Facebook is reportedly getting into the venture capital game, but for young entrepreneurs working in social media, ignoring or deleting that particular friend request could be the right call.
According to a report in Axios, the company is building up a corporate fund under the auspices of its “New Product Experimentation” team, which launched last year. The company posted a job opening looking for a “head of investments” for the new division and now has new job openings in the group for two “founder” positions in New York City and Menlo Park, California.
Axios reported that the role would “manage a multimillion dollar fund that invests in leading private companies alongside top venture capital firms and angel investors,” according to a now-deleted post. The new hire will join Shabih Rizvi, a former partner at the Alphabet-backed corporate venture firm, Gradient Ventures, who began his career in venture at KPCB.
While Facebook said that the new investment arm would complement the work that the company already does to support startups through accelerators and hackathons, investors at some of Silicon Valley’s venture capital firms were skeptical. Perhaps with good reason, since the group that houses Facebook’s new investment team is hiring its own “founders” and has already developed a few apps that could compete with existing startups.
“[Money] of last resort,” one investor wrote in a text. Another said it would be a way for Facebook to spot potential acquisitions early enough to avoid triggering antitrust concerns, which may be good for Facebook, but bad for startups. “[Facebook] can’t buy 100 million-user apps any more,” this investor wrote in a direct message. “It needs to buy them closer to 10 million.”
The company has a history of buying or copying apps that are on the cusp of becoming the next big thing in social media. Instagram and WhatsApp are probably the two most famous examples of the company’s blockbuster acquisitions, while the blatant copying of Snapchat features points to Facebook’s willingness to stoop to imitation when acquisition fails.
In earlier days (circa 2013), Facebook didn’t need to cut checks to get information. The company would have just used the data it hoovered up through Onavo, a virtual private network provider Facebook acquired for its window into app usage via data it collected. That service gave Facebook insights into customer usage that led to strategic maneuvers like the tectonic acquisition of WhatsApp in 2014 for $19 billion.
Whatever Facebook hasn’t bought, it has often wound up copying. Services akin to TimeHop, delivery apps like GrubHub, Meetup’s meetups, Houseparty’s large group chats, GoFundMe’s fundraising services and Craigslist’s marketplace have all found their way onto Facebook’s platform. The company even copies successful features from its own acquisitions.
Given that history, entrepreneurs have every right to beware Facebook investors carrying term sheets. But some investors, like former TechCrunch editor-at-large Josh Constine, said that there are valid reasons to hear out the company’s new cohort of investors.
“While founders could be apprehensive about taking investment from Facebook, there are also unique value-adds the social network could offer alongside cash,” wrote Constine, who’s now a principal and the head of content at venture capital firm SignalFire. “Facebook could provide opportunities for integration with its products, assistance from its team to help with building on its platform, an in-road to acquisition talks and a way for founders to lessen platform risk by incentivizing Facebook not to cut off the startup’s access to APIs.”
Facebook is far from the first tech firm to engage in corporate venture investing. Several large tech giants, including Alphabet (through Google and other businesses), Intel, Microsoft, Oracle, SAP and Salesforce. have venture capital firms. Indeed, having a corporate investment arm is considered the savvy thing to do these days, with a huge number of consumer product companies, utilities and industrial companies adding venture arms.
But these companies have taken approaches that balance financial returns with corporate strategies and — with the exception of Microsoft — don’t have nearly the reputation for building internally what they can’t buy externally.
In fact, Intel’s model for venture capital was based on a broad (maybe too broad) and generous (maybe too generous) approach to strategic value. The company basically invested in anything that would use processing power on the thesis that Intel, by extension, would sell more chips.
Facebook itself has dabbled in the venture business before, setting up a $10 million fund with Accel and Founders Fund that backed companies building apps for Facebook’s platform back in 2007.
Still, as a window into what startups are doing, the investment program is nowhere near as fearsome as the now-defanged Onavo service. “Onavo was a superpower,” one entrepreneur and developer wrote in a direct message. “This is just a little martial arts training.”
For more thoughts on Facebook’s new fund, check out the recent TechCrunch “Equity” podcast:
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