Ross Levinsohn and Jon Miller’s investment vehicle, Velocity Investment Group, that launched with much fanfare earlier this year, with backing from General Atlantic, a big East Coast hedge fund, has been working hard to close some deals in Silicon Valley, but they had nothing to announce so far. So instead, they announced that Velocity is merging with Palo Alto-based venture firm, ComVentures, and the combined entity is going to be called Velocity Interactive Group. Venture Beat had first reported the likelihood of this development back in October 2007.

“We have been involved with ComVentures on deals informally and this makes it more formal, where we also administer the fund,” Levinsohn said. Levinsohn is the former President of Fox Interactive. Jon Miller ran AOL for Time Warner. As part of the deal — three ComVentures partners David Britts, Keyur Patel and Roland Van  der Meer are going to join Miller and Levinsohn. The new fund will use $1.5 billion or so in capital and invest in digital media companies exclusively. Two ComVentures’ partners – Michael Rolnick and Jeb Miler – are “moving on.” This is a good deal for ComVentures, which has lost its halo after the telecom bust. The new name can paper over any lingering issues.

In a long chat earlier today, Levinsohn said that one of the main lessons of past one year has been that the private equity styled investments don’t exactly make sense in pre-revenue pre-profit start-ups, Velocity was trying to acquire. In other words, the deals were too complex for Silicon Valley.

Levinsohn said that the media business including Hollywood is in a state of flux and this is an opportunity for a fund with both media and technology skills to build the next generation of digital media companies. He said he has been meeting a bunch of writers, talent agencies and even studios and they are all interested in digital media.

“It is safe to say everyone is freaked out,” he said. “The traditional media guys are trying to understand digital and at the same time you have venture guys who are trying to understand media.” Silicon Valley VC funds have been making frequent trips to Hollywood and trying to put the VC dollars to work. Only recently we heard of a new fund being cooked up by DFJ and talent agency, Creative Arts Agency.

The new Velocity Interactive Group is going to make some video content related investments, Levinsohn said. Mobile video, content delivery networks and even storage qualify as “digital media” in his books. VIG’s current portfolio includes NDTV Networks is  India’s first and largest private producer of current affairs and  entertainment content both online and on television and IndiaTV, another Indian media company  headquartered just outside of Delhi, India. Their US portfolio includes Fabrik, a storage company, Doppelganger  and Mixercast that is developing multimedia mash-up service.