In late-2008, units within a proposed 80-story luxury condo in downtown Toronto went on sale. The real estate market was so frothy that people lined up for more than a week to purchase a unit. Some of these people had been hired by buyers or real estate agents for several thousand dollars. In other words, it was a crazy situation.

If I had been prescient enough, it would have been a blatant indication the decade-long economic boom was about to bust. It was deja vu all over again on the front page of the newspaper. But most people were far too bullish to pay any attention. Lo and behold, the global economy went in a wicked tailspin, fuelled by an overheated real estate market in the U.S. In the process, the condo project fell apart, leaving an embarrassing empty lot.

Fast forward less than three years and there is full-blown evidence of another bubble about to burst. In this case, it’s a $41-million financing done by Color, a mobile photo-sharing startup looking to establish a foothold amid a sea of photo-sharing startups.

But wait the blogosphere and media breathlessly proclaim, Color is different because it’s a “proximity-based social network” and – wait for it – Color is all about implicit rather than explicit relationships.

“This tweak may well resonate with people who feel their Facebook and Twitter friend lists are random, outdated and overwhelming,” gushed Liz Gannes, who is clearly drinking the Kool-Aid being served up in Silicon Valley these days.

Money talks, and $41-million is giving people a warped view of the world: the idea being that if a start-up can raise $41-million, it must be something special. Color may be special but not in the way that its founders and investors believe.

For one, there are already critics who believe Color is especially bad. Mike Rundle opines Color has already blown it, while Jason Fried declares Color botched the “blank slate user experience”. In many respects, Color reminds me of the inauspicious launch of Flock, which was supposed to be the social browser.

If I were a high-tech investor, Color paints a perfect picture of how we should be running for the hills. Color has bubble bursting written all over it. It’s an over-financed, over-hyped and underwhelming start-up trying to break into an overly-competitive marketplace. Somehow, it has managed to convince some pretty smart people it has come up with a better photo-sharing mousetrap.

And that is a dangerous sign that would be colored red.

Related Links:
Investing Like It’s 1999 (New York Times)