My point is that Color Labs was obviously a dud when it was funded by Sequoia[1] -- and that it almost certainly satisfied none or nearly none of Sequoia's own putative criteria. They are certainly entitled to their duds -- but when they are of Color's magnitude, it makes it a little hard to endure their sanctimoniousness around building sustainable businesses.
Color was pictures plus location, that's true. Instagram is also just pictures and filters, which is equally dumb but turned out pretty well from an investor's point of view.
However, you make a good point. Neither Color nor Instagram were/are "sustainable businesses". Sequoia just wants a return. Google is a sustainable business, and if you build one, Sequoia will get their return. You can also just get a bunch of users and flip it to Facebook. They'll get their return then too. And I'd bet Sequoia doesn't really give a crap which way you do it.
It may be and your might have encountered an exception(s), but as whole the venture industry has clear economic drivers and generally people's behavior matches the underlying incentives.
Of course, my point excludes the examples of non-ethical behavior.
It's easy to say after the fact that Colors was a dud, because it ended up turning out that way. Instagram, which is similar, ended up being a good investment.
My point is that VC financing is high-risk, so things that you may think of as being high risk investments, or "duds", are probably potential investments.
VCs also have to deal with the agency effect. If five firms jump on one startup and your firm doesn't, and that startup ends up being successful/gets a return, you stand to lose your clients as a VC.
It's not that easy to say Color is/was a dud considering that it is still around and has enough money in the bank to support its efforts for a decent period longer.
The situation with Color was uniquely transparent that it was ridiculous.
This wasn't some "oh the business idea seemed good, but the team just couldn't get their act together", or, "turned out they attacked the market opportunity from the wrong angle and didn't pivot in time"...
No, this was:
"GEOLOCATION MOBILE SOCIAL INSTAGRAM PICTURES CONCERTS!"
Don't even try to worm out of this and pretend there was any reason to take Color seriously.
I mean, I'm not defending Color. It was a terrible app and an even more terrible business. Sequoia invested in the team because they liked them. They gave a bag of money to people they thought could make good use of it, and it didn't pan out.
