Is Color's Team Worth $41 Million, Even If Its Idea Isn't?
The launch on Wednesday of a new mobile app called Color has sparked a lot of buzz—not so much because of the app itself, but because of the massive sum of money the company raised before the app was 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 venture capitalists 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 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, Tex.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 prelaunch company. (Venture investor Eghosa Omogui says the funding implies a post-money valuation 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 of BillShrink, as well as former LinkedIn Chief Scientist DJ Patil.
When a Team Is Motivated
Is wagering 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 e-mail exchange in which he tried to persuade 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 worth all 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 were launched with big ambitions and lots of money.
Also from GigaOM:
How Online Startups Can Build Audiences on the Cheap (subscription required)