Does Instagram’s $1 billion sale explain the $41 million investment in Color?

COLOR got $41MM for having an all-star team, not because their investors could see the future...<p>In any case it shows that not only money isn't everything, but that whole "invest in the team" mantra is flawed as well, just look at Instagram: it was made by a guy who wasn't an engineer and learned to code in his spare time!<p>The idea matters, the market matters, throwing money at a previously successful team isn't the be-all and end-all of startup strategy.

For anyone who has read Blank's The Four Steps to the Epiphany you will appreciate that money doesn't always equal success.<p>For those looking for an introduction, the first four chapters are available online: <a href="http://www.stanford.edu/group/e145/cgi-bin/winter/drupal/upload/handouts/Four_Steps.pdf" rel="nofollow">http://www.stanford.edu/group/e145/cgi-bin/winter/drupal/upl...</a><p>In the early chapters where Blank argues the importance of the customer development approach to business (ie knowing your customer first before building your product) versus the traditional product development model (ie building your product first, only to find out later you have no customers).<p>He cites furniture.com of the dot com days that raised heaps of money but failed badly.<p>Color is probably another great example. They raised money but didn't consider the market.<p>Is Instagram the same thing? They obviously are a popular product. However is the freemium model adequate? Do the userbase warrant that valuation? How do they generate revenue? Are they a sustainable business?<p>This blog touches on the importance of conversation rate: <a href="http://blog.asmartbear.com/price-vs-quantity.html" rel="nofollow">http://blog.asmartbear.com/price-vs-quantity.html</a><p>Will Facebook generate sufficient advertising revenue from Instragram functionality?<p>Don't know. But rather their money than ours!

Spot on.<p>I think Color's pitch was to stealthily suck value out of Facebook by attacking what it perceived (and Instagram proved out) as its greatest weakness: a healthy amount of user engagement on FB is around photos. If one could create the "perfect" photo sharing mobile network, FB users would start sharing photos outside of FB. As soon as a critical mass of users and photos was achieved, FB would recognize the attack and defeat it via acquisition.<p>IMO the main difference is that Color (and their investors) had a well-defined strategy, but it was Instagram that had the perfect app.

I think an analogy to "The Selfish Gene" is appropriate here. The emphasis is on "gene" as the basic unit of natural selection.<p>Here we see (as we have always known) that the basic unit of investment success is not the team, the idea, or the company; but the portfolio. It doesn't matter that Sequoia squandered $41 million on one company if they made hundreds of millions on Instagram. Startups are high-risk, high-reward ventures, and they have always known that.<p>As to whether the huge capital and press actually hindered Color, I'm not convinced, but it seems plausible.

When I watched the interview with Kevin Systrom by Kevin Rose, Systrom's "Grand Vision" definitely reminded me of the goal of Color.<p>Here is a link: <a href="http://www.youtube.com/watch?feature=player_detailpage&#38;v=IPigMKugJhY#t=2094s" rel="nofollow">http://www.youtube.com/watch?feature=player_detailpage&#38;v...</a>

Have you guys had a look at Colors latest android app, Exclusive to Verizon? I think their $41 millions funding and this app describe quite well what the Founders of Colors are: True Hustlers that can sell anything to anyone and are just focus on money, not on creating a useful product/service to the users.

It isn't that they raised $41 million, that was the issue. It was the fact that they raised that amount without any real metrics to back the team or the product.<p>Someone gave me this analogy that I thought was quite well put. Michael Jordan kicked ass at basketball, but it would have been a foolish manager who gave him a $41 million contract when he decided to try baseball.<p>Hindsight-20:20 here - Color might have been an incredible story on paper, and it might even have warranted a stratospheric valuation. But nothing besides cold, hard numbers warrants cash of $41MM for a web/app startup.

<p><pre><code> TL;DR: In almost any scenario, Sequoia still ends up making a lot of money.</code></pre>

Instagram success involved a lot of luck, especially in choosing their pivot.<p>*It does not diminish their incredible talent and creativity, but those could have been "wasted" on an unpopular app until the money run out. Instead they chose one that was adopted like wildfire and their talent was showcased. By next year, it may become "meh," we do not know.<p>Bottom line: $41 million isn't going to help much with the idea and having it widely used by people so they were crazy to give them that much money right away. You either have the idea or you don't, and execution, as shown by Instagram, requires much less than $41 million.