I’ve previously mentioned seemingly excessive amounts of money going to startups and briefly noted that it didn’t seem like a bubble to me. Well chalk one up for team bubble: Color, a social photo sharing app, raised over $40 million (from Seqouia and Bain) before launching a product. It’s turning heads because the concept isn’t really that awesome, the team seems above average, and otherwise there’s no explanation for why this crew received more money for a 0 user product than most million user products can raise. The biggest writeup on the deal is on Techcrunch, and their analysis is pretty solid.
Since just about every perspective on this has already been mentioned in the super quick blogging echo chamber since Wednesday, here are my random comments on the situation:
Buying talent. A lot of the commentary on the deals note that it may have been premised on the idea that these founders, no matter what idea they were working on, were going to be successful. This is an argument usually made in support of a big ticket acquisition rather than an initial investment, but obviously if you are an institutional investor looking to get a solid return, you might see a team like this and think that any investment is worth it so long as the valuation stays below the value of the founders to another company. If the talent here is worth $100 million, which it might be close to, then getting in at a $40 million price is a pretty good deal. A strange way to think about investing in companies, but maybe not that unsound given the random nature of startups hitting big anyway. It’s like how the Knicks gave up a ton to get the right to pay Carmelo a max salary: when you get a chance to invest in a big talent, the price is basically anything reasonable. Even if the end result isn’t clear (the Knicks can’t play defense, Color doesn’t have a product), the talent might be worth it.
Buying cache. Bain Capital threw in $9 million in the deal. They’ve had almost no presence in the sillicon valley world, so maybe they just want to make some noise, and nothing made more noise than investing in Color at this moment. Probably won’t really improve their portfolio in the short-term, but it’s probably a strong play if they want to move into more startups. If not, then it’s a really odd move.
Sequoia knows something. This seems like a conspiracy theory, but maybe Sequoia, the one who made the largest bet on Color, simply knows something about the market or the team that changed their normal calculus on making investments.
danielmarkmiller.net 