Update: We talked with Ken Howery, who tells us the fund has nothing to do with the crowded hedge fund business. See below.

founders.gifThree PayPal co-founders are launching their own San Francisco venture capital fund, called The Founders Fund, according to PE Week Wire.

The fund, which apparently has already raised $50 million, looks to focus on consumer Internet start-ups. It’ll probably have a significant ecommerce-finance focus, given the background of the lead partners, Peter Thiel, the former CEO of PayPal, and former CFO Ken Howery.

Thiel has run his own Menlo Park hedge fund, Thiel Capital Management, while Howery was a trader at SF hedge fund Clarium Capital Management. Wonder if this move is a sign they think the hedge fund business is too crowded?

Luke Nosek, another PayPal co-founder, will be a “venture” partner, a term that usually means not a full partner, but someone who helps find and manage deals and negotiates their own cut with the firm.

Update, 7/12:

Ken Howery returned our call, and set us straight. He said the move has nothing to do with fear that the hedge industry is getting crowded. Peter Thiel will continue to manage his hedge fund. Rather, the move is more a continuation of the early-stage venture investments the trio has made over the last seven years, including LinkedIn, Friendster, Gamefly, Ironport, Xoom, Liveops and Facebook. The fund institutionalizes what until now had been an informal practice, Howery said. It is also a good way to leverage their Stanford and other PayPal connections (which a comment below also mentions), he added. The trio sees an overlap with their hedge fund interests, in that they can invest in compatible VC “macro” trends.

It makes sense. This is a very young team…(more)

, especially when you consider they’ve already taken a company — PayPal — through the entire arc of startup, fast-growth, IPO and $1.5 billion megasale to eBay. Howery is 29, Thiel is 37 and Nosek is 29.

We assumed wrongly that they’d be interested in financial plays. “We’re not planning to invest in finance start-ups per se,” Howery said. “We’ve seen a lot of interesting things in consumer Internet recently. That�s where our network is. That�s where our expertise is.”

They might raise a little more than $50 million, Howery said, but not much. The team wants to be the first money into a deal, typically investing a $1 million or less, and a bigger fund would force them to put more money to work. Two-thirds of their money raised is their own, the rests are angel investors or early investors in PayPal.

They’re based in SF, they say, mainly because of lifestyle consideration, but they get down to the Palo Alto area regularly for meetings. Though Howery adds: “A lot of the more promising companies we’ve met with have been in San Francisco…and there are probably fewer people with venture money up here.”

Stay tuned. The fund’s first investment will be announced this week.