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

Sure, there’s lots to worry about. It will drive more Facebook froth; it lowers the funding bar; and it opens the doors to jokes about Web 2.0 venture funds finally abandoning all pretense of profits, etc. etc. Right, right, and right.

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…

Related posts:

  1. When Non-Profits Attack!
  2. Competitive Strategy 101: Declare Victory Early and Often
  3. Is VC Bashing Passe?
  4. LCDs? Plasma? How Passe!
  5. Borges, Facebook, and the Web 2.0 Rorschach Test

Comments

  1. Jon Kelly says:

    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.

  2. Greg Linden says:

    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.

  3. Don Jones says:

    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.

  4. Niki Scevak says:

    “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.

  5. Niki — You didn’t notice the quotes around the word “investments”? That was my point.