Episode 748 | The Ins and Outs of Startup Investing
Jan 14, 2025
auto_awesome
Einar Vollset, co-founder of TinySeed and an expert in SaaS investing, shares insights on startup investing strategies. He discusses the waning stigma around bootstrap funding and redefines success beyond billion-dollar exits. The conversation delves into deal flow dynamics, the tricky nature of valuations, and the importance of keeping optionality in investments. Einar highlights TinySeed's unique focus on capital efficiency in supporting ambitious B2B SaaS companies, contrasting it with traditional VC models.
Understanding the dynamics of startup investing reveals that diversifying through a fund like TinySeed reduces risk compared to individual startup investments.
TinySeed's focus on realistic exit strategies challenges the conventional valuation obsession in venture capital, aiming for sustainable success in B2B SaaS companies.
Deep dives
Understanding Startup Investing
The discussion focuses on the intricacies of startup and venture investing, highlighting key aspects that differentiate TinySeed from traditional venture funds. One major point emphasized is the rationale behind investing in a fund versus individual startups; investing in a fund generally minimizes risk by diversifying across multiple companies. Additionally, the conversation reveals that while many individuals believe venture investing yields extremely high returns, the statistics show that a significant portion of venture funds do not outperform traditional index funds. The importance of understanding these dynamics is essential for founders and investors alike, ensuring they make informed decisions about funding their startups.
TinySeed's Unique Approach
TinySeed distinguishes itself by targeting a specific market of independent B2B SaaS companies that are often overlooked by traditional venture capitalists. The founders express a commitment to helping startup founders achieve success without aiming for unattainable billion-dollar valuations. Instead, the focus is on more realistic exits in the range of $75 million to $100 million, which can be quite lucrative for both founders and investors if executed well. This approach aims to democratize access to funding for those startups that may not fit the conventional venture track, allowing more entrepreneurs to thrive.
The Math Behind Venture Success
The conversation delves into the statistical realities of venture fund performance, shedding light on what constitutes 'success' within the venture capital ecosystem. A notable takeaway is that a fund considered 'successful' can return as little as 2x over a decade, which starkly contrasts with the high expectations many associate with venture investing. This creates a misconception, as individuals often relate individual company successes, such as Airbnb or OpenAI, to the performance of venture funds, which is not entirely accurate. Understanding these dynamics clarifies the economic realities of investing in startups and the risks involved.
Navigating Valuations and Exits
Valuations in the venture capital space are discussed extensively, particularly how they can influence the potential exit strategies for startups. Many founders push for high valuations, believing it equates to success, but this can inadvertently limit their options for acquisition or exits in the future. The founders of TinySeed propose a more conservative approach to valuation based on realistic revenue expectations, advocating for maintaining accessibility for businesses considering viable exit strategies. The aim is to foster a sustainable model that benefits both investors and founders, ensuring that success is framed within achievable parameters rather than chasing inflated market perceptions.
In episode 748, Rob Walling sits down with Einar Vollset, co-founder of TinySeed, to discuss the ins and outs of startup investing. They explore the differences between VC and angel investing, the importance of deal flow, and the challenges of valuation. Rob and Einar also highlight how TinySeed’s approach differs from traditional VC, including their focus on capital efficiency and why it’s been working for ambitious B2B SaaS companies.
Topics we cover:
(2:37) – The stigma of bootstrapper funding is waning
(6:44) – What success looks like in venture funding
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!