Einar Vollset

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326 appearances 2 recordings 1 series first heard Jan 2025 last heard 10 Mar

Einar Vollset’s voice in public audio — every appearance, attributed to the second.

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Startups For the Rest of Us · Episode 748 | The Ins and Outs of Startup Investing · 14 Jan 2025 podcast

And like if you combine that then with what we consider to be reasonable valuation. So So I think, like, if you're playing the classic VC game, $20 billion a bus, yeah, you're right. It doesn't matter that you're paying $25 million for a pre-revenue product at YC Demo Day as a seed investor. It's fine. Like, who cares?

Like, if you could invest at $25 million valuation into OpenAI or Airbnb, then great investment. Go do it. But... 25 million, say, and then it goes to a billion dollars. Let's just say that rather than 20. Let's be a little less ambitious than Mr. Altman was. That's a 40x return on your money. That's a good return. That's a great return.

Sadly, and we can get in the math here, it might not be good enough for an investor, like a fund investor. But the flip side of that is like a billion dollars is still a billion dollars. It's still kind of an unusual outcome. And I'm not saying like valuation here. I'm saying like actually cash, like IPO or selling or whatever, like not just make-believe valuations. actual money in the bank.

And I think that's pretty rare, right? And the fact of the matter is, if you come in the kind of valuations that we do at, and it's capital efficient enough that these companies aren't raising money all the time. So say if we come in at a couple of million, 1.8, I think is our average, and then you 40X that, that's 72 million.

72 million is still a lot of money, but it happens a lot more frequently than a billion dollars. Like we've done in discretion capital, we've done several deals this year that have been sort of in that range. And that's just us, you know, and like nobody ever reads about them.

Like we actually did, you know, like years ago now we did that iceberg, you know, the measuring the depth of the software iceberg title based on, you know, Patty Eleven's quote, an observation there around like most people don't know how much money exchanges hands about, you know, for these kinds of outcomes and how common the big ones are or the reasonably sized ones.

So that's what it boils down to. Like basically what we're arguing is like, look, If you're going for that kind of enormous outcome, then yeah, it makes total sense. Raise it $25 million and capital will go for it. Like become OpenAI, become Airbnb.

But there's also this other class of startups where, you know, if you're B2B SaaS and as an investor, you can put money in that couple of million and then they sell for $50 to $100 million. That's as good. Like it doesn't matter to you. If you get 40x your money, what do you care? Whether 40x means $75 million as an exit or 40x means a billion dollars. It doesn't

I mean, other than bragging rights, it doesn't matter, right? It's just enterprise exit price.

And I think also like what some people, although I think awareness is raising a little bit, what some founders don't understand is like, look, there are trade-offs to this. Like, obviously, like if you can raise it a hundred million valuation, billion dollar valuation, there's really great things about that.

But some of the bad things are there's a whole universe of outcomes that are not the doors closed for you. You know, like if you raise it $25 million, the chances that you're going to be able to or be allowed to sell for 50 is very low. In some cases, if you have extreme power and all this stuff and you didn't give away any rights, that's fine.

But if you push valuations as high as possible, investors are going to put control provisions in there that sort of says, okay, look, the reason why we're giving you this high valuation is because you're saying you're gunning for this enormous outcome. So we're going to put some barriers in place that pushes you, that aligns everyone to that kind of outcome or nothing.

Not get a high valuation and then sell for a reasonable amount. That door is very often closed.

A handful, but actually, just to change track a little bit, not as many as I thought. It's funny because we raised our second fund in 2021, and obviously 2021 was a good time in the markets. And at the time, I remember looking and I was like, oh, about 30% of the companies have raised money. And that's what I used to say, like about a third, about a third.

And then I was coming around to fundraising again. I was like, okay, let's look at this. And actually, it's 8%.

Exactly. And so, so they just, they just, they just haven't done that. Like they just haven't raised, haven't raised any money. And actually that's sort of relates back to like how the tiny see different. And it's sort of like, well, I think people maybe don't understand. It's like how to venture measure performance on the way, because the issue with a venture fund is like, well, good and bad.

You don't know if we're any good for at least 10 years. So if you're a charlatan, you can kind of keep going for 10 years and say, oh, I'll probably be right in a couple of years here. But like, I think it's understanding, like, how does most VCs, like, how does that make our life hard? Like, why is it a problem for a venture fund that only 8% of your companies have raised further funding?

And the answer is, as traditional venture fund, it'd be a failure if only 8% of your companies raised money.

And the reason for that is the way that venture investments work is that you as an investor, when you come along or GP, like a VC, basically, you come along and you're basically every quarter or so you send an update to your investors, your LPs, basically, that says this is what my portfolio is worth. And the way that you do that, obviously, they're not publicly traded.

And so what you're doing is you're basically saying doing two things. You either keep the market the same if they're just nothing material has changed, i.e. they haven't got out of business or they haven't raised money. Or if they raise money, then you market up to this new valuation.

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