M&A, IPOs & Exits

Making Sense of Color after Meraki, and Going Big


Jason Lemkin

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.

Published on November 29, 2012
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