The funding and failures of Color, Silicon Valley’s $41 million startup (wrapup of the week of hype and hate)

As you know I didn’t like Color’s launch a week ago. I thought the app just wasn’t very good. Turns out I wasn’t the only one. It still has a two-star review on iTunes. It got an incredible amount of coverage in the press for a new startup, including multiple plays on CNN and lots of other places.

The funding of $41 million also caused a LOT of people in Silicon Valley to ask “huh?”

These two things made me incredibly interested in Color. I kept using their app during the past week. My experiences on that in a second.

But yesterday I visited the company at 215 Hamilton Ave., in downtown Palo Alto. Interesting, I used to work in that building upstairs back in the 1990s.

I did a 49-minute audio interview with Bill Nguyen and Peter Pham, co-founders . It’s long, but incredibly revealing.

What did I learn from these two?

1. They got funded without doing a slide deck.
2. Their reputations got them a personal invite to Sequoia to pitch them. But the story of what they were working on is what closed the deal.
3. They needed the money to “compress” the time they need to ship a very advanced technology and vision.
4. They screwed up the launch, according to Peter. How? Bad UI, bad timing, noise from funding level. He talks about what they are doing to fix the problem.
5. Churn levels are very high. Churn means the number of people who hear about the app, install it, try it out, and then leave and delete it.
6. There are real drivers behind the new valuation numbers that the startup industry is seeing.
7. The technology behind the app actually is interesting. For instance, when you take a photo it measures the audio profile of the room, captures the compass reading and other sensor readings, and pretty accurately knows other users in the room at the same time. I could go into that more here, but really you should listen to the interview because this technology lets them build a new kind of “social camera.”
8. They “tried too much.” Peter worked at Apple and tried to do a very simple UI. That was a mistake because the app was too weird and nearly impossible to figure out and use.
9. This is an app designed for the “post PC world.” We talk a lot about what that marketing term means for apps in the future.
10. The new approach they are taking lets them build a new kind of social graph — one that’s based on who you actually were at the same location or concert or event with. It’s a bit mind-blowing after you finally get it to work and use it around town for a while.

So, now that I’ve used it for a week and have had training on what the app does and how to use it I’m more interested in the future but it still is an unusable app. Even after seeing what it does from the founders I find it infuriating to use. That’s why it has two stars. They know it’s a huge problem.

But, if you look beyond the horrible UI and the bad launch, there really is something here. If they can fix the UI I think there’s actually some magic here. But right now? It’s for people who are willing to put up with major early-adopter pain.

Despite all its trouble, it sure has caused a lot of conversations. This morning I was with executives from Procter and Gamble. The folks who do Pampers diapers. Color caused a major discussion and most of the people in the room already had it on their phones. How many apps out of the 500,000+ in the iTunes store can say that they caused this amount of hype and hate? I can’t think of one except for maybe Twitter and Foursquare.

Anyway, this is one of the more interesting conversations I’ve had in 2011. I’ll let you know when Color becomes usable.