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Facebook Is Getting Into Venture Capital

By Evan Niu, CFA – Jun 12, 2020 at 9:00AM

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Investing in startups is the social-networking giant's latest method of staying ahead of the curve.

It's not uncommon for tech companies with deep pockets to get into early-stage venture capital investing. Alphabet's Google Ventures, Salesforce Ventures, and Intel Capital are among the most prominent and active corporate venture capital arms within the tech sector. Even relatively newer companies like Slack have established similar funds to invest in start-ups.

Facebook (META -0.54%) is now reportedly exploring a push into venture capital. It's surprising that it's taken the social-networking behemoth this long.

Mark Zuckerberg speaking on a stage

CEO Mark Zuckerberg. Image source: Facebook.

Investing in experimentation

Axios reports that Facebook has been scooping up tech investing talent to lead a new fund that will be part of its New Product Experimentation (NPE) team. Facebook had created the NPE division last summer to test out ideas for new products and services that could potentially compete with just about everyone. So far, the team has released a handful of new apps, most recently including CatchUp (audio calling) and Kit (smartwatch messaging).

In a recent job posting that has since been filled, Facebook said it was looking for someone with a decade of experience in the tech industry who will be tasked with managing a multimillion-dollar fund that would invest in start-ups, according to the report. It's unclear who Facebook has hired or how much money will be in the fund.

Facebook had over $60 billion in cash on the balance sheet at the end of the first quarter, although some of that cash has since been earmarked for the company's massive $5.7 billion investment in India's Jio that was announced after the quarter ended.

Corporate-venture divisions typically fall into one of two categories: general purpose investing (like Google Ventures) or incubating start-ups that support the company's ecosystem (like Slack Fund). Facebook's new initiative appears to be the latter. The company had previously set up fbFund in 2007, a $10 million fund that provided micro-seed capital to Facebook developers.

In a statement to the outlet, Facebook said, "In the same spirit that the New Product Experimentation (NPE) group is charged with product experimentation, the team is also experimenting with ways to support external start-ups, including with capital."

Staying ahead of the curve

It's also worth noting that Facebook is always on the lookout for nascent apps or trends within social media that could become the next big hit. At times, the company has resorted to spying apps that were ostensibly offering VPN services to see what users were up to -- and the insights gleaned often shaped monumental decisions, including the acquisition of WhatsApp.

At the same time, regulators have been scrutinizing small acquisitions made over the past decade that may have been below the reporting threshold as part of broad antitrust investigations into tech companies. The concern is that large companies might acquire a small start-up that could otherwise grow to become a viable competitor.

Creating a new venture arm is yet another way that Facebook wants to stay ahead of the competition.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Facebook and Salesforce.com. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, Salesforce.com, and Slack Technologies. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$135.68 (-0.54%) $0.73
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$95.65 (-1.82%) $-1.77
Intel Corporation Stock Quote
Intel Corporation
INTC
$25.77 (-2.31%) $0.61
Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$143.84 (-2.02%) $-2.97
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$96.15 (-1.98%) $-1.94
Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.
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