Nearly every fledgling start-up could use a bit more cash in the beginning. But too much of a good thing can be downright dangerous.
Too much of a good thing can hurt your start-up--especially when that thing is VC money.
Just look at the much-hyped start-up Color, Atlanticreporter Matthew O'Brien says.
In an attempt to outdo the social media giants, Color talked big in 2010, but never managed to live up to expectations. Part of the problem, O’Brien argues, was the high monetary stakes put on it before its debut. Color raised $41 million pre-launch, a record-setting number, and Google even offered to buy it for $200 million before it had an actual product. Come launch day, it flopped, garnering just two stars in the Apple app store.
These days, when a start-up fails, often its next move is a pivot--that's when a company methodically tries to find success with a different product or business model. But Color flailed. According to O'Brien, the sheer amount of venture funding may have made the difference.
Because there was so much hype surrounding Color, it never participated in beta testing or hung out in stealth mode. Companies like Instagram were able to pivot (from social-sharing company Burbn) quietly and tactfully. Instagram founder Kevin Systrom tested the photo-sharing product in stealth mode and created an app that could outdo competitors like Hipstamtic before it launched. With a meager (in comparison) and partially self-funded $500,000 in seed capital, Instagram didn’t have the pressure or the attention Color did with big name backers like Bain and Sequoia Capital.
Since its launch in 2010, Color has “flailed” three times. It tried to be a social app meant to connect you with people in your vicinity who shared your interests. Next, it was an app meant for events--it used Facebook data to connect you with someone from your town attending, say, the same baseball game as you. Now, it’s something akin to a video version of Instagram.
O’Brien says the curse of Color was, at the root, in its massive amount of "seed" funding. There was little time and too much hype for founder and CEO Bill Nguyen to find a workable product that he could bring to market.
“Instagram was the perfect product in the perfect market at the perfect time. Color was… not,” O’Brien writes. “It had bad execution, worse marketing, and a conceit that was at best ahead of its time. Its massive pre-launch raise didn't create those problems, but it did make them more likely."