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Entrepreneurship: New Economy, New Safety Nets

At the risk of adding to the morass of Facebook-related news coverage floating around the Web, it’s worth mentioning that Facebook announced this week that it is pairing with two prominent VC firms to establish fbFund, a $10 million venture fund specifically for Facebook Platform application developers.

At the risk of adding to the morass of Facebook-related news coverage floating around the Web, it’s worth mentioning that Facebook announced this week that it is pairing with two prominent VC firms to establish fbFund, a $10 million venture fund specifically for Facebook Platform application developers. The announcement is widely regarded as a response to the Bay Partners’ Facebook-specific venture program called AppFactory and Altura Ventures’ Facebook fund, and will offer similar seed-level funding of $25,000 to $250,000.

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Obviously, most entrepreneurs out there don’t have any connection to Facebook — so why is this announcement of wider import? Well, there’s some salient wording in the Bay Partners’ press release; they refer to Facebook platform as a new “operating system,” specifically, a “social operating system.” Put that term to most people, and they think of Microsoft Windows or Mac OS X. And then they think of the history of software development for those platforms. And then they realize the billions of dollars of potential that Facebook conceivably has to developers. Will some net-based startups begin integrating Facebook functionality simply to float on the rising tide of venture funds?

Right now, Facebook apps are little more than amateurish widgets that perform negligibly useful services. But as Bay Partners has articulated, new operating systems usually lead to new economies, and in new economies there is, presumably, incredible breadth of opportunity. And when you’re dealing with a network that has access to all of its users contact information, there’s nary a business in the country that couldn’t find some way to utilize that to a meaningful end.

Another notable implication of this kind of Facebook funding, which comes with few (or no) conditions or recourse, is that it represents a new paradigm in ultra-early-stage funding and seed funding. Decreasing startup costs for web businesses have allowed these funds to grant drastically smaller amounts of capital up front, and by extension, claim smaller amounts of equity in their clients (usually only two or three percent). This makes both VC firm and client happier campers, to be sure. Another boon for clients: a quicker and easier, if higher-competition, application process. All these funds are promising very quick turnaround on high volumes of applications, and as a result, are becoming less thorough; some hand-holding seed funds like Y Combinator aren’t even requiring traditional business plans in their applications. The benefit for the funds, of course, is that they get there hands on more ideas, even if there’s more chaff to root through in the process.

The intended (and hopefully, effective) result is that clients have more time and energy to grow their concept, and fewer VC hoops to jump through while doing it. In effect, they get a “safe space” to explore their idea without the arguably coddling and controlling incubator scenario.

Simply the existence of these programs is conceivably enough for some web entrepreneurs to consider modifying their business model to operate with or on the Facebook Platform, just for another venture capital opportunity. Have any readers decided to adapt their startup to have a Facebook component in the hopes of applying for a slice of some of this pie? It’s also possible that we are seeing the inflation of a kind of Facebook-bubble; is Facebook development less profitable than these firms are hoping?

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About the author

I've written about innovation, design, and technology for Fast Company since 2007. I was the co-founding editor of FastCoLabs

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