Color -- the Web 2.0 startup that wowed Silicon Valley last year by raising $41 million before it even launched a product -- is apparently going out with a whimper.

A person close to the company has confirmed a report by website AllThingsD that Apple (AAPL) is set to acquire most of Color's engineers for as little as $2 million.

The rest of the company will be folded.

Apple representatives and Color co-founder Bill Nguyen did not reply to requests for comment. Co-founder Peter Phan, who left the company 18 months ago, said he had no information about its status.

"A lot of stuff is still moving," said the person close to Color, indicating that Apple, Color and its investors were still trying to hammer out a deal and that it was possible things might collapse.

The Palo Alto startup, Nguyen's eighth, made a huge splash in March 2011 by announcing it had raised $41 million from Bain Capital Ventures, Sequoia Capital and Silicon Valley Bank.

Critics asked how a photo-sharing app could possibly be worth that much.

"It may have been the high-water mark of the social media startup craze," said Stanford entrepreneurship professor Steve Blank, a devotee of the "lean startup" movement that argues new companies should keep expenses low and grow organically.


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In defense of Color's backers, Blank also noted that Nguyen was a "world-class serial entrepreneur" who had sold previous companies for hundreds of millions of dollars -- including one to Apple.

Thanks to that pedigree, Bain Capital gave Color $9 million in seed funding before Nguyen even had a specific product in mind. Sequoia followed with $25 million, and Silicon Valley Bank issued a $7 million line of credit (which a bank spokeswoman says was never tapped).

A Sequoia spokesman declined to comment Thursday. Bain could not be reached

Nguyen, in an interview last year with this newspaper, called the company "one of these all-or-nothing bets."

Color's app, which the startup billed as a "visual diary," automatically connected users to anyone else nearby using the app. Perhaps due to privacy concerns, it promptly flopped. Pham left Color shortly afterward and is now a partner at Southern California tech incubator Science.

Color quickly shifted direction to focus on mobile video streaming. But by last month, the TechCrunch blog reported that Nguyen had been removed from day-to-day management of the company. And Tuesday, VentureBeat published a leaked memo from Color's head of finance, saying that "the board and major shareholders voted to wind down the company."

AllThingsD reported Thursday that Apple is not buying Color's technology, intellectual property or debts. It also wrote that the company still has roughly $25 million in the bank.

The person close to Color indicated that some of that money will be returned to investors and, perhaps, employees,

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.