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September 17, 2007
fbFund: VCs Declare Profits Passe?
Leaving aside the Facebook aspect -- which is admittedly hard, given that is its raison-d'etre -- I'm kinda fond of the new fbFund launched by Facebook, in conjunction with Accel and Founders Fund.First, the gist: It's a $10m grants-only fund that will dole out amounts ranging from $25-$250,000 to worthies who promise to build Facebook apps. Founders Fund and Accel will get the right of first financing refusal on anything coming out of the effort.
What do I like? The following:
- It's obvious why Facebook is doing it
- It keeps small pre-seed "investments" off startups' balance sheets
- It avoids the early valuation and convertible note traps in early-stage companies
Nevertheless, leaving aside the Facebook angle -- a subject about which I am weary beyond words -- I like the idea of a grant-based fund filling a gap in the pre-seed cycle. People might consider where else this approach would be applicable, and more likely to lead to higher returns...
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On where else it might be applicable, seems like it would be a better structure for Amazon Startup Challenge than the current contest-like structure.
On a related note, I am not sure I would think of fbFund or the Amazon Startup Challenge as actually being intended to create viable startups.
The goal of web service APIs appears to be to outsource innovation. I suspect Amazon and Facebook are more interested in acquiring or copying the ideas generated than in building substantial side businesses.
The build vs. buy decision at Yahoo! is based on a $10 million valuation. This is corporate venture capital with a different face on it.
"It keeps small pre-seed "investments" off startups' balance sheets"
Err last I heard 'grants' were a little different that pre-seed investments, even in quotation marks. Grants are basically a gift and don't receive any equity or debt in return. Best I can see they are an option to invest more if the company raises more money.
Niki -- You didn't notice the quotes around the word "investments"? That was my point.
Paul, I can see why you are "weary beyond words." It's hard enough to imagine how Facebook will be able to get a decent CPM for their traffic, let alone the monetization of Facebook app developers.