This represents a rare (AFAICR) failure for Sequoia. I don't mean to be the naysayer but even at the time, for me, Color had disaster written all over it. All flash, no substance.
I wonder how much of that $40+ million is left and will be returned to investors. Anyone know how many employees Color has (had?)?
It's been said that the military is always busy planning for yesterday's war. The lessons of the past often don't reflect the change in circumstances. I think the tech sector suffers from a version of this, particularly for VCs. Facebook is big. Instagram sold big. Lots of people are chasing social. But IMHO social is largely yesterday's war.
Take one of my current bugbears: social search. Many view it as the Next Big Thing. Social is seen as a key future driver to recommendations and the like. IMHO this is completely overhyped. This is something that's been much-discussed already but a month or two ago I had an interesting conversation that I think shed some light on the problem.
Let's say Alice is friends with Bob. Bob likes a particular movie. We as programmers and entrepreneurs see an opportunity to use technology to solve a "problem" here: namely, how to allow Bob to express that information in such a way as to expose it to Alice, who it is argued, may well be interested in that.
The problem here is that the view of the "problem" here is backwards. We see social interactions as an inefficient way of disseminating information but in most cases in the real world, it's the opposite: that movie recommendation is simply a way of enabling and facilitating a social interaction. In other words, the movie recommendation is a means to an end not an end in and of itself. Too many social startups (IMHO) view the social interactions as a means to an end when in fact it is the end.
Anyway, my condolences in particular to the employees of Color, who I have no doubt worked hard over the last year or so. Luckily we're in a market where you should easily be able to move on to bigger and better things.
Hindsight is 20/20, it's easy to criticize now, but look at it from the investors' perspective:
- A CEO who not only sold his latest startup to Apple but who built about eight companies in the past twelve years, three that he sold and three that went public.
- A co founder team made from engineers that came from Google and Apple
... and you have a very solid foundation for a startup with much higher success odds than any other.
It's not just hindsight; a lot of people, commentators here and elsewhere, were bemused by the entire Color story. A ridiculous amount of money for a product that didn't exist, had no market, likely had niche interest at best, and had no clear business strategy.
It did have disaster written all of it, and a lot of people called them on it at the time.
Let's not forget: the product itself was hideously creepy. It was intended to be a Trojan horse designed to harvest semi-private data from previously inaccessible spaces / transactions / situations, etc, but the design made those intentions a bit to clear - at least to a critical mass of people who were actually paying close attention (not surprising giving the $ involved).
Hindsight is 20/20, but I think a lot of people looked at Color with very skeptical eyes. It seemed like a really strange concept (to me, at least, and I'm sure others) at the time that garnered a great deal of attention out of nowhere (not to mention an enviable amount of cash). I think some people wanted to believe it would be the next big "social thing", and they looked at the folks behind it and thought "Well, there's no way people wont eat this up!".
I mean, they made headlines by blowing a ridiculous amount of cash on a domain name. Why weren't they making headlines with how solid of a concept they had?
Why were we talking about their valuation, and how seemingly overblown it was, instead of how revolutionary their product was going to be, and how it was going to change / disrupt / whatever some existing market or industry?
Having an amazing set of people at the helm of a ship that no one seems interested in boarding doesn't do you much good.
I suspect that the investors thought the worst case scenario was an aqui-hire of a highly-credentialed team, at a value close to the cash invested. And likely with enough preferences to return the entire acquisition to the investors.
While this was an erroneous assumption, I can see how this may have contributed to a perception of lower risk to the investors.
What they seemed to ignore was that stuffing a very early consumer startup with a ton of cash and a lot of hype to live up to might have contributed to the failure. Instead of giving them resources to figure out the space, investors contributed rope with which the company could hang itself.
I and everyone I know have been ripping on Color since the day they raised all that money. Maybe we all got lucky on one prediction, but for whatever reason, we were right. Hindsight or not.
You didn't get lucky, your prediction was easy. About 5% (at most) startups succeed, so saying that one is going to fail is not exactly making a risky prediction.
You're right; that was probably the investor perspective, plus a slick sales job with a handwavey Big Idea (local! mobile! social!) and some hockey-stick curves. Pattern-matching and all that. But it's a little depressing that people will hand over $40m for that.
The core hypotheses could have been tested for far less. Indeed, the co-founders had enough dough that they could have tested them without VC involvement at all. There was no need to take investor money until they needed to scale.
Seems like a classic example of the Silicon Valley hype cycle, and the sort of idiocy that was a big feature in Bubble 1.0. "Internet! Shopping! Groceries! Can't miss!" And then we got WebVan. But I suppose Color should get some credit; they only blew tens of millions of dollars, not the $1 billion WebVan pissed away.
IMHO that's somewhat dismissive. I, for one, was pessimistic on the outcome of Color ever since I heard of it and I don't think I was alone and I"m sure I'm not particularly prophetic.
While your list of things are all good things to have (from an investor's point of view), at some point it doesn't add up and it just smells bad. Startups that make a big splash with little substance getting lots of attention at SXSW, lots of press on TC, etc tend to burn out rapidly.
Compare this to the likes of SpaceX (which, at this point, may well be one of the most important companies of the 21st century), Square (massive potential), Pinterest (despite the buzz dying down here I still think this one may well have legs), Instagram (which had a massive userbase), etc.
The things you listed come largely down to social proof. I get that they're important and why investors don't focus too much on the idea, given the likelihood of a pivot, but that doesn't mean you can look solely at social proof.
EDIT: to clarify, SXSW was an example of startups making a big splash, not specifically Color.
Color was a completely reasonable investment, great team, ceo, vision. The failure wasn't the fact that they invested, its the check size. The guys at Sequoia should have said, great - love the idea, here's a $1M seed, make it happen. Produce a product we'll follow on with $5M, show traction, then you get the big round to scale.
A big round up front has the appeal to avoid the need to waste a product ceo's time of fundraising round after round. I think the big learning from the color investment is that a big round sets expectations unreasonably high. The press made a field day out of it as a sign of a bubble. The hindsight learning is big upfront rounds don't make sense, iterative investment that maps to the iterative learning of the company makes the most sense.
> I don't mean to be the naysayer but even at the time, for me, Color had disaster written all over it.
I agree with you. I never knew what the investors saw in Color. But that's missing the point, really. Betting against companies is a sure thing - to a decent approximation, none of them achieve the kind of success that a VC is looking for.
I wonder how much of that $40+ million is left and will be returned to investors. Anyone know how many employees Color has (had?)?
It's been said that the military is always busy planning for yesterday's war. The lessons of the past often don't reflect the change in circumstances. I think the tech sector suffers from a version of this, particularly for VCs. Facebook is big. Instagram sold big. Lots of people are chasing social. But IMHO social is largely yesterday's war.
Take one of my current bugbears: social search. Many view it as the Next Big Thing. Social is seen as a key future driver to recommendations and the like. IMHO this is completely overhyped. This is something that's been much-discussed already but a month or two ago I had an interesting conversation that I think shed some light on the problem.
Let's say Alice is friends with Bob. Bob likes a particular movie. We as programmers and entrepreneurs see an opportunity to use technology to solve a "problem" here: namely, how to allow Bob to express that information in such a way as to expose it to Alice, who it is argued, may well be interested in that.
The problem here is that the view of the "problem" here is backwards. We see social interactions as an inefficient way of disseminating information but in most cases in the real world, it's the opposite: that movie recommendation is simply a way of enabling and facilitating a social interaction. In other words, the movie recommendation is a means to an end not an end in and of itself. Too many social startups (IMHO) view the social interactions as a means to an end when in fact it is the end.
Anyway, my condolences in particular to the employees of Color, who I have no doubt worked hard over the last year or so. Luckily we're in a market where you should easily be able to move on to bigger and better things.