Yeah, see, $41 Million is chump change

A lot has been written and blogged about how the recent $41 million investment in Color best symbolizes a new bubble.  I think one of the oddest stories was from the Business Insider, by the editor, Henry Blodget.  It leads me to believe that Mr. Blodget’s piece might be satirical.

In case you’ve not been following it, Color Labs is a start-up company that allows smart phones to “see” other smart phones, and therefore people, nearby to help the user build their social network.  I won’t comment on how this kind of technology could further erode “analog” human social skills.  But it’s a new big-time symbol of too much money chasing too few good ideas.  It’s as if Sequoia and the venture community has created its own little, inflationary, stimulus program. 

Mr. Blodget points out all the reasons why investing $41 million at this stage is a good idea.  For instance, he points out that with that investment, Color is worth at LEAST $41 million to any buyer!  Even if they spend half of it, Blodget assumes that the company would then have $20 million in cash and $20 million in a good idea developed!  I mean, LOL.  The investors can’t lose, he points out, because they have preferred stock. 

Perhaps what Mr. Blodget is pointing out is that the bubble has more room to inflate.  I think he’s saying that no matter what founder Bill Nguyen comes up with will be worth much more because that’s how bubbles work.  His first venture was OneBox, a unified messaging service sold to Phone.com in 2000 for $850 million.  Ah, 2000.  Now THAT was a bubble!  Phone.com now sells VOIP systems and handsets, and I’m not sure it got the value from that inflated investment.  But what the heck, as Mr. Blodget concludes:

“This is a potentially huge opportunity that will likely be worth many billions if it works out.  Color’s founders are not thinking small here. They’re laying out a vision for a massive global enterprise. If they can successfully execute on that vision, $41 million is going to seem like chump change.  Could they fail? Of course they could fail. Every startup could fail. That goes with the territory. Color’s investors understand the risks, and they build their portfolios to account for it. If Color fails, its investors will shrug and move on.  If it works out, they’ll look like they got it for a song.”

Exactly.  Funds with a lot of money get to start the bubbles.  Like a big ponzi scheme, the first ones in reap the most benefit.  Because in a bubble, there’s always someone next in line ready to add more air.   Until there isn’t.

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About TechonomicMan

Manager, Entrepreneurial Services at Ben Franklin Technology Partners in Northeast PA.
This entry was posted in Seed/Venture Capital and tagged , , , , . Bookmark the permalink.

One Response to Yeah, see, $41 Million is chump change

  1. When does Blodget go away? He is a convicted fraud. He lied to people, knowingly, to enrich himself and others. At the expense of retail investors… The SEC says he can’t work in the business.

    We should ask Madoff what he thinks.

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