In Tech We Trust - Recent Business News

PALO ALTO, Calif. ? What if you threw a $41 million celebration and nobody came? A start-up fraternisation called Color knows how that feels.

In March, Color denounced its photo-sharing cellphone focus ? and suggested that it had lifted $41 million from investors prior to the app had a singular user. Despite the companys riches, the app landed with a thud, attracting couple of users and most complaints from those who did try it.

?It would be purposeless even if I managed to know how it facility,? one reviewer wrote in the Apple App Store.

Since then, Color has be converted into a notice pointer for investors, entrepreneurs and analysts who dread there is a burble in start-up investing. They say it shows that try capitalists, unfortunate to deposit in the subsequent Facebook or LinkedIn, are blindly throwing money at start-ups that have not shown they can set up something useful, most reduction a business that can yield decent earnings on investment.

Color, which says it is overhauling its app, is just one of the start-ups that have set tongues wagging about bubbly one some-more in Silicon Valley. The Melt skeleton to sell grilled-cheese sandwiches and soup that people can sequence from their mobile phones. It lifted about $15 million from Sequoia Capital, which also invested in Color.

Airbnb, which helps people lease bedrooms in their homes, is raising try collateral that would value it at a billion dollars. Scoopon, a kind of Groupon for Australians, lifted $80 million; Juice in the City, a Groupon for mothers, lifted $6 million; and Scvngr, which started a Groupon for gamers, lifted $15 million. These could, of course, spin out to be successful businesses. The worry, investors say, is the prices.

They say they have paid dual to 3 times some-more for their stakes in such start-ups over the past year. According to the National Venture Capital Association, try capitalists invested $5.9 billion in the initial 3 months of the year, up fourteen percent from the duration a year earlier, but they invested in 51 fewer companies, indicating they were funneling some-more money into fewer start-ups.

?The huge success tales ? Facebook, Zynga and Twitter ? are heading to investing in thoughts on a napkin, because no one wants to skip out on the subsequent huge thing,? said Eric Lefkofsky, a owner of Groupon who also runs Lightbank, a Chicago-based try account with a $100 million coffer.

A decade ago, in the initial swell of Internet investing, it was not surprising for tech start-ups to lift tens of millions of dollars prior to they had revenue, a product or users. But try capitalists became some-more discreet after the burble detonate and the 2008 retrogression inept Silicon Valley.

Meanwhile, it now costs reduction than ever to set up a Web site or mobile app. So this time around the ubiquitous approach of hold up has been to start small.

?By early out lean, you have the possibility to know if youre on to something,? said Mark Suster, a handling trainer at GRP Partners. ?If you start stout and the product judgment doesnt work, innately the fraternisation will remove a lot of money.?

Two of Colors photo-sharing competitors, Instagram and PicPlz, reflect the gaunt start-up ethos. They started with $500,000 and $350,000, respectively, and teams of just a couple of people. As they have introduced successful products and captivated users, they have solemnly lifted some-more money and hired engineers.

Color, meanwhile, outlayed $350,000 to buy the Web residence color.com, and an one some-more $75,000 to buy colour.com. It rents a cavernous bureau in city core Palo Alto, everywhere 38 employees work in a space with room for 160, among beanbag chairs, tents for asleep and a hand-built half-pipe skateboard ramp.

Bill Nguyen, Colors always-smiling founder, has hired a organisation of costly engineers, like D. J. Patil, a former arch scientist at LinkedIn.

?If I knew a improved approach of you do it, I would, but thats what my price make up is,? Mr. Nguyen said in an talk last week.

Michael Krupka, a handling trainer at Bain Capital Ventures and one of Colors investors, said Color indispensable to lift a lot of money because it plotted to do most some-more than photo-sharing.

?When we get to the end product that we envision, people will comprehend how technically worldly it is, so we couldnt do it with 4 people,? he said. ?Thats costly to do, so hence I reckon the valuations a honest one.?

A sequence entrepreneur, Mr. Nguyen, 40, said he had regularly lifted some-more money than he indispensable so that if his products faltered, he had sufficient to keep starting longer than his competitors. But it also equates to he has to sell the fraternisation to a larger fraternisation or to shareholders for a lot some-more money than if he had lifted less.

He said the play was value it, and it had paid off for him twice. He started a use for removing faxes, e-mail and voicemail called Onebox.com, which Phone.com bought for $850 million, and Lala, a digital song use that Apple bought for $80 million last year. He also started a mobile messaging fraternisation called Seven, which has not yet sold.

Mr. Nguyen end around the Color bureau in unclothed feet and talks with substantial call for help points at the end of any phrase, fueled by what he calls an obsession to Coke Zero. Despite his sprightliness, he says he has been chastened in the last 3 months.

?Your ego gets painful a tiny bit,? he said. ?Theres no doubt I instruct we would have launched and millions of people would have used it, but that didnt happen. The being is were starting to block divided at it and take a most some-more normal track to go from A to B.?

But he makes no apologies for the volume of money he raised.

?We live in a unequivocally auspicious sourroundings for start-ups aptly now, so if the series we lifted was significantly larger than it would be at any other time, Im not starting to swallow ones pride for that,? he said.

At its start, Color said it would chaperon in a new epoch of location-based amicable networking, vouchsafing people share cellphone snapshots with other Color users close. But yet it had some success at huge events like song festivals, those who attempted it elsewhere found that there was frequency anything to see.

Mr. Nguyen said the fraternisation had taken the critique to heart and charted a new course. He dismissed Colors president, Peter Pham, and its engineers are structure a new chronicle of the app to be released later this summer.

Mr. Nguyen summarized an desirous plot to contest with Apple, Google and Facebook by restraining together organisation messaging, recommendations and internal search, all even as making money by advertising. He skeleton to set up applications that will use interpretation from Facebook to make proxy amicable networks, say at a discussion or sporting event, to help users encounter people who grew up in the same locale or like the same band.

?Its literally starting to spin your Facebook network from 500 people to 750 million people,? Mr. Nguyen said.

Photos might not even be a part of Color in the future, he said, yet an operative hired divided from the computer-in-a-pen fraternisation Livescribe is operative on ways for people to loll on photos. Analysts are extraordinary about either Color can lift off a do-over ? and either it and other cost start-ups can kick the prolonged contingency that all fledgling companies face.

?In every bust, there are ones that mount out and be converted into Google, but thats the difference rather than the rule,? Mr. Suster of GRP Partners said. ?For every success there will be 250 unequivocally reticent valuations.?

Jenna Wortham contributed reporting.

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