Color, Funding, and Founding Teams

“Color” the localized-photo-sharing app, is all over the web this morning.

They launched their app. And by common consent, it is pretty bad.

They also raised $41m from Sequoia Capital. Every writer out there has declared that the only justification for such a large raise would appear to be the track record of the founders.

How much of this makes sense?

It may not be solely about the team. There may be more to “the idea” than a poorly implemented app or a poorly managed rollout. In Color, publishing a photo connects you to people in the same location as you, not just to your existing social network. I do suspect that one of the untapped online social opportunities is serendipitous new social connections – making new friends, in other words. Location is one promising way to look for new social connections, in part because to it is hard to “spam” – you at least know that you have a location in common. Taking a stab in the dark, I would guess that the Color team are looking to attack the “new social connection” opportunity over time, with a strong location bias, and photo (+video ?) being the initial hook. That has the potential to be quite valuable.

How much of the $41m is simply an illustration of the old venture-investing rule that you invest in the team, not the idea? Some, no doubt. Yet, we could then ask – how come this high-octane team released an app that doesn’t cut it with users?

It is tempting to wonder if the $41m became a problem, not an opportunity, at Color. Did the team release under pressure from their investors? For startups, taking such a large sum does create special concerns, particularly when taken from a top-tier firm like Sequoia that will be hungry for results.

Practically speaking, it is usually right to take money while it’s available – doing multiple smaller funding rounds is nearly always more dilutive. Yet, if you do find a investor willing to make an outsize commitment, you need to be doubly careful to manage their expectations, and in particular to set the expectation that your company will develop gradually, just like a “normal” startup.