Facebook launches fund focused on apps

Facebook LogoMark Zuckerberg announced today at TechCrunch40 that Facebook is launching “fbFund.” The fund, which is done in cooperation with Accel Partners and The Founders Fund, will focus solely on the creation of new Facebook applications. The investment total? $10 million, with $25,000-$250,000 going towards each different app. Zuckerberg says that apart from having exclusive first-in rights for any company that sees a first round of financing, there will be no equity exchanged for the money, which will essentially be given in the form of a grant.

The investment committee is made up of Zuckerberg, Chamath Palihapitaya (Facebook’s V.P. of product marketing and operations), and Facebook board members Jim Breyer from Accel Partners and Peter Thiel from The Founders Fund. Reid Hoffman (founder of LinkedIn) and Rajeev Motwani (early Google advisor) are also acting as advisors.

The creation of this fund seemingly contradicts a comment made during Zuckerberg’s keynote speech at TC40 earlier today in which he explained that the app system was not designed for startups to be built solely around a Facebook application, but that companies should have a non-Facebook presence as well. As the F8 platform’s short history has shown, apps that are anchored to non-FB sites that have an established user base are, predictably, generally more successful than those that are on FB only: iLike was able to pitch their FB app to the user base of Garageband.com, the founder of the popular app “Food Fight” used his existing Trakzor.com property (3.5m registered users) to promote his app, etc. (article about the start of these and other apps found here).

News of this fund comes after Stanford announced a course in the Computer Science department that the university will offer this fall titled “Create Engaging Web Applications Using Metrics and Learning on Facebook.” Also, Graphing Social Patterns, a “new conference devoted to building and distributing apps on the Facebook platform,” will take place Oct. 7-9 in San Jose, Calif.

Business plans may be mailed to platform AT facebook DOT com.

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TiECon Southwest: Promod Haque - the man with the golden touch

Anatomy of a Conference: Day D-1

ImageTiECon Southwest 2007 Entrepreneurship Now New Next is tomorrow and is expected to sell out.

The closing keynote of the day will be delivered by Promod Haque of Norwest Ventures. The man with the Midas touch, millionaire maker - call him what you will. The guy is known not just for picking the right investments, but for being super involved in his companies, and extending to them the benefit of his expertise, and assuring that they become winners!

Promod Haque relationship chart investments


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Google to invest $10M into green start-ups

Googleuse-2Google announced today that they are looking to invest $10 million into companies that are working towards creating “sustainable transportation solutions.” Previously, Google has given grants totaling $1 million to non-profit organizations also focused on reducing automobile emissions.

Google launched RechargeIT in June, a project “aimed at accelerating the adoption of plug-in hybrid electric vehicles.” The search engine giant has contracted with Hymotion, a company that converts regular gas guzzling cars to hybrids, to modify six vehicles used for demonstration of the technology (you can see the actual vehicle data here).

The deadline to submit proposals is October 22nd, ‘07.

Earlier, we posted an article about Google putting itself into competition with VC’s by investing in a variety of start-ups that they eventually acquire. And recently we reported on two promising solar power start-ups.


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How (not) to calculate your ad revenue

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We all heard the news that YouTube was starting to put overlay ads on some of its content.

Morgan Stanley’s Internet analyst Mary Meeker presented her calculations of the impact of new revenue source on Google’s bottom line and concluded that the overlay ads could immediately add $4.8 billion of gross revenue and $720 million of net revenue to Google’s annual results.

That is a very high number indeed. Here is her calculation.

you_tube_mary_ad_calculations

Revenue of $400M a month, $4.8B a year. Of course the problem, as pointed out by Silicon Alley Insider and as it is plain to see, Mary forgot that CPM means cost per thousand ; so the total revenue from the ads is not $4.8B but $4.8M, a minuscule amount.

Once the error was identified, Morgan Stanley published a new estimate of revenue for YouTube and in addition to correcting the error, also changed the assumptions, so the numbers came out to be more “reasonable.”

Two observations here. The first one is that this is not the first time I have seen people forgetting to do a “sensibility” check on their ad numbers. I have a distinct recollection of a business plan that I saw where a very smart guy I knew, kept punching numbers in his calculator and came up with revenue of $500M just from putting ads on his site. I continue to come across these fake high numbers all the time. So always have a sanity check applied to any numbers you come up with.

The second observation is regarding the “analyst’s numbers” and how fluid they are. It is not uncommon (and very often it is the norm) that the analyst comes up with an estimation and then massages the numbers so the answer comes to what they want; not the other way around.

As for the ad revenue, one must take in to account the total inventory available, the sell through rate, CPM rate, CPC rates, click through rate, percentage of allocation between CPC and CPM, the market rates, the quality of inventory you have, affiliate links, the scaling issues, equivalent adsense revenue, and the list goes on. The point is that there is a way to reasonably accurately calculate/estimate the ad revenue number. You might have some leeway in some of the assumptions, but don’t let it get away from you. Do a sanity check.

The second observation, about the “analysts numbers” being fluid ones, is actually related to the first observation of making sure that the number pass a sanity check. A lot of these estimations are “blink” reaction by a knowledgeable person in the industry. The blink reaction includes all the computations one would do in an excel sheet. In this particular example, Mary incorporated 1% of the videos as having ads in them. Where does that 1% come from? Why is it not 25%? If it is 25%, does Google have enough advertisers who are willing to spend the card rate for CPM? So what happens here is that one is using the calculator (or Excel sheet) not as a guide but as a cane; it can’t tell you where to go, but if you are in the vicinity, it can tell you if you are at the right place or not, and it can warn you if you are tripping over anything.

The ad revenue can’t exceed the value you can provide to the advertisers. If you generate $1 in ad revenue, the merchant advertising has to generate $5-$10 revenue. Can your user base generate/support that? Compare that number against the number you calculated using various assumptions and if they match, you have done well.


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