I had a draft post I’d written weeks ago entitled something like “Color: Just an Enormously Large Seed Round Gone Horribly Wrong”, or something like that. Which I guess it was — $41,000,000 to build an iOS app with no revenue that no one ever used.
But it wasn’t that interesting, that post/story, so I let it rest. It didn’t all come together for me until the other day.
Then I saw that enterprise WiFi company Meraki was acquired by Cisco for $1.2 billion dollars the other day. Just a few weeks after Color is wound down. Now what does an enterprise WiFi company have to do with a consumer iOS app?
Well, only one thing near as I can tell. They were both funded by Doug Leone (who I don’t know and have never met) at Sequoia Capital.
It looks like Sequoia was the first investor in Meraki, pre-product, pre-anything, just the team. I think it’s fair to assume they owned 20%, possibly more. So ignoring basis, Leone and Sequoia cleared $240,000,000 on Meraki.
On to Color. OK, this one didn’t pan out as well. But let’s do some back-of-the-envelope math. Yes, they raised $41m pre-launch. But I doubt they spent it all. Let’s assume they spent half, and returned the other half to the investors. And let’s assume Leone and Sequoia put in 70% of the capital. So 70% x $20m = a $14m loss for Leone and Sequoia on Color.
Now, to a small fund, or a new VC, I’d think a $14m loss would just be awful. It would be to me.
>> But coming the same quarter as a $240m gain, a $14m loss is a rounding error. At least as long as you only have one or two of them
Going Big. Means Losing Biggish a few times, at least.
Something to keep in mind based on who you take money from. Make it match your ambitions, your upside goals, and your downside tolerance.
(Cross-posted @ saastr)