Over the past year, Facebook has seen its fair share of departures from employees and executives who are either starting a VC fund or camping out at a firm to figure out what their next startup or company will be. In the past two weeks, product manager Justin Shaffer left, and rumor has it he is starting a VC fund. Facebook engineering and product lead Greg Badros announced his departure, and it sounds like he'll be focusing on investing. Former Facebook exec Chamath Palihapitiya has been collecting technical talent from Facebook into his EIR program. And there are many more examples of Facebookers going to VC firms or starting to invest of late. Our question is, why doesn't Facebook just form its own venture group so some of these employees could stay connected to the company?
There are many more reasons beyond just retaining talent for Facebook to form a corporate VC firm. Facebook has a substantial opportunity to do what Google Ventures has done in the VC world. Considering the interest its staffers now have in venture capital and advising startups, Facebook could build a new brand of venture capital. The social network has an enormous amount of talent that has been through the trenches of growth, parsing through large amounts of data, advertising, product development and more. As VCs become more hands-on, Facebook could tap its wealth of knowledge and experience to help portfolio startups. Similar to Google Ventures, Facebook could draw on its enormous base of employees to help grow startups. Facebook has already become an ecosystem with many former employees starting companies, so a company could easily grab great deal flow from its alums alone.
Facebook had already been participating as a partner in larger funds operated by other VC firms. The social network invested in Kleiner Perkins's Fund in 2010, which was a $250 million fund dedicated to backing social startups. Facebook also helped administer the FbFund, a $10 million seed fund that was jointly funded by Founders Fund and Accel Partners to back startups developing websites and applications related to the Facebook Platform. Facebook discontinued the fund in 2010.
The opportunity for investing is so much broader than startups built on the Facebook platform.
From 2006 to the first half of 2012, Facebook alums had raised $271 million of venture capital funding since 2006. As of the first half of 2012, the Facebook mafia had pulled in $130 million in VC funding in 2012 alone. We're sure that number increased significantly over the past year.
Facebook alums and current employees who landed windfalls in the IPO are already actively seed investing. If you take a look at AngelList, there are hundreds of current and former Facebookers who are angels. In Google Ventures' case, Google is the firm's sole LP. While Facebook hasn't stockpiled the amount of cash that Google has, Facebook could do something slightly different with its employees who want to invest, such as make certain employees LPs of a fund alongside the company itself.
When it comes to talent, a corporate VC arm makes sense for Facebook when you consider a number of factors. First, talent that wants to potentially go into venture as an investor can stay within the Facebook umbrella. Clearly we see this happening as experienced operators and product managers at the network are starting to move over to traditional VC firms or start their own firms.
From what we've heard, a lot of Facebook's top employees have been working there since college or right after graduating. Some feel they've "done their duty" to make the world more open and connected. It's not that they dislike Facebook, but they want to try something new. If Facebook created a VC firm, it could be an outlet for taking on fresh challenges without leaving the company entirely.
"FBVC" could create a home for more than just potential investors. For example, Google Ventures employs a number of designers in-house to help its portfolio startups. Many of these designers came from Google. Facebook has had trouble retaining design talent lately, with departures of Instagram's Tim Van Damme, Messenger's Chris Kalani, and Facebook Stickers lead Sophie Xie all leaving in the last two months. Xie just completed a month of contract design work for ex-Facebooker Carl Sjogreen's new startup Shadow Puppet. Perhaps a role as Facebook Ventures' in-house designer could have let her dabble with different companies while remaining part of the Facebook family.
A Facebook venture group would also provide an alternative place for the company's employees to park themselves for a year in an EIR role to figure out what they want to do next. Palihapitiya believes that talent needs this time to really determine what the next role could be. And this would give EIRs the opportunity to team up with other Facebookers to start companies. In the past year, Palihapitiya has been able to bring over a number of key product managers to his firm to simply network and figure out what they can do next. Best case scenario, these Facebookers will team up on a new idea or startup, and Facebook could grab some meaningful equity. Another talent benefit for a Facebook Ventures arm would be to create a second home for great talent that Facebook wants to pick up, but doesn't want to work on executing product or business.
It's worth noting that not every successful technology company has a VC arm. Yes, there's Amazon, Google Ventures, Intel Capital, and Microsoft Ventures; but Apple doesn't have a VC arm (Apple does apparently, have a fund that makes private equity deals). Apple's general investment strategy has been to acquire talent and companies that fit its technology and product strategies, and the company has notoriously been a closed environment. Once you leave the company, you are closed off. Google is on the other end of the spectrum as it has created an ecosystem with its various offshoots, such as Google Ventures.
One complication Facebook would have to deal with if it entered venture is avoiding the perception that its platform favors companies it invests in. That could sour relations with the ecosystem it's built around its login, sharing, backend hosting, and advertising services. Startups might be less enthusiastic to build on Facebook if they feel they're handicapped unless they have Facebook on their cap table.
But as Facebook grows into a bona-fide Internet giant, it needs to do everything it can to avoid the type of stagnation that leads to disruption. For many companies its size, that means acquiring and acqui-hiring to bring in the best talent. And there are few better ways to get a close look at startups to potentially buy than by dangling cash to invest.
Facebook will ultimately have to decide whether it wants to go down the Apple route or the Google path. Perhaps it's too soon, but the company is about to turn 10 years old.
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