Repeat entrepreneurs embark on VC fund

Josh Felser and Dave Samuel—an entrepreneurial duo that has founded and sold two startups for hundreds of millions of dollars—are now trying their hand at backing young companies.

Felser and Samuel have launched an early stage venture firm called Freestyle Capital. Both founders invested their own money in the firm, though the size of the fund is undisclosed.

With offices in San Francisco and North Carolina’s Research Triangle Park, the two partners plan to invest in startups that collectively raise less than $5 million from investors and that are positioned to be acquired within less than five years.

Freestyle will commit up to $3.5 million to any one portfolio company, preferably in syndicated deals with other angel and seed/early stage investors.

“Venture capitalists are always aiming to hit that home run investment,” says Felser, who is based on the West Coast. “We’re trying to hit triples, and we think we’ll be better off for it.”

The startup veterans know first-hand what it is like to bootstrap a company and bring liquidity to investors.

In late 1996, Felser and Samuel founded, one of the first Internet radio services. Three years and $16.7 million in venture backing later, including from investors Intel Capital and Allen & Co., they sold the company to America Online for $320 million.

In 2003, Felser and Samuel then co-founded Grouper Networks, which operated an Internet platform for users to transfer and share their movies, music, photos and other media. The company raised less than $4 million from angel investors, DAG Ventures and Deutsche Telecom before Sony acquired it in 2006 for $65 million.

Samuel had less luck with angel-funded Brondell, maker of the Swash, a high-end electric toilet that features a heated seat. It sells for between $450 and $850 and has not caught on with U.S. buyers. Though roundly praised by Swash owners, the 5-year-old company is now looking for a buyer under the leadership of Samuel’s cofounder in the endeavor, Brondell CEO Scott Pinizzotto.

Freestyle, which is focusing on Internet software, has already made two investments. It has funded a stealth-mode platform company that allows kids to customize maps online.

Freestyle also led an investment in Get Satisfaction, a crowd-sourced customer support startup that provides community forums for users to discuss the products and services of thousands of consumer companies, from Apple to Whole Foods.

The terms of both deals have yet to be disclosed.

Felser says that Freestyle is focused on “decentralized distribution of media, crowd-sourcing and cloud computing.” The firm is also focused on Twitter as a platform and is looking carefully at startups building atop it as such.

Asked if there are Internet sectors that Freestyle will look to avoid, Felser says with a laugh: “Video destination sites.”

At the height of Web 2.0 mania, Grouper Networks competed with hundreds of video publishing and destination sites and remains one of the few to secure a highly profitable exit.

Freestyle Capital is one of a growing number of firms that have begun investing small funds in seed and early stage companies in recent years, including the earliest funds of First Round Capital and Maples Investments, two firms also founded by successful entrepreneurs.

First Round’s Josh Kopelman founded, which sold to eBay for $350 million in 2000; Maples co-founded the broadband software company Motive, which went public in 2004.

Similar to 5-year-old First Round and 3-year-old Maples Investments, which have attracted institutional support in recent years, Felser and Samuel are “open” to outside LPs in the future, though Felser says that institutional support is not currently a consideration.