Facebook’s fbFund incubator program looks to cash in on the site’s growth

This year, Facebook and two of its venture investors, Accel Partners and the Founders Fund, are changing up their fbFund incubator-style program from handing out grants to making equity investments. Venture capitalists aren’t generally known as purely altruistic, so the switch suggests these two firms see more money to be made on the platform this year than last. The program is also broadening in scope to include sites that use Facebook Connect for sharing user data between Facebook and the web, iPhone and desktop applications.

FbFund has also become more formalized this year, operating as a sort of summer school that gives developers who win not just money but an inside track to working with Facebook, top application companies and potential investors (see the full list at the end of the article). The fund will first announce a list of 50 finalists, each finalist team will get $1,000 worth of Facebook advertising to work with. Then the fund will select a smaller number of teams from among the finalists to participate in the incubator program, to be based in Palo Alto (where Facebook is based). It will run from the middle of June to late August.

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The changes were inspired in part by a Stanford University class co-taught by entrepreneur Dave McClure (who is heading the fbFund this year) and social technology researcher BJ Fogg in the fall of 2007, where student teams were both competing to build applications and teaching each other as they learned. The changes were also inspired by seed-stage venture firm Y Combinator, which has been successfully running a sort of incubator for young companies for several years. What it showed, McClure tells me, is that you don’t need to put very much money into these companies in order to get results. As it did last year, the fbFund will bring in experts to discuss best practices in the industry — having everyone in Palo Alto will more physical contact and networking than before.

Anecdotally, many companies are already making good money on the platform, especially companies that use virtual goods and currencies within gaming applications. Most recently, Justin Smith at Inside Facebook surveyed companies providing payment services to these apps, and concluded that the volume of both transactions and dollars among payment companies was growing by an average of 35 percent.

The platform is also huge. Overall, more than 800 third party applications have at least 100,00 monthly active users, the company says today, with more than 70 percent of Facebook users are using third party apps, so around 140 million of the site’s 200 million monthly active users.

This growth — and investor interest — is in spite of the many changes that Facebook has been making to the platform since it launched in 2007. The social network has regularly incurred the wrath of developers because these changes often lead to sharp traffic drops for applications. (For more on platform issues, check out this in-depth piece I wrote in December). Facebook’s goal was originally to create a level playing field for any developer.

FbFund is in some sense trying to do the opposite. I asked McClure, now a Founders Fund investor and Facebook evangelist, how he views fbFund fitting into the platform’s larger goal of making it easy for any developer to build on the platform. “We’re trying to give advantages to people who have their shit together,” he tells me, “We are not here to give everybody all the resources in the world. We’re going to reserve resources we have for a smaller group of folks who’ve proved their merit.” And you can be one of them provided you apply by April 20th — McClure has more details here, you can apply here.

Facebook also plans to reveal more details in the coming weeks, including the exact equity structure that winners will get. Here’s the tentative list of mentors — who are officially known as the fbFund Developer Advisory Council:

• Accel Partners
• Citizen Sports
• Facebook
• First Round Capital (Josh Kopelman)
• Flixster
• Founders Fund
• KISSmetrics
• Kontagent
• Playfish
• RockYou
• Serious Business
• Stanford University (BJ Fogg, Rajeev Motwani)
• SGN
• ShareThrough
• Slide
• Tapulous
• Zynga