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…

Comments

  1. 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. 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. 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. “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.