Velocity recasts as Fuse, Best Buy joins as sole LP

Velocity Interactive Group, a venture fund managing about $1.4 billion in capital and which was formed in late 2007 when Velocity Investment Group merged with ComVentures, has changed its name to Fuse Capital.

As part of the re-launch, the firm, which operates offices in Palo Alto, Calif., Los Angeles and in India, has announced the formation of a new venture fund focused on digital media investments and which features Best Buy as the sole limited partner.

The size of the new fund is undisclosed.

The change in name comes less than two months after Fuse Capital was rocked following the departure of co-founder and Partner Jon Miller, former CEO of America Online. Miller left the firm to head up News Corp.’s newly formed digital media group. Miller co-founded the firm with Ross Levinsohn, and the two had been raising a new fund for more than a year.

At the time of Miller’s departure, Levinsohn said: “This is not catastrophic for Velocity, or the end of the firm. But losing Jon is obviously very disappointing for me personally. He’s a good friend, and I’ve loved working with him.”

Levinsohn says that Fuse Capital will operate as a stage-agnostic firm and will back the same kinds of communications and digital media companies that Velocity Interactive had long been funding, from games to mobile applications.

Velocity Interactive has invested in 14 startups since its formation a year-and-a-half ago. Two of its recent investments include Fabrik, which helps consumers manage personal media, such as videos and photos; and Mixercast, which sells a widget-creation and syndication platform. Both startups are based in San Mateo, Calif.

Levinsohn describes the new Fuse Capital as managing “an evergreen fund,” one “without a cap on how many years we invest it, or how much money” is ultimately invested. “It depends on how well we do,” he says.

The new fund has a five-person investment committee comprised of Levinsohn, Keyur Patel (who recently was promoted to general partner and who previously worked with the ComVentures team), and three Best Buy executives with “plenty of experience in their business,” Levinsohn says.

In addition to Levinsohn and Patel, Fuse has eight other people on its “investment team,” according to its website: David Britts, David Chung, Baris Karadogan, Rodi Guidero, Patrick McGill, Charlie Noreen, Mickie Rosen and Roland Van der Meer. Levinsohn says no one is leaving the firm and that it will “probably be hiring.” Fuse is particularly interested in someone with a background in mobile or gaming, he says.

Best Buy isn’t new to the world of digital media investments. Last fall, it acquired the music-streaming company Napster for $121 million. It also purchased Carphone Warehouse, a giant distributor of mobile devices that has 2,800 stores in Europe, for $2.15 billion, in 2008.

Levinsohn says that Velocity began talking with Best Buy around last summer, and not after Miller departed in late March.

The consumer electronics retailer, looking for ways to grow its business and bottom line, was “going around and meeting with various types of funds: VCs, hedge funds, private equity funds,” he says. “We met them for the first time then, and built a relationship.”

Fuse Capital is hoping that relationship will ultimately be one of many. Though the firm will soon begin investing its new digital fund solely on behalf of Best Buy, it’s also looking to put its “strategic equity management” model to work for other LPs. Levinsohn says the firm is already “talking with half a dozen other” companies for which the firm would launch similar dedicated funds.

He adds that Fuse Capital wouldn’t do another big box retailer in the space, to avoid conflicts of interest with Best Buy.

“In a perfect world, we’d do more of these and grow our firm along the way,” he says.