Finding the right venture capital firm isn’t unlike dating. The pool seems big until the realization hits that getting funded is about more than getting a check. It’s a partnership. And being one of the nearly 3,000 venture-backed companies (grabbing a piece of the $20 billion pie, according to the National Venture Capital Association) means not only having a truly innovative offering. It also means getting others to commit to an idea.
According to an industry expert quoted by Bloomberg, “of every 100 business plans a venture firm receives, 10 get a serious look, and one gets funded.” Add to that the fact that VC investment in dollars dropped 10 percent in 2012, according to the MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA). This means that a great idea, passionate founders, and a solid business plan are all core requirements.
Dave Samuel knows this as well as anyone. He is the co-founder of San Francisco–based Freestyle VC, a firm that funds Internet software firms. Samuel and his partner, Josh Felser co-founded Crackle (acquired by Sony in 2006 for $65 million) and Spinner.com (bought by AOL Time Warner in 1999 for $320 million). Today they’ve funded startups including Chartbeat, Clarity.fm, About.me, and Backtype (acquired by Twitter). Samuel’s goal is to be deeply involved with every one of their portfolio companies so that each has the chance to shine.
Here we talk to Samuel about his background, what gets him to invest, and what will be the hot trend in startups this year.
QUALCOMM SPARK: What are the main qualities you look for in a company that pitches you?
DAVE SAMUEL: The three biggest are team, product, and a clear understanding of what they can really accomplish in a one-year lifecycle. We don’t do hardware deals and we steer clear of traditional enterprise solutions because the sales cycle is too long.
QUALCOMM SPARK: What would dissuade you from investing in an otherwise ideal company?
DAVE SAMUEL: First, it would be the lack of a technical co-founder. Companies today truly need someone on board with the technical expertise to develop their product. Second would be companies that have already raised significant funds. We’re always looking to be in the first $1 to 1.5M raised. Finally, it could be companies not excited and prepared to build really big companies. A $20-million exit isn’t exciting for us. We need teams who are gung ho for that exit that makes people say “Whoa!”
QUALCOMM SPARK: Where are the new and exciting companies coming from?
DAVE SAMUEL: We’re seeing a lot of growth in the desktop-to-mobile space. Startups are coming in and stealing market share from existing platforms because they can do it better and faster. We’re also excited about smart interruptions: Companies that create technology for more intelligent e-mail and lifestyle management. There’s also the consumerization of the enterprise, startups that are creating consumer-feeling apps that make business more efficient. We anticipate activity in this field for 2013.
QUALCOMM SPARK: What’s the best piece of advice you can give to company looking for funding in today’s VC market?
DAVE SAMUEL: We don’t want to see safety nets. If you’re still at your job at Google until you get funding for your startup, you’re not committed. Demonstrate that you have the grit and take the leap. We want founders committed to one company because we’re willing to commit significant time and resources to helping them grow that company.
QUALCOMM SPARK: What planted the seed for your entrepreneurial career?
DAVE SAMUEL: I started my first business when I was in first grade! It was called Thrill of Design and I printed custom banner for people with sayings like Welcome Home, Dad! and used one of the first-ever inkjet printers on the market. I founded my next business in the seventh grade, Sounds Unlimited. It was a mobile DJ business and I figure one of the leading reasons I eventually got accepting into MIT.
QUALCOMM SPARK: After college, you began your tech-centric career at Oracle. What drew you away from that company?
DAVE SAMUEL: I always wanted to work in Silicon Valley and working at Oracle made that a reality. It was a stepping stone to even bigger opportunities in the Internet world, which was what really inspired me.