Last week I was in Palo Alto, drenched by torrential rains but happy to catchup with serial entrepreneur Bill Nguyen and hear about his remarkable new startup Color, which today launched its iPhone and Android based mobile app.

Color has raised $41 million from a stellar group of investors. This is a huge amount of capital for a seed/Series A round and it shows how much confidence there is in Mr Nguyen and his team.

But this is no ordinary startup. Mr. Nguyen is a serial entrepreneur, his most recent venture was LaLa, the cloud-based music service that he sold to Apple for about $80 million.

The Palo Alto offices are behind a nondescript storefront but inside there are several large spaces where rows of developers sit behind huge Apple displays. The basement area is huge and this is where the play areas are, for adults and for children.

We sit on beanbags on a huge half-pipe — skateboards seem to litter the place. Mr Nguyen shows me the app, which has only been tested by about 30 people.

To release an application like Color, which challenges the boundaries of privacy and of ad hoc social contact, in a such a highly novel way and only test it with such a small group — is incredibly bold.

How will people use it? Will they use it?

No one knows just yet but it shows the singular focus of Mr Nguyen’s vision.

Here is a description of Color:

– It acts as a group camera collecting photos and videos from all Color-enabled phones in the same proximity.

– Photos and videos are automatically posted to the cloud.

– Other Color users can see your photos and videos but only if they are physically near you.

– Other Color users don’t know who you are, you don’t know who they are, all that links you is that you share the same space: a restaurant, a club, a concert, a party, a high street, a hiking trail — anywhere.

– You can message other color users.

– The connection between you and other Color users gradually goes away over a two week period but can be maintained if you continue to browse their photo/video stream. It’s an elastic network.

– The range is roughly about 50 yards but can be extended to as much as half-a mile.

Mr. Nguyen said that Color was designed so that people could find out more about their neighbors, their community, people around them. These are not people you know on Twitter or Facebook. You don’t need to “follow” anyone, the connection is made automatically.

“I realized that we often don’t know much about the people around us. This is a way to help people have a sense of community and to start interacting with each other.”

A key goal for Color is to help “capture” a group experience through the “multi-lens” experience of sharing photos.

“There is no privacy setting, every picture taken is shared. This is all part of the post-PC world.”

The demo is intriguing. The interface allows you to scroll through a visual diary, with photos and videos grouped according to the day they were taken.

Foremski’s Take:

It’s a fascinating concept and it will be interesting to see just how much people want to connect with strangers, where often the only thing they have in common is that they are in the same location.

There are existing social conventions in place because people don’t want to interact with each other, especially in cities and among apartment dwellers. Do I want my next door neighbor in my apartment building looking at my pictures?

No, otherwise I would have knocked on his door and shown them to him, after all, he’s right there.

I say hello to my neighbors but that’s about the most interaction I want with them. And that’s the way they feel about me.

I predict Color will have to modify its settings and offer exclusion zones based on your GPS location, such as your apartment building, your work place, your parent’s place.

If I wanted to get to know my neighbors better I would try to make friends with them, but I don’t and they don’t. Color isn’t solving any problem here.

People walking along city streets try to ignore each other. Do they secretly wish they could interact with each other through an application such as Color?

We’ll find out.

In other situations I can see how Color would be fun to use, such as at a concert where you could view the event from different angles.

And it could be a great way for singles to break the ice with each other in clubs and bars.

You could maybe find a decent restaurant by walking by and seeing if any food photos had been taken by Color users — a good sign.

And I’m sure there will be many other interesting uses and experiences enabled by Color.

The most interesting aspect of this application is that it is totally unique and likely to usher in a whole new genre of proximity-based apps.

How Color will be received and used, however, is the $41 million question.

[Cross-posted at Silicon Valley Watcher]