Some color on Color

Update: AllThingsD reports that Apple is simply acquiring Color's talent, leaving the rest of the company to be wound down.

Everyone seems to be getting mixed signals about Color, the controversial and high-profile startup that started as a photo-sharing app but never could find its groove.

Color is well-known for three things: founder Bill Nguyen (a veteran of the tech industry with a history of exits), raising $41 million prelaunch, and its failure to turn Nguyen's knowledge and that cash into traction.

The rumor mill started with a VentureBeat article claiming that Color's board had voted to shut the company down. The Color team quickly shut that rumor down. Most recently, a report claims that Color is actually being acquired by Apple, the same company that acquired Nguyen's last company, Lala.

Some people can't seem to make sense of the latest rumor. And I can't blame them -- why would Apple pay any amount for a company that was on the verge of shutting down? What value does Color have?

I've been following Color since the beginning, though, so I have a different perspective on the company. The first thing you need to know is this: there is no way the company was simply going to shut down. I didn't believe that rumor for a minute.

The reasons for this are really straightforward:

• Color still has a valuable mobile engineering team that companies like Google wanted to acquire even before the launch. Even though it lost some of its key players, several key engineers (and Bill Nguyen) still remain.
• Color still has a lot of money in the bank. That gives the company flexibility, and it has to be factored into any acquisition.
• Color has several valuable patents. You don't just shut a company down and let those patents go to waste. There are always buyers for patents.

The rumor now is that Apple is going to acquire Color for a price that is north of Color's $41 million in funding. It seems counterintuitive that anybody would acquire a failed startup for more than its funding, but if you think about the reasons why Color would never shut down, then an acquisition at that price makes sense.

First, you have to subtract any funding Color has remaining from the total acquisition price. After all, you wouldn't sell a company with $25 million in the bank for $20 million. And second, you have to put a price on its engineering talent and its patents. Those could very well be worth tens of millions, especially if there are multiple bidders.

Apple's executive team has a very high opinion of Bill Nguyen, and I'm sure they'd love to bring him back into the fold, so I wouldn't be surprised if Apple does end up absorbing Color. But even if Apple doesn't do the deal, somebody will. Color's assets are simply too valuable.