A Year Later, $41 Million Startup Color Has A Pathetic 30,000 Daily Users
About a year ago, serial entrepreneur Bill Nguyen shocked the startup world when he announced his latest effort, a company called Color, had raised $41 million out of the gate in order to build yet-another iPhone photography app.
Context & Ripple Effects
Color's arc has been a year-long argument about whether a pre-product megaround can be justified. In March 2011 Bill Nguyen defended the $41 million raise on the grounds that it really was a $41 million idea, and the launch week played out as hype followed by a critical pile-on — reviewers panned the app and iTunes users rated it two stars.
The intervening months have not helped the bull case: cofounder Peter Pham left the company in June 2011, the initial product is recorded as having failed, and the company confirmed plans to relaunch around a video status product built on Facebook integration. Today's 30,000-daily-user figure is the first hard number against which all that rhetoric gets measured.
First-order effects
- Nguyen's core claim — that the idea itself warranted the raise — now faces a usage datapoint an order of magnitude too small to support it, leaving the planned video-status relaunch with Facebook integration as the company's only remaining thesis.
- Color's backers are effectively locked into funding a pivot: with the photo app dead in the water, the $41 million already raised has to be spent proving the new direction rather than the original one.
Second-order effects
- Other founders pitching large pre-launch raises will find the Color case cited back at them: the story converts one company's stumble into a negotiating datapoint investors can use against unproven consumer social teams.
Third-order effects
- If the pattern holds, consumer social startups face a structural repricing: public daily-user numbers become the scorecard that decides whether a big round buys patience or becomes a liability, pushing capital away from pre-product megatowards traction-gated deals.
The trend: Consumer social startups that raise large sums before launch are increasingly judged by publicly reported usage metrics within their first year, turning early capital intensity from a signal of ambition into a benchmark for failure.