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 because of the length of these funds, most of the time, like a successful VC can raise several funds without returning any money at all. You know, it could just be like, hey, I'm raising fund number three and like look at my performance on my fund one and my fund two is up, you know, 3x or whatever, 2x, 5x. And it's all based on markups.

It's all based on like how successful are you, are your portfolio and raising subsequent higher, you know, raise more money at higher valuations. That's to a large degree what success is like in VC. Like if you can have a fund that, you know, this is probably why YSE is such a great business. They, you know, they invest at one point, whatever they do.

And then, you know, it's like the standard valuation markup three months later, a demo day is like 25 million. Well, that's an enormous markup straight there. It blows everyone else out of the water. They capture a lot of that value to be perfectly honest. And so what do we do? Well, so we have to come up with something different, you know, which is always kind of challenging. And I think like,

The difference for us is like what we're trying to do is to say, look, these companies, the successful companies don't really need to raise any more money after this because they're so capital efficient. So how do we capture the fact that like the successful companies don't raise any more money? So there's no automatic markups.

And actually, like, it's funny, because in 21, when we had more markups and stuff, I remember doing it this way. And I was just like, okay, well, you know, we'll mark out why not, we're not going to handicap ourselves. People are asking, like, there's really not necessarily quite of a correlation between the success of the company and the valuation markup.

Because in 21, in particular, and like, this is true in all bubbly things. you would have people who raised because they were doing really well, and then people who raised because they were doing really badly, and they were running out of money, and they were going to go under unless they raised money.

And so they were able to do so, and then they got marked up above what even some of the best performing companies that we had. And so what we decided to do was basically say like, look, we're going to give you a market price.

And so we have a couple of different variants on this, but sort of our sort of base case valuation, which is most of the numbers we share out, it's basically some sort of a revenue multiple based on growth mostly. And it's somewhere between 2x and somewhere between 7x.

And really what that valuation is, is different to even like a typical VC markup in the sense that, look, if you raise a Series A at a billion dollars, that does not mean you can sell your company for a billion dollars. That's just not happening. You know, obviously, you know, like if you raise it 200 times ARR, you're not selling it 200 times ARR. It's not possible.

Our base case valuation, though, is more like what is the market price currently? What is the clearing price? What is the liquidation price of the portfolio at the moment? And that's what we go to market with, which is... Kind of a handicap. I've got to be honest with you. Oh, big time. Much more conservative. Much more conservative.

And we provide like the optimistic case, which goes out, I think, to up to 11x. And we have one which includes the markups whenever they happen and a little bit more. But most of the time we're referring to the base case, so liquidation type valuation. And the reason for that is mostly that I want to be as conservative as possible.

You know, like I basically want to be able to argue because we're already doing something different. Like, you know, like we're not your typical what everyone else is expecting. And like, oh, yeah, this is how you get, you know, through an audit at Carta because the markups is from Andreessen and blah, blah, blah. So we had to be a little bit more conservative. It can be a challenge.

Although I will say, and although it's not apples to apples, I was pretty stoked when Cardio, which is our fund management platform, they came out in the spring with like a performance metrics of 1800 funds, which actually includes us. And, you know, we were in the top five to six to 16% based on the venture metrics there. So even in our using our most conservative metric evaluation.

So that felt good, but it's still a challenge, right? Because like it's new, right? People would rather have, in some cases, people are like, look, I believe that this company is worth a billion dollars because Andreessen says so, even though they're only doing 500,000 ARR, more than I believe that this company is worth 5x ARR.

Right. I mean, that's always the case. I mean, venture, I'm going to side rant here about venture and branding and stuff. But venture, I think a lot of the time, it's sort of a self-fulfilling prophecy. If you get lucky very early on in the early fund and you get the brand built, then you sort of like capital comes to you and, you know, deal flow comes to you.

And it's sort of a self-fulfilling prophecy that you do pretty well. So my one piece of advice, if you want to be a classic VC and you want to start a new venture fund, is to be extremely lucky with your investments in your first fund. That's the way to do it. That's all you got to do. Just be lucky. Just be lucky. That's good.

No, no, no, no, no. I'm not listing hard luck or skill. I'm just saying, like, given a choice, you would rather be lucky. You'd rather be lucky, yeah.

No, I mean, I think that's it. I mean, like, it's a little unusual. Like, we're just sort of like, we're this is again, like we're saying, like, you know, it's every it takes 10 years to know if you're good in this game. And we're like, we're in year five.

Things are good. Like we're not a little bit unusual to like, we're not vastly increasing the size of our fund, which is, you know, quite common, like in the VC world, it's very often like, You start with a small fund and you quadruple it and then that works out and you quadruple it again. And like, we're not doing that. We're just sort of like, look, this is what we feel good about.

This is the size of this opportunity. And like, we're keeping the funds sort of the same and just keep executing the way it has been because it seems to be working. We think it will be continued to do.

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