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Summary:

A startup called Color has raised a whopping $41 million from a group of funds including Sequoia Capital. Is the company’s photo-sharing app worth that much? Probably not. The funding is likely just a bet that the team involved will eventually come up with something worthwhile.

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The launch of a new mobile app called Color on Wednesday has caused a lot of buzz — not so much because of the app itself, but because of the massive sum of money the company raised before it even launched. A group of funds, including Sequoia Capital, gave the company $41 million, and Sequoia’s chunk (as Color proudly noted) is more than the fund invested in Google. Is this new app really as revolutionary as that implies? Maybe. But what’s more likely is that the VCs involved are betting the team behind Color will come up with something worthwhile for that $41 million, and they don’t particularly care what it is.

Color and its supporters claim the app creates a new kind of paradigm for photo sharing, in the sense that you share pictures not just with friends or a small group, the way you would with Instagram or Path, but also with people who happen to be in the same place you are. This makes it more like Foursquare — or a group-messaging app like Beluga — than existing photo-sharing services. And the app supposedly learns from your behavior and creates ad-hoc groups based on whom you are interacting with (see Darrell Etherington’s post for a more in-depth look at the app’s strengths and flaws).

Do people want to suddenly share photos with random strangers based on the fact that they happen to be at the same club? That’s the bet Color seems to be making. Which — as more than one person has observed — makes it a little odd that the company didn’t launch at SXSW, the giant music and technology festival that just wrapped up in Austin, Texas. An app based on something so real-time and social seems almost perfectly matched to that kind of social environment. (Color’s huge funding round has already sparked a number of satirical takes on the app.)

Sequoia said on Twitter that a company like Color comes along once or twice in a decade, and that’s why it decided to give the startup more money than it ever has to a pre-launch company. (Venture investor Eghosa Omogui says the funding implies a post-money valuation that is likely north of $100 million.) But Sequoia is likely talking more about the team involved than the app itself, since the company is headed up by Bill Nguyen — who sold his music-sharing service LaLa to Apple in late 2009 — and includes Peter Pham, founder former CEO of BillShrink, as well as former LinkedIn Chief Scientist DJ Patil.

Is betting that kind of money on a team, regardless of their idea, a good bet to make? Some would argue it is. In a recent blog post, Union Square Ventures partner Fred Wilson wrote about how much he regrets not investing in what became AirBnB. He thought the idea was dumb, but the team behind it was clearly motivated and represented all the things he likes to invest in. In other words, the team was more important than the idea they were pushing at the time. (Paul Graham of Y Combinator has posted the email exchange in which he tried to convince Wilson to invest in AirBnB). “We missed Airbnb [sic] even though we loved the team,” Wilson says. “Big mistake.”

Chris Dixon, an angel investor and co-founder of Hunch.com, made a similar point in a recent blog post about Dropbox. Dixon says when he first encountered the company, he thought it was a copycat file-sharing service just like hundreds of others that had been launched around the same time, and he figured its chances of success were slim to nil. Later, the company raised money (from Sequoia, coincidentally) and Dixon says he eventually realized the team was what was important, not the idea.

I think the only way they could have made that decision was by ignoring the space, competitors, etc. and simply investing in a super talented person/team. Dropbox is one reason I now have a strict rule to only invest in teams… you should always invest in people over ideas.

So will Nguyen and the rest of the star team behind Color manage to do something that is worth all of that investment? That’s the $41-million question. One thing is for sure: Another photo-sharing app, regardless of its unusual features, probably isn’t going to cut it. And it’s probably worth mentioning that the Valley is littered with the skeletons of high-profile startups that launched with big ambitions and lots of money.

Post and thumbnail photos courtesy of Flickr user Julian Fong

  1. I can answer the headline without even reading the article (which I will, really). No. They’re not. No team is worth that kind of money sans a product. Sure, raw talent has value and it’s not necessarily rational, but no team is worth that kind of investment unless they’re delivering a product that can earn out. This is a very bubblish (new word!) deal unless there’s something more than the current product.

    Ok, now off to read… :)

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    1. Damn. That’s predictive commenting ;-)

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  2. The difference between AirBnB and this is that AirBnB actually has a business model. $4 million seems like an overkill for something that didn’t launch at SXSW and is going for the hype-n-flip method of making the VC money back. $41 million? YGTBSM.

    Dropbox actually has an income stream. Get people hooked and realize how awesome it is and they’ll pay for it. Sure, in that case, people over ideas may win.

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    1. That’s a good point, Nick — both of those companies arguably had an obvious income stream, which Color does not. Although like Chris, I thought Dropbox looked so me-too that it was hard to imagine it having much of an income stream at all. Thanks for the comment.

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      1. I disagree about Dropbox. It’s got an obvious advantage that anyone outside of the tech savvy can see – it’s dead easy. For non-technical folks who need to share files, it uses a metaphor they already know… folders. “Put that file in your Dropbox folder…” Done. Its appeal is obvious to those of us who design with customers in mind since we know that most people don’t get or don’t like the whole upload/download metaphor. Dropbox hides all of that – the customer just knows that if they put a file in a shared dropbox it’s there for others and it’s still there for them if they are offline. What happens when they get back online? Magic! it syncs and, if there are other edits, those are versioned so if Jack and Emily both make changes to the same file neither loses work.

        Dixon and Wilson both engage in post hoc logic – the teams were good because they adapted well and succeeded. Additionally, it doesn’t follow that good teams are necessarily ones that have had prior hits (Lala, etc) nor that teams without prior hits aren’t good teams.

        If the question was “Is a good proven team worth $5m?” I’d have said yes. But $41m? Please, that’s silly. If Color is now valued at $100m post-money they need to exit at half a billion to do a 5x return so the real question is….”Is any team by itself worth $500m?”

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      2. Rick

        I met with Drew and his co-founder literally the day he joined YC and I thought — what a great team. No idea if their product would work. Three months later, I was eating humble pie.

        You know what that happened: D & A were thinking about experience and solving a problem and not a product that was check-box app.

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  3. No Signup required for sharing the picture, and everybody could see it. Nice, great for pr0n!!! Imagine all the kids browsing the pictures …

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  4. Ok, we get it, color has gotten a lot of early funding, message received, and then some.

    Can haz Om post that examines color on its *technical* merits?

    The race down the granularity scale is getting quite interesting.

    Color’s location lasso is at ~150 *feet*. I only know of one other, stickybits, that operating on a smaller scale!

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    1. Thanks for the comment, Todd — Darrell’s post, which I linked to, has more thoughts about the technical aspects of the app, and I’m sure we will have more to say about it, assuming it sticks around :-)

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    2. Todd, I think it is Mathew and Darrell who are driving the coverage here. I am just being lazy today after a long day yesterday

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  5. Yes, the team is extremely important. That is why the brother-sister team of Ron and Alison Malloy of Stamford CT were successful in their start-up, D2L (Design2Launch). They started from scratch, created a dream, then the software and then sold it to Eastman Kodak. The made sure all of their employees would be hired by Kodak. Actually, they stayed in the same place and Kodak brought in more employees.

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  6. “Not everything that counts can be counted, and not everything that can be counted counts.” (Sign hanging in Einstein’s office at Princeton)[1]

    Maybe some VCs need to think about that for a while.

    1. http://rescomp.stanford.edu/~cheshire/EinsteinQuotes.html

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  7. @rick:
    Brin and Page?
    Zuckerberg?
    Jobs?

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    1. Those are good examples, Peter — but I don’t think any of them got $41 million without even a product.

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      1. Bingo Mathew. None of them got the equivalent of $41m for a me-too product in a crowded field. And.. really? Let’s look at Peter’s examples:

        Brin and Page: The advantage of Google was obvious the first time I used it after having used AltaVista. They then created an entire category of online marketing that to this day creates a ton of value.

        Zuckerberg: While I’m not a huge FB fan, the man created a useful social network, differentiated from Myspace and has built a business with 500m users.

        Jobs (and Woz, btw): Built one of the first personal computers in the I, II and the III, then revolutionized what desktop computers were with the Macintosh. It’s not possible to even think of these developments in the same breath as Yet Another Photo App.

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  8. I definitely think team is more important than idea but if team is the only important thing then doesn’t it neglect budding entrepreneurs who haven’t had their first great win yet? I hate to name the obvious examples but Bill Gates, Steve Jobs, Mark Zuckerberg, Larry Page and Sergey Brin. Maybe you could say the latter two were Stanfurd grad students but I don’t know if Harvard dropout is a great identifier of a successful entrepreneur.

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  9. It needs to be a combination of team/idea – How many that were successful with an idea the first time have a second one? Betting not many because it’s such a combination of idea, team, timing, luck.

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    1. I agree, Randy — it is a pretty difficult mix to get right, and no one quality or factor works without all the others in the right proportion. That’s what makes venture capital such a crapshoot, I guess :-)

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      1. I think most put too much emphasis on the first two and way too little on the latter.

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  10. It’s all that makes up $41 not just the team and it’s user friendly also.

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  11. “Do people want to suddenly share photos with random strangers based on the fact that they happen to be at the same club?” If they open Color then it means they do, otherwise they could just use the iPhone camera instead. Now about using Color, unless it goes viral I don’t see myself playing with it because this type of concept requires a lot of people you know to participate for it to be fun. Will it be the case? Don’t know. Hard for me to assess their chances of success.

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  12. On the other end of the spectrum (no pun intended), Colors!, the iPhone painting app that allows you to share your works of art in a public gallery, has been considering future plans for location-based “voyeurism.” Colors! started with less than 41K of seed money, has over 200K users, and is growing daily. Go, little guys :)

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  13. Yes, the team is worth $41 million if someone (read:Facebook or Google) is willing to pay more than that to get 6-7 high-profile co-founders with a crappy idea :-)

    (I wouldn’t pay that much, but then again, my company isn’t worth $50 Billion either :-)

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  14. flawed question – yes, its worth 41MM – the “Market” just paid that much.

    None of us commenting here are likely the prototypical users of color btw – i think ages 14-19 will be far more enamored of it vs. current gen of fb/tw/google fed users.

    i will bet you $1 that it works in 5 years. if i was a VC, i may have bet 41MM.

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  15. This is the wrong question to ask. The company can’t liquidate for $41M and give the investors a return obviously. So, the question that should be asked is, “is the talent worth 100 million? or whatever it’s liq. preferences are.)” Possibly, but it won’t meet its liq. preferences if there isn’t enough growth despite how talented and brilliant everyone involved in Color is.

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  16. Just pondering what really purposeful things one could do with $ 41,000,000.

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  17. The whole to-do reminds me of the Segway launch, but that’s neither here nor there. Or maybe it is relevant. They’re both really cool technologies, but that doesn’t necessarily mean there’s a huge market there. Color, to me, sounds kind of like technology looking for a problem. The initial application just does not sound that compelling, especially outside of early adopter circles. Maybe the initial app is just a demo app, and they want to control the local/social layer. I suppose that could be lucrative, but that’s not a given either.

    I still find the funding odd. Excessive expectations coupled with a lot of money can doom even good ideas and good teams. I’d love to be proven wrong. Maybe they’re just so visionary that it will take the rest of us a while to catch up.

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    1. Segway Hype = Color –> Good One
      ———-
      Wasn’t Twitter local/social when it launched at SxSW? Twitter grew into more. But…
      Of all the places I’ve been today, coffee shops, clients, etc., I can’t think of one place I’d have used Color. By comparison, I’ve used Twitter at each.

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  18. Carl Hancock Sunday, March 27, 2011

    A team is only as good as the products they produce. If Color.com is the best they got, those VC’s just pissed their money away. I guess now they have to figure out what they can build with that $41 million to safe face.

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