At Freestyle, Investing Is A Family-Friendly Alternative to Startup Life

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an extension of the management team. Typically, there are only one or two of them, so they don’t have a head of marketing or business development or sales or finance or operations. So we tend to jump in and fill in, in the hope of increasing the odds that they will be successful.

Some of our companies have now raised Series A and Series B money. We are very active in the first year—we are typically the most active investors in any of the companies we invest in. But that should absolutely change once another lead investor takes over in the Series A. As they hire more people they have bigger teams and they need us less.

X: What did you learn as founders at Spinner and Grouper that affects the way you make investments and advise startups?

JF: We probably had 60 investors say no to us, across the two companies. It was an important learning experience for us. When we say no to entrepreneurs now, we say that 60 people told us the same thing. We also tell every entrepreneur we meet that we are going to evaluate them as if we were starting the company. To invest in so few companies, we have to be passionate about each one. What makes us nervous? What excites us? Is it big enough? To really know, you have to have actually done it as an entrepreneur.

X: You fund Internet startups. Within that area, what’s your investment focus?

DS: Our focus is on pure software. We are not doing hardware deals, or even software deals that require pieces of hardware. Our biggest filter is that we want the company to prove that they’re on to something big in the first year. We are not going to do [anything that requires] a long development or sales cycle. We are not going to do hardcore enterprise software. We will do light enterprise, like Get Satisfaction or Typekit.

Many of our 29 portfolio companies are doing things where we’re like ‘Oh, wow, I wish we’d had that technology at Spinner or Grouper.’ We wish we’d had the ability to unlock more fonts on the website—that’s Typekit. We wish we’d had a great customer service toolkit—that’s Get Satisfaction. Crowdflower is winning in the automated, distributed workforce market—we were constantly taking porn video down from our site and we could have done that in a much more streamlined fashion.

Freestyle Capital co-founder Josh Felser

X: How do you find companies to invest in?

JF: [Across the Freestyle portfolio] we have probably 100-plus employees and former employees out there starting companies. They’re aware of what’s happening and they are a good source of deal flow. Then, just our friends and peers. The individuals who source investments are probably 95 percent entrepreneurs. When we get deals from VC firms they are typically not good fits for us.

X: How much do you invest?

DS: We are typically leading with half a million and filling in the round with other friendly investors. So it’s somewhere between $750,000 and $1.25 million overall, and our average slug is $500,000.

X: So you’re the most active investors, even though you’re putting in half or less of the cash?

JF: We are not going to get paid extra to be active. [Entrepreneurs] trust that we are going to be active and mind the store. They like that we are not getting paid extra.

X: What form does your involvement usually take in the first year of a startup’s life?

DS: We want to be supportive of the founding team. Our philosophy is that it’s really more about support than making decisions. One of the key things that happens when a company raises capital is that they need to … Next Page »

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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