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L011: Stuns Valley with Implied Social Network -- and a $41M Raise


Color [ ]
LAUNCHERS:  CEO Bill Nguyen is a brilliant serial entrepreneur who sold his most recent company, Lala, to Apple for $40M in 2009. Co-founder Peter Pham is the absurdly good business-development founder who is supremely networked after doing BillShrink and Photobucket.

WHAT: An App for smartphones (iPhone & Android at launch) that automatically lets you share your photos with those around you. That sharing becomes a Trojan horse for building an "implied social network" (or ISN as we will call it going forward).

Wednesday in Palo Alto.

WHY: Facebook's social network is getting long in the tooth for the digerati, who are looking to spend their social cycles somewhere else. Twitter, Path, Foursquare, Gowalla, Yobongo and most recently GroupMe have shown that people are looking for an alternative to "The Facebook."

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WHO BACKED IT: An all-star line-up invested a somewhat-stunning $41M pre-launch: Sequoia Capital, Bain Capital Ventures and Silicon Valley Bank are the names you should recognize.

LAUNCH Analysis: Intelligent VCs have been building a psychological profile of the company that would "kill"-- or at least compete with -- Facebook for the past year or two. So far, this magical company will:
* be mobile first, since Facebook sucks at mobile.
* have some new spin on how the social network is formed.
* be lead by a hungry entrepreneur (or two) coming off a big hit.
* leverage one or both of the primary drivers of Facebook traffic: photos and social games.

And of course, the site will have a killer domain name.

Path was the first company to hit four of the five criteria (see L001), and that's why Google offered $100M for a service which at the time (in all likelihood) had only a few thousand truly active users.

Color is the second startup we've seen that fits four of the five criteria. Peter and Bill (and trust us, Peter is as important as Bill in this equation) are both coming off hits, they have a $1M domain name, they are focused on photos and they have a brilliant spin on operating the social network: it's public by default and your social network is implied.

AND ONE MORE THING: Take a moment and think about how truly game-changing (and personal) an ISN could be if it reached scale.  

1. You don't know the three people who go to your gym, sit near you at Lakers games and live two blocks away from you. How valuable could discovering those relationships be? Exactly.

2. You're a small business owner and Color shows you photos of the 20 people who take cabs to your restaurant deep in Brooklyn from the Upper East Side. Where should you open your next restaurant?

3. You spend two weeks at the Big Island Four Seasons over Christmas and you suddenly realize that half the jets parked at the private aviation terminal are owned by Silicon Valley/tech elite.

4. You spend two weeks at the Four Seasons in Maui over the Christmas break and suddenly you realize that half the jets parked at the private aviation terminal are owned by the media and Hollywood elite.

[[ OK, those last two examples are not going to happen, because the first rule of having private aviation is not admitting or documenting you have private aviation. However, I think you get the point: Building a social network based on where you've been with people without them checking in is fairly genius. ]]

GETTING PEACE WITH THE $41M RAISE: Much of the story around Color seems to be obsessed with their $41M raise in their A round. Now, we know of many companies that raised $10M to $20M before launch during the last mini-bubble (Yammer, Mahalo, etc). This is double those raises, but one has to realize that in this case, the company has "the nuts" as we say in poker. If you are dealt pocket Aces and the flop comes up with an ace, why not go all in?

That's what we're seeing here: VC firms Sequoia and Bain know this company will work, and they've rolled the investments they would normally spread out over two rounds of funding into one. It's a smart preemptive move to keep the company focused on building for the next three years without even thinking about raising or earning money.

[ Really, that's how long that money lasts if you burn $1.5M a month, aka 100 killer, killer engineers getting $10-15K a month all-in. ]

VALUATION: We would pin the valuation for this company at ~$100M post-money, which means Color's founders probably sold almost half the company in this round and Sequoia's reported $25M bought them ~30%. If Color turns out to be the next Twitter, Zynga or Facebook, it'd help make up for Sequoia not getting into those three companies.

PRIVACY CONCERNS: If you're worried about privacy, you will not be using this product and chances are you're beyond the midway point in life. Young folks do not care about their privacy. They care about getting famous at any cost. What older generations consider extremely private -- making sex tapes, making out with someone of the same gender and producing comically bad music videos -- young people consider a resume builder. You don't get it, and you won't ever get it. And you'll be dead soon. These voyeuristic animals we're raising will develop a society where anyone can get their 15 minutes of fame -- every day.

WHAT ABOUT BATTERY LIFE? Building a social network in the background on your smartphone immediately conjures up a mental picture of an iPhone battery running to zero in less than two hours. Color gets around that by brilliantly building its implicit network one photo at a time. Why is this so brilliant? Taking a photo means the item in question is definitely of personal importance to you. People tend not to waste time, battery life or disk space taking photos of things that don't matter.

And that's another brilliant component of this blindingly bright company.

[ All the Links in L011 here. ]

1. San Francisco Museum of Modern Art's current exhibition on voyeurism ("Voyeurism, Surveillance, and the Camera Since 1870").

2. Robert Scoble's (@scobleizer) audio piece on his first impression of Color. He calls it "the lamest thing I've ever seen."

3. Peter Pham on This Week in Startups in August '09.


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#57: You can build plans from a vision, but you can't plan a vision.

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    L011: Stuns Valley with Implied Social Network -- and a $41M Raise - LAUNCH -

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