As a VC, how is a $41 million investment in Color, justified? | Hacker News Reader

As a VC, how is a $41 million investment in Color, justified?

quora.com

Several of the highly-voted answers here consist of baseless speculation, facts that are very probably untrue, and mostly fantasies of uninformed pundits.

Reminds me of this comment by Paul Buchheit (http://news.ycombinator.com/item?id=1503075) about another unfortunate quora answer (http://www.quora.com/Google-Inc-company/What-were-the-4-or-5...) and the pitfalls of simple up/down voting systems.

Discussion on the same link from yesterday: http://news.ycombinator.com/item?id=2376422

I think a lot of people are missing the big picture. For the past few decades, the economy has been transforming to be increasingly technological, moving away from oil and unnecessary manufacturing, transport, and administration. Several technology companies are now worth more than many oil giants. This part of the economy is experiencing an enormous growth, with large companies routinely showing annual revenue growths of 20-40%. They are now making massive investments in technology not seen since the days of Bell Labs and NASA. With such amazing growth comes a form of competitive inflation. To successful investors such as Sequoia, $40 million is simply not that much money these days. It's what you need to be able to get ahead of the competition and be successful, yet small enough for a VC to be willing to take the risk.

The .com bubble was the moment people first started to realize what was about to happen. Being completely inexperienced with this new phenomena, they overvalued garbage and undervalued treasures. Nonetheless, inside the bubble was a core of solid gold. In 2010, Mark Zuckerberg was chosen man of the year, only 11 years after Jeff Bezos was man of the year in the midst of the greatest "bubble" the world has ever seen. A few years later, he had revolutionized shopping, computing, publishing, and became one of the richest people in the world. I'm also reminded by the tulip bubbles, which preceded the Netherlands becoming the world's dominant flower exporter for the next 400 years. I think bubbles are a whole lot more rational than people realize.

Maybe in ten years there's going to be a post on Hacker News about how it's a little known fact that version 1.0 of Color was a colossal and epic failure. So the team was forced to pivot to the Color we know and love today.

How were they able to successfully pivot? They had $41 milliion dollars ;<). Either that or Google, a Sequoia company, buys them in a year for $60 million to get the team.

  It seems easy for a two-time experienced entrepreneur like
  Bill Nguyen to know where to spend $25M

With what we know about Color... what would you do with $25M if you were in Bill's position?

I have real trouble getting my head around these sorts of numbers and it would really help me to have someone break down the likely way he'd use that money.

You can't invest in the product -- not if it's really new, never seen before. You have no way to evaluate it, so you invest in the team. The team at Color has a proven track record; if the product is bogus, the will be able to pivot. Color is a good investment, but a little out of my price range.

I don't view it as a 'good investment'. I view it as a large, high-risk investment that will likely leave one group of people saying 'I told you so!'

But it's not obvious to me which group will be wagging their fingers in victory.

If you cant fit your reason in a simple sentence or paragraph...

Because, as nytimes showed, 40M is merely the rate a corporate accounts pay for a few afternoons worth of hacker time: http://news.ycombinator.com/item?id=2377299

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