The funding and failures of Color, Silicon Valley's $41 million startup (wrapup of the week of hype and hate)
As you know I didn't like Color's launch a week ago. I thought the app just wasn't very good. Turns out I wasn't the only one. It still has a two-star review on iTunes.
Context & Ripple Effects
Color spent months in stealth, then within a week of its late-March 2011 launch burned through nearly all of its goodwill: the photo-sharing app drew panning reviews, a confirmed privacy hack that let anyone view other users' photos, and a two-star rating on iTunes. The $41 million raise — enormous for an unproven consumer app — had been justified largely on founder Bill Nguyen's track record rather than any shipped product, as his own defense of the $41 million idea ahead of launch made clear.
The backlash is now the story itself: Robert Scoble's week-in-review wrapup crystallizes a Valley conversation that VentureBeat framed the same way, asking whether Color can beat the criticism with an improved interface. A company that raised on promise is now being judged on a two-star product.
First-order effects
- Color's launch-week momentum has inverted: instead of network growth compounding from attention, negative iTunes reviews and the photo-exposure hack are actively deterring the nearby-friends adoption the app depends on.
- Nguyen now has to spend the $41 million cushion on a fast product overhaul — interface and privacy fixes — while defending the valuation thesis he set out before launch.
Second-order effects
- Rivals in photo sharing and location-based social apps get an opening to court users alienated by Color's confusing debut and its security lapse, competing for the exact proximity-network niche Color staked out.
- The episode raises the bar for other stealth-stage founders raising large rounds on reputation: investors and press will demand product evidence before treating a big pre-launch check as validation.
Third-order effects
- If the pattern holds, launch-day review culture becomes a gating factor for heavily funded consumer apps — a hyped debut without immediate usability converts capital into public liability rather than advantage.
- Consumer social apps may face pressure to treat privacy architecture as a launch requirement, since a single exploit like Color's can undo a marketing blitz overnight.
The trend: Venture capital is increasingly funding consumer social startups on founder pedigree before product-market proof, leaving companies like Color a narrow post-launch window to turn hype into retention before reviews and hacks define them.