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Samuel was the founder and CEO of Spinner.com, as well as the founder and President of Crackle
There has been a big debate over the last few years over whether the Series A crunch is real or not.
What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Before founding Freestyle, Samuel was founder and CEO of Spinner.com, a Web 1.0 music streaming service that was acquired by AOL in 1999.
He was also the founder and President of Crackle.com, which was acquired by Sony in 2006. He is a a 6.1 MIT graduate.
VatorNews: What is your investment philosophy or methodology?
Dave Samuel: To answer that question I would point out that Josh Felser, Jenny Lefcourt and I are all entrepreneurs previously. Once an entrepreneur, always an entrepreneur, is my philosophy. I ask, 'Could I get excited myself about starting a business like this? Running it?' That's how I approach being a VC. When I hear a pitch, I have to see myself starting a company like this.
VN: What do you like to invest in? What are your categories of interest?
DS: Anything that is internet software related, be it B2B, or B2C plays. I basically do anything across the board with that space.
The standard comment that many VCs will make is that everybody has a computer in pocket today, so he market is much larger than it was a few years ago. So we are seeing innovation happen across the board.
For consumers that means new communication too. For enterprise companies that also means communication tools, along with other innovative things that they now have access to.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
DS: If I'm going to choose a recent investment, within the last year and a half, on the B2C side there was one called Digit. Ethan Bloch, the CEO and founder, this is his second time as a CEO or entrepreneur. The company is focused on allowing consumers to save money by being an automatic savings butler. Its a simple device, a simple product install. Users login for bank account, and it monitors cash flow, and saves cash for you. It's a simple proposition for the consumer and they absolutely love it.
We did the series Seed and they just raised a Series A over the summer. Ethan and the team continue to build out the product.
We are seeing a lot of innovation around fintech and we have additional bets within fintech. We are opportunists for whatever deal comes in through our deal network. I like that idea, and it definitely is an area that continues to see lots of innovation. Banks that are slow on innovation, and startups do things much more quickly with their products in that vertical.
Another is Intercom. We did that seed deal three years ago, from Fund I. It's what I'd characterize as Salesforce 3.0. They build their platform around connecting businesses to customers . If an online business has customers, they really want to have Intercom installed. They have a smart innovative way to have connect with customers. Social+Capital Partnership came and raised the Series A, Vesimer raised the B and the company recently raised their Series C.
VN: What do you look for in company's that you put money in? What are the most important qualities?
DS: We typically like to see a prototype or product. That forces them to have someone on founding team that technically can actually build the product. That's important.
We want to feel good about the company being able to do $100 million in revenue. If all the stars align, we want to make sure we feel good about it hitting that milestone at some point in time. When it comes to market size we try to see if this is this a venture backed idea or is this an angel idea.
It has to be area of focus. We hear the pitch from a new businesses, and we see where does this idea fit within the competitive landscape.
We also look at customer acquisitions. How will this startup acquire new customers? We want to some innovation around that.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
DS: Sometimes we invest before the product launches, sometimes the product has been in market for a little bit. It's hard to necessarily answer that particular question, because for most part we are investing pre-launch.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
DS: I've always been entrepreneur. I started my first business in the fifth grade, way back in the day. I was an entrepreneur through junior high, high school and college. I started a company in the mobile DJ space when I was MIT, then worked at Oracle for a year. I saw Netscape go public in August of 1995, and I thought that wan area I want to play in. I left in December and started the first Internet radio service, called Spinner on April 1, 1996. It has six channels of music and a lot of similarities to what Pandora is today. Spinner was a successful VC backed company, that was acquired in May of 1999 by AOL for $320 million.
After that I took some time off. I've been working with same person, Josh, since 1996. Then we started Crackle in 2004. In August of 2006 Sony acquired it for $65 million.
We stayed at Sony, until we said, 'Hey, let's do something new.' We wanted to do the venture capital thing, so we used our own capital as angel investor,
In 2010 we decided to raise a fund, in 2011 we raised Fund I, which was our capital and other people's capital.
VN: What do you like best about being a VC? What makes you excited?
DS: There are numerous benefits to being a VC. First, it's less stressful and, two, I work hard but I do not work as hard a CEO or founder. I wanted to be able to focus on family and kids and other priorities. Being a VC is a way to find a more balanced life. It allows me to stay connected to entrepreneur and the startup scene, while not managing one day to day. A startup is stressful and a lot of work.
It is very exciting dealing with startups. I get the juice of a startup and I'm able to connect to that excitement. I am able to feed off the excitement and innovation and growth, whether everything's going well or not. You the get highs and lows, but ultimately, at the end of day, I fall asleep and am able to sleep more peacefully than an entrepreneur.
I do plan to start additional companies, but at this point I am enjoying being diversified with being a VC.
VN: What is the size of your current fund?
DS: We are investing from our fund, which is $60 million.
VN: What is the investment range? How much do you put into each startup?
DS: $500,000 to $1 million to start.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
DS: It's hard to necessarily put a container on that today. It's definitely an entrepreneur’s market. That means deals are more expensive for a VC today. We are typically looking for minimum of 10, but that is a losing target as the market heats up. If you look at pre-money valuations for deals over the last two years, pre-money has increased significant from where it was. That makes it harder to get that 10%.
VN: Where is the firm currently in the investing cycle of its current fund?
DS: We just started putting our money to work in April.
VN: What percentage of your fund is set aside for follow-on capital?
DS: We allocate a third to seed, so that's $750,000 and reserve two thirds for Series A, so that's $1.5 million.
On average, if things are going well, we will invest $2.25 million.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
DS: We are really just targeting seed.
VN: In a typical year how many startups do you invest in?
DS: This fund will have 25 deals, so a deal a month over two years.
VN: Is there anything else you think I should know about you or the firm?
DS: Main thesis is that we are entrepreneurs turned investors. You see that with some firms, but with Freestyle it really stands out.
When entrepreneurs ask John, Jenny and I questions we are able to answer them from experience. That is our perspective and approach. We've been in the trenches. similar to them being in the trenches, so we understand things better.
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Freestyle Capital is a seed stage investor and mentor for Internet software startups. We’re the ones you come to when you want more than just a check. Our community of veteran entrepreneurs offers real-world experience and business finesse without stuffy investor baggage or hidden agendas. We’re candid, we’re real, and we’re ready to help you change the world. (You might even have fun while you’re at it.)