Josh Felser and Dave Samuel – a team of entrepreneurs who’ve founded and sold two startups for hundreds of millions of dollars – are getting into the early-stage venture capital business, and they’ve established some nontraditional objectives toward that end. “Ideally, we’re looking to invest in startups that raise less than $5 million from investors, and that get sold in less than five years,” says Felser.
“Venture capitalists are always aiming to hit that home run investment. We’re trying to hit triples and think we’ll be better off for it,” he says.
The firm, Freestyle Capital, joins a select but growing number of firms that have begun investing small funds in seed and early-stage companies in recent years, including First Round Capital and Maples Investments, both of which were also founded by successful entrepreneurs. First Round’s Josh Kopelman founded Half.com, which sold to eBay for $350 million in 2000; Maples cofounded the broadband software company Motive, which went public in 2004.
Unlike some of their predecessors, Felser and Samuel are showing up at the table with their own money. Though Felser declines to publicly disclose the size of their fund, he says that “we want to invest in as many great companies as we see; there isn’t a set limit on what we’re doing.” Asked if they might raise money from institutional investors at a later date, Felser suggests it’s not a possibility they’d rule out, but says that it’s also not something on which either is focused.
Seemingly, the two can easily afford to finance a small fund of their own. In fact, if they manage to back entrepreneurs like themselves, they’ll be doing well, indeed.
In late 1996, Felser and Samuel founded Spinner.com, one of the first Internet radio services. Just three years later, they sold the company to America Online for $320 million. In 2003, Felser and Samuel cofounded Grouper Networks, which invited users to transfer their movies, music, photos and other media from their own computer to those of groups of other users. It raised less than $4 million from angel investors, DAG Ventures, and Deutsche Telecom. Sony acquired it — just three years later — for $65 million.
Samuel also co-founded (without Felser) Brondell, maker of the Swash, a high-end toilet that features a heated seat, delivers a “warm water wash,” and sells for between $450 and $850. Though emphatically praised by Swash owners, the company is now looking for a buyer under the leadership of Brondell cofounder and CEO Scott Pinizzotto. (Americans simply aren’t buying into the idea of electric toilets yet.)
Freestyle, focused on Internet software, has already made two investments. The first has created an online map-building platform that allows kids to customize maps online, after which the map is sent to their home. Felser say he isn’t at liberty to disclose its name as of this writing.
Freestyle also led an investment in Get Satisfaction, a crowd-sourced customer support startup that provides community forums for customers to air their gripes and concerns with the products and services of thousands of companies, from Whole Foods to Apple to the BBC. Companies don’t have to participate, but Get Satisfaction will sell them a license in order to adopt getsatisfaction.com as a customer service resource. They can then populate the community with employees who guide discussions and, when there’s an unproductive comment made, delete it. There’s also an enterprise version of the software license.
Felser declined to discuss the funding in detail, saying that Get Satisfaction is planning to make its own announcement shortly. According to published reports, however, the company raised a $1.3 million round in September 2007, including from First Round Capital. Felser says it reopened that round, and that Freestyle was “instrumental” in pulling it together.
One last note: Felser and Samuel are based on opposite coasts. Felser’s office is in San Francisco, while Samuel is sourcing deals from his office outside North Carolina’s Research Triangle Park. Asked if the distance could prove problematic, Felser doesn’t sound concerned. “No, we’ve worked together for the last 12 years. We’ve found a formula that works, and we’re ready and excited to get our hands dirty.”