Facebook backers create $10 mln fund for start-ups

By Eric Auchard

SAN FRANCISCO, Sept 17 (Reuters) - Online social networking phenomenon Facebook Inc said on Monday its backers have created an unusual $10 million fund to dole out grants to start-ups with ideas for innovative Facebook applications.

Facebook is working with its primary venture backers, Accel Capital and The Founders Fund, to create a way for people with new ideas to receive an initial funding grant of $25,000 to $250,000 that does not require the entrepreneur to give up any equity in the business they create, as venture capital does.

"We are looking for innovative and disruptive things," Mark Zuckerberg said of projects the grants might fund, in a keynote presentation at TechCrunch 40, a conference showcasing Web start-ups taking place this week in San Francisco.

Projects need not be entirely profit-focused but will be judged based on their overall contribution to Facebook. Non-profit projects could receive funding, officials said.

Rather than seeking to overturn the classic venture capital model, which provides up-front financing to start-ups in return for hefty equity stakes down the road, Facebook hopes to create a more patient model that other venture financiers can follow.

By offering grants rather than venture capital-style investments with strings attached, the fbFund (fb is short for Facebook) entrepreneurs can focus on developing ideas instead of worrying over the dilution that comes from venture funding.

"With just a little bit of capital, a company can grow to hundreds of thousands of users," Zuckerberg said.

The Palo Alto, California-based site has seen its number of active users spike by 70 percent to 41 million members in the four months since it opened up the social networking site to allow independent developers to build programs inside it.