Peter Kafka

Recent Posts by Peter Kafka

Best Buy Bets on Digital With New Venture Fund

best-buyIt’s easy to see that big-box chains like Best Buy will need to figure out a digital strategy at some point. It’s less clear exactly how they’ll do it. But the consumer electronics giant thinks one way is to throw a bunch of money at the problem: It is bankrolling a digital media fund that will be managed by Velocity Interactive Group, the venture fund headed by digital vet Ross Levinsohn.

Neither company will disclose how much money Best Buy (BBY) is putting into the fund, so it’s difficult to gauge how big a deal this is, or isn’t. But we do know that the retailer has already shelled out $121 million for Napster, so presumably it’s ready to spend that much again, at least. Another sign Best Buy is serious about this whole digital thing, or at least wants to signal that it is: Multiple sources tell me it has created a position for a chief digital officer and is searching for one now.

The deal also signals that Velocity, the firm Levinsohn created with former AOL CEO Jon Miller, will continue even though Miller is now heading up digital operations for News Corp. (NWS), which owns this Web site.

Miller took Velocity partner Jorge Espinel with him when he joined News Corp., but Levinsohn, who earned his reputation when he helped News Corp. buy MySpace (following this?), will be staying on. Oh, and for good measure, Velocity is changing its name to Fuse Capital. Presumably there’s a good reason for that, but the press release below doesn’t spell that out.


Velocity to Change Name to Fuse Capital
Los Angeles – May 28, 2009 – Velocity Interactive Group, a leading venture capital firm in digital media and communications with more than $1.4 billion under management, today announced a strategic partnership with Best Buy that includes the launch of a new digital media fund.  With Best Buy as the sole limited partner, the fund will seek to leverage the scale and scope of the multinational consumer electronics retailer to help drive growth and enhance performance of the portfolio companies.  The fund will focus on strategic digital media investments as a complement to Best Buy’s current digital media and emerging technology investment activity.  Separately, Velocity is also announcing that it will change its name to Fuse Capital.

The new fund is designed to focus on investments in digital media companies that will help create the next generation of leaders in categories such as music, video, games, and personal media management, as well as other areas that leverage the touch points and reach of Best Buy.  As part of the relationship, Fuse will work closely with Best Buy on digital media strategies and support the company’s existing digital assets.

The Best Buy partnership marks the launch of Fuse’s expansion into strategic equity management. The focus of the strategic equity management initiative is to become partners with global corporations that seek to augment their digital strategic initiatives with the knowledge and expertise of an investment firm dedicated to digital media and communications.  Fuse’s portfolio will benefit from the partnerships with these global corporations which enable them to jump-start and launch with critical mass, greatly improving the likelihood of success.  Fuse’s decision to change its name from Velocity to Fuse Capital reflects this strategic focus.

“This strategic initiative is a natural extension and evolution of our capabilities, given our firm’s extensive strategic, investment and operational experience in both emerging companies and large corporations across digital media,” said Ross Levinsohn, managing partner, Fuse.  “As for our first partner, Best Buy is the preeminent retail leader in technology and entertainment products and services, and is exceedingly well positioned to take advantage of the massive shifts occurring across the media and commerce landscapes.”

“This partnership is another example of how we strive to be at the forefront of consumers’ entertainment and digital lives,” said Mike Vitelli, executive vice president, customer operating groups, Best Buy.  “We are pleased to be working with Fuse and look forward to working with them to lead the market transformation in digital media.”

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik