• by Mark Walsh  @markfwal, March 24, 2011

"Pre-Launch Startup Raises $41 Million For Mobile Photo-Sharing App." That almost sounds like something straight out of "The Onion." But truth can be stranger than satire. By now you may have already noticed the online ruckus around Silicon Valley startup Color raising $41 million in initial funding to back its iPhone and Android app of the same name.

Even by the standards of today's overheated investment environment around anything to do with social networking, mobile or some combination thereof, it's an eye-popping figure. Consider that Rovio earlier this month landed just $1 million more than Color after creating the biggest app sensation to date in "Angry Birds." Or that "The Daily," News Corp's vaunted iPad app to save the newspaper, was built with a mere $30 million.

Forget all that. The huge first-round financing lavished on Color is way more than the $25 million one of the company's investors, Sequoia Capital, put into Google, with Kleiner Perkins Caufield & Buyers, back in 1999, the height of the dot-com boom (even allowing for inflation). A legendary Silicon Valley venture firm, Sequoia has also backed the likes of Apple, Cisco Systems and Yahoo.

"Just as the iPhone changed everything about mobile phones, so Color will transform the way people communicate with each other," said Doug Leone, Partner, Sequoia Capital, in a statement announcing the investment and the app's launch. That's setting the bar a bit high for an app that lets people create mobile photo albums around events and places, isn't it?

With the app just rolling out, it looks like Sequoia and other investors, including Bain Capital Ventures, are betting as much on the founders as anything. In chief executive Bill Nguyen (founder of music service Lala, the music service bought by Apple in 2009), president Peter Pham, formerly CEO of BillShrink, and chief product officer DJ Patil, previously chief scientist at LinkedIn, Color has plenty of entrepreneurial pedigree. A high-tech All-Star team, as VentureBeat put it.

So the equation goes something like: proven, talented founders + hot social mobile space = big payoff. Fair enough. But the extraordinary amount Color raised even before releasing its product -- and the ensuing media and investor community freak-out -- has already become a big part of the company's story, coloring (ahem) how the app itself is viewed. As Business Insider noted, early reviews of the Color are already referencing the $41 million investment in slamming it (for example, "I agree they need another 41 million to get it to work").

Based on just 183 ratings so far, the Color app had received a rating of two out of five stars. Not an encouraging start, but let's give it more time for more people to test it and begin building up the shared collections of photos to get a better sense of how users are responding. The problem is, Color is the app equivalent of a hotshot baseball or basketball prospect who gets a huge contract, lands on the cover of Sports Illustrated, and is expected to live up to the hype from the get-go. Fans are apt to be less forgiving of a rough start.

But with a jaw-dropping upfront investment and big media push behind Color, it looks like everyone involved knew what they were getting into. Oh, what about a business model? TBA. Nguyen told USA Today the company hopes to sell local advertising around the photo and video content on the free Color app. Venue-sponsored photo albums? Personalized ads based on where you've shared photos on Color? Hey, don't worry, they'll figure it out, right?

This isn't about strong business propositions. Besides the speed with which popular apps can go viral, the big money flowing into the space is being driven by the prospect of a rejuvenated IPO market, with the likes of Facebook, Zynga and LinkedIn waiting in the wings. VentureBlog at the end of 2010 predicted 2011 will be the year "tech IPOs came roaring back." That helps explain Facebook's estimated $75 billion valuation -- and Color's $41 million stake just for showing up.