both fired from the company at different times, Recode later reported. And, according to allegations that eventually surfaced in the media, Kroll made some of his female colleagues there uneasy with “creepy” behavior. In a statement to Axios, Kroll would later apologize for “things I said and did that made some feel unappreciated or uncomfortable,” and deny sexually harassing anyone. An investigation conducted by HQ’s board would also find his behavior fell short of harassment. 

The Twitter tie-up came to an end in October 2016, when the company shut down the service.

By that point, though, Kroll and Yusupov had earned a reputation as online video whiz kids, and they found support for their next project, a live video app called Hype. Lightspeed Venture Partners invested $8 million to get the company off the ground, Recode reported. Lightspeed partner Jeremy Liew praised the company in a Medium post partly titled “Founders Matter,” which lauded pioneering social media entrepreneurs. “When these founders move on, they tend to see success again in their next venture,” he wrote. 

Hype didn’t find an audience. Neither did the company’s other ideas for a DIY game show or a celebrity baby photo-matching game. But before long, Yusupov and Kroll struck internet oil. HQ Trivia launched in October 2017 with a glitchy app, but almost immediately, it was a sensation. The game, an interactive mobile trivia show, was fun to play—and people of all ages found it addictive. When the live broadcast of the show would come on each day thousands of people stopped what they were doing to look at their phones and try to answer the game’s 12 questions correctly for cash prizes. Within months hundreds of thousands of players would tune in for the company’s daily show. 

But by mid-December of 2017, just months after its launch, trouble was already brewing for the company. HQ was struggling to raise money thanks to a reputation for “womanizing” that Kroll had left behind at Twitter, Liew said in a statement at the time to media outlets including Businessweek. Concerned by investors’ reticence, Liew, who was on the HQ board, launched an investigation into the allegations. He concluded that Kroll hadn’t been popular at Twitter, but that he didn’t harass anyone.

As questions percolated about HQ’s management, its trivia app’s growth continued unabated. In February, the company scored a Super Bowl commercial, cementing its position as a staple of popular culture. The month after, the company raised $15 million in a funding round led VC firm Founders Fund. In a statement accompanying the funding announcement, Kroll said he was “let go” by Twitter from his role at Vine for “poor management,” and apologized for past behavior. HQ’s valuation climbed to $100 million.

The high point for HQ Trivia came in March 2018, when almost 2.4 million people tuned in to try and win a $250,000 prize sponsored by Warner Bros. to promote its upcoming movie, “Ready Player One.” Dwayne “The Rock” Johnson made an appearance the next month, reaching a slightly smaller audience, and the game continued to book major sponsors like Nike Inc., Alphabet Inc.’s Google and JPMorgan Chase & Co.

Despite the star power, in 2018 HQ Trivia was starting to slip in the App Store rankings. It went from consistently landing in the top five slots in the “games” category in the U.S. App Store at the beginning of the year, to 188th place on July 1, according to App Annie.

The key problem was that HQ wasn’t innovating, according to conversations with former employees. As people got bored with the main game, the company had little else to offer them. The stagnation wasn’t necessarily for a lack of ideas. Starting in 2018, the company discussed lots of additional shows including a “Judge Judy”-like program, and one based on “Family Feud,” people familiar with the company said. A dating show idea got far enough along that the company even made a pilot, they said, but it never launched.

Yusupov was more interested in building out HQ’s flagship product than launching new ones, former employees said. Several people also said that Yusupov, a talented designer and creative thinker, could be erratic—alternating between bursts of frenetic activity and long periods of inaction. One employee recalled how once, hours before a game was supposed to drop, Yusupov asked to cut the number of winners from 5,000 to 500. Another former staffer remembered Yusupov personally overseeing the details for a game, even as larger issues like cash burn loomed at the company.

A representative for Yusupov declined requests for comment. In a conversation with the Wall Street Journal in 2019, he said, “I’ve always welcomed and appreciated candid feedback. I’m evolving as a leader and will continue to do so.”

That spring, Kroll contemplated leaving HQ altogether. His relationship with Yusupov had been rocky since the allegations and subsequent fundraising struggles. "I have a lot of ideas left," he said in a text message to a friend reviewed by Bloomberg. "And I don't want to make them w/Rus."

At the office, Yusupov and Kroll continued to sit next to each other. But their mutual dislike had become so intense that one person familiar with the dynamic recalled that instead of speaking, they would sometimes Slack employees messages for each other.

In August 2018, some members of HQ’s four-person board of directors felt the company needed a change in leadership, Recode reported. Liew and Kroll wanted Kroll to replace Yusupov as CEO. “We’re trying to diversify a bit, and that’s where my skill-set comes in handy,” Kroll would later tell tech site Digiday. Yusupov, however, didn’t want to give up his job, according to people with knowledge of the dynamic at the time.

Displacing a CEO, even with another co-founder, is a seismic event for a startup. “Removing the founder more often than not is like ripping out the heart of the company,” Carol Liao, assistant professor of law at the University of British Columbia, wrote in an email. To add to that, investors doing the ousting are also risking becoming known as unfriendly to founders. "If that becomes your reputation, you're in trouble," said Brandy Aven, associate professor of organizational theory, strategy, and entrepreneurship at Carnegie Mellon University.

HQ’s board consisted of Liew, Kroll, Yusupov and Founder’s Fund’s Cyan Banister, who had joined earlier that year in the $15 million funding round. In the standoff between Kroll and Yusupov, Banister didn’t want to pick a side. (Founder’s Fund boasts on its website that it “has never removed a single founder.”) So she left the board to avoid the decision. That left Yusupov outnumbered 2-to-1. He was demoted. 

Before Kroll’s ascension to the CEO spot was announced, though, an employee filed a complaint about him to human resources, Recode first reported. The complaint, which accused Kroll of “inappropriate and unprofessional” management, was elevated to the board and leaked to the press. In an indication of the brewing mistrust at the company, Kroll suspected the leak could have come from Yusupov’s camp, according to text messages reviewed by Bloomberg.

The complaint did not derail Kroll’s appointment, but the transfer of power solidified the long-gestating enmity between the founders. Yusupov felt betrayed that Kroll and Liew took away his job, people familiar with the situation said. Kroll thought Yusupov had tried to sabotage him in the press. He confided in a friend that he was considering firing his co-founder, and texted, "Feel like I should stop talking to Rus.”

Then, just months after Kroll took over, HQ suffered its most shocking setback. In mid-December 2018, the company threw its annual holiday party. Kroll left the event and ordered drugs through an on-demand delivery service in New York City called Mike’s Candyshop, according to reports at the time. After taking the drugs with a girlfriend in his apartment late that night, the next day police found Kroll dead in his bed. The autopsy found heroin, cocaine and fentanyl in his body. Six men were arrested for running the drug service that provided the lethal substances, news reports said.

Kroll’s death stunned HQ’s staff—and thrust Yusupov back into the unofficial role of CEO. That unsettled some employees. A few said they feared the company would slip into a state of inaction they believed had characterized Yusupov’s tenure as CEO. So several staffers—including the face of the company, quiz show host Rogowsky—started circulating the idea of drafting a letter demanding that the board replace Yusupov, according to multiple people familiar with the matter. A sizable number of HQ’s employees added their names.

Liew was made aware of the letter before he ever received it. A hasty, all-staff meeting was called in February 2019, with Liew and other board members in attendance. At the meeting, the assembled staff was told that the board had hired a search firm to help HQ Trivia find a new leader. In the meantime HQ’s top engineering exec, Ben Sheats, and the company’s head of production, Nick Gallo, would share the CEO role with Yusupov, according to several former employees who were at the meeting. Liew also said that once Yusupov’s replacement was found, he would step down as board member, yielding his seat to his Lightspeed colleague, Merci Grace.

But the new CEO never came. HQ spoke to a number of candidates in 2019, and got close on a few, but ultimately failed to hire anyone, according to people familiar with the discussions. Shortly after the February all-hands meeting, Rogowsky, by far HQ’s most visible employee, left for another job.

By late summer of last year, it was clear that HQ needed an influx of capital, or new ownership, in order to survive. The board hired Watertower Group, a boutique investment and advisory firm, and set out to explore their options, according to two people familiar with the arrangement. Watertower Group did not respond to requests for comment.

In November, the company began talks with Whistle, formerly known as Whistle Sports, about an acquisition. Whistle makes digital shows for platforms like YouTube, IGTV, Snapchat Discover and the video section inside Facebook Inc., called Watch. HQ Trivia’s late  attempts at new games, including HQ Tunes for music trivia launched in December 2019, had failed to take off. But it wasn’t hard to see how the company's offerings might fit into Whistle’s broader content strategy.

HQ’s board expected the deal to close in mid-February, then Whistle pulled the plug, according to people familiar with the startup’s thinking. The botched acquisition meant HQ no longer had the money to sustain operations, Yusupov tweeted. The one-time media darling suddenly, abruptly shuttered.

In a statement, a spokeswoman for Whistle confirmed that the company had had conversations with HQ as part of its broader growth strategy. “We will continue to look for the right growth opportunities,” she wrote. 

HQ’s demise was not exactly surprising. Since the start of this year, HQ Trivia had not cracked the top 1,000 in the rankings of top games in the U.S. App Store, according to App Annie. Still, its closure marked one of the most dramatic tumbles from grace in recent tech history. “With HQ we showed the world the future of TV,” Yusupov tweeted. “Thanks to everyone who helped build this and thanks for playing.”

While the game is over for the foreseeable future, the world has likely not heard the last of HQ. The company will be the focus of a new podcast from sports and entertainment outlet, the Ringer. And a group of former employees is currently shopping a documentary-style video series to a number of well-known streaming services, according to people familiar with the discussions. The group includes former host Rogowsky—but not Yusupov—the people said.

Meanwhile, HQ is still seeking a reprieve. After the Whistle deal fell through, Yusupov and HQ’s board spent the weekend calling around in search of another buyer, according people familiar with the situation. Now, the people said, a deal is being negotiated and is expected to close in the coming days, but is still not official.

The hope is that this new buyer will pay enough for HQ to at least deliver severance for employees and prize money for players, people familiar with the matter said, if not fund a return to glory for the app.

Several people with knowledge of the discussions declined to comment on who the new buyer was, citing a fear of upending the deal. But that didn’t stop Yusupov from sharing last week that something is in the works. “We have found a new home for HQ, with a company that wants to keep it running,” he tweeted Tuesday. “Not a done deal yet, but I’m optimistic.”

--With assistance from Sarah McBride.

To contact the author of this story: Kurt Wagner in San Francisco at kwagner71@bloomberg.net

To contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net, Mark MilianAndrew Pollack

©2020 Bloomberg L.P.