Jun 10, 2020 · 1h 28m · top-founders
Einar Volsett on How TinySeed Works
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this extensive interview with Nathan Latka, TinySeed partner Einar Volset details his journey from academic computer science to Y Combinator, breaks down the valuation mechanics of SaaS M&A, and explains how TinySeed provides a sustainable alternative to traditional venture capital.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 26.5% of the talking time here. How this is scored →
Nathan as informed peer 5.1 Guest teaching 4.6 Guest disagreement 2.4 Nathan pushing back 3.9
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:19:25 Rejecting the intentional outlier thesis in favor of broad index investing
Volset firmly rejects Latka's premise that early-stage funds must pick intentional unicorn seekers, citing power-law math and 500 Startups research to defend indexing across broad cohorts.
Hardest push from Nathan ▶ 34:21 Latka confronts Volset over his omission from Remail's founder recordsLatka directly confronts Volset with public press releases and Cselle's acquisition letter showing Volset was omitted from the founder narrative, refusing to gloss over the co-founder friction.
Biggest teaching moment ▶ 56:00 Comprehensive masterclass on B2B SaaS buyer categories and multiplesVolset breaks down the precise valuation mechanics across value PE, growth PE, and strategic buyers based on growth tiers and proprietary off-market process dynamics.
Nathan holds their own ▶ 1:15:34 Latka cites exact contract clauses from TinySeed's public term sheetLatka demonstrates detailed preparation by reading TinySeed's specific stock conversion and pro-rata equity clauses, pressing Volset on how follow-on VCs react.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| Einar Volset's Background and Academic Trajectory | 3 | 2 | 1 | 2 | Latka guides Volset through his upbringing in Norway, early hacking experiences with phone phreaking, and transition into computer science. The tone is casual and biographical with minor curiosity-driven follow-ups. | |
| Academic Culture in Newcastle and the Sage Lecture | 3 | 3 | 1 | 2 | Volset recounts the tech scene in Newcastle and the Sage co-founder who chose academia over startup wealth. Latka probes why Volset didn't immediately turn his academic training toward commercial ventures. | |
| Academia vs. Industry Mindset and Industry Sages | 4 | 4 | 2 | 3 | Latka asks if prioritizing purely academic prestige over economic value is dangerous. Volset pushes back on that framing, explaining that academia simply operates as its own self-contained subculture similar to law or startups. | |
| Post-Doc at Cornell and Research on Mobile Ad-Hoc Networks | 3 | 5 | 2 | 2 | Volset describes his post-doc at Cornell and his disillusionment with academic research focused on overly narrow problems like mobile ad-hoc networks. Latka listens closely as Volset explains how grant writing dominates professorships. | |
| Analyzing Starlink and Practical Mesh Network Realities | 4 | 5 | 3 | 3 | Latka tries applying Volset's research domain to Elon Musk's Starlink constellation. Volset demystifies the analogy, pointing out that simple ground-station routing beats complex peer-to-peer satellite mesh networks in practice. | |
| Investor Misalignment Outside Silicon Valley | 5 | 5 | 2 | 4 | Volset highlights how non-Valley investors often demand excessive control due to inexperience with early-stage tech. Latka presses on why funding terms would be vague given standardized instruments like SAFEs, prompting Volset to detail non-traditional regional practices. | |
| Founding Remail and the Shift to Mobile Email | 5 | 4 | 2 | 3 | Latka quotes Gabor Cselle's acquisition announcement and examines how Remail pivoted into an early iPhone email search app. Volset explains pushing for mobile development before Apple even launched an official SDK. | |
| Remail's Y Combinator Batch and Equity Structuring | 6 | 3 | 3 | 5 | Latka drills into the equity split and co-founder dynamics between Volset and Cselle, questioning why a PhD with his background accepted a minority stake. Volset gives measured answers while Latka presses for exact cap table terms. | |
| YC Demo Day 2009 and Remail's Operating Metrics | 5 | 4 | 3 | 6 | Volset describes YC Demo Day 2009 during the Great Recession alongside Airbnb. When Volset claims he does not remember peak user numbers despite mentioning metrics, Latka catches the contradiction and calls him out directly. | |
| Remail Acquisition by Google and Co-Founder Friction | 6 | 3 | 3 | 6 | Latka confronts Volset with public records showing Cselle was named sole founder in press releases and acquisition notes. Volset concedes their personality friction and clarifies that the Google buyout was primarily an acquihire rather than a massive financial windfall. | |
| Left Coast R&D Consulting, Hike Messenger, and Jelly | 5 | 4 | 2 | 4 | Latka reviews Left Coast R&D's consulting projects, citing Biz Stone's quote and examining client apps like Hike Messenger and Jelly. Volset clarifies that he preferred cash consulting over risky startup equity. | |
| Managing Remote Engineering Teams in Eastern Europe | 4 | 4 | 1 | 3 | Latka brings up off-shoring strategies used by PE roll-ups like ESW/Trilogy and asks how Volset ran remote engineering teams in Eastern Europe. Volset shares practical managerial warnings about ghosting developers and quality control. | |
| Launching, Bootstrapping, and Selling App Aftercare | 4 | 3 | 1 | 3 | Latka explores the founding and 2016 bootstrap exit of App Aftercare. Volset explains how customer pre-qualification was critical to keep client requests bounded to maintenance rather than full-scale dev work. | |
| Due Diligence for Private Equity and Founding Discretion Capital | 5 | 6 | 2 | 3 | Volset breaks down his transition into PE technical due diligence and how referral fees for deal flow led to founding Discretion Capital. He explains macro changes enabling sub-$5M ARR B2B SaaS exits. | |
| SaaS M&A Buyer Categories and Valuation Multiples | 6 | 7 | 3 | 4 | When Volset initially resists discussing deal numbers, Latka pushes him on Discretion Capital's model. Volset then delivers a thorough taxonomy of SaaS buyers—value PE, growth PE, and strategics—and their respective revenue multiples. | |
| Market Players in SaaS Buyouts and Discretion Deal Flow | 6 | 5 | 2 | 4 | Latka challenges Volset to name specific players fitting his taxonomy (ESW, Scaleworks, Marlin, Insight). Volset categorizes them and shares Discretion's deal volume. | |
| Teaming with Rob Walling to Build TinySeed | 5 | 5 | 2 | 3 | Volset explains partnering with Rob Walling to establish TinySeed as an alternative to hyper-growth VC for calm, profitable software companies, comparing it to YC's early low-check model. | |
| Critique of the Traditional Venture Capital Model | 6 | 6 | 4 | 5 | Latka argues that ambitious founders will always pitch VC hockey sticks to get unconstrained money. Volset counters with a detailed breakdown of how uncapped SAFEs misalign VC returns on mid-sized exits, creating a dangerous unicorn-or-bust concentration. | |
| TinySeed Economics, Valuations, and Early Fund Metrics | 7 | 6 | 3 | 6 | Latka challenges TinySeed's 55% portfolio IRR, probing whether returns stem from paper markups or actual cash DPI. Volset explains how lower entry valuations ($1.5M pre) yield massive fund returns from realistic $50M-$75M exits rather than billion-dollar outcomes. | |
| Navigating Venture Follow-Ons and LP Rights | 7 | 5 | 2 | 5 | Latka reads verbatim clauses from TinySeed's term sheet regarding stock conversion and follow-on participation rights, asking if incoming VCs push back. Volset explains how they manage pro-rata rights via SPVs. | |
| Fund Returns: Exits, Dividends, and Accidental Outliers | 6 | 7 | 4 | 5 | Latka quizzes Volset on whether exits or dividends will drive long-term fund performance. Volset demonstrates the math showing exits will dominate, leading into a spirited debate over intentional versus 'accidental' portfolio outliers. | |
| Raising TinySeed Fund 2 and Founder Exit Incentives | 7 | 6 | 4 | 5 | Latka questions why profitable bootstrappers ever sell instead of milking free cash flow. Volset uses net-margin math to prove the trade-offs of selling at peak multiples, and the two debate the future of securitizing SaaS ARR cash flows. |
Statements from this episode (30)
Volset: CS academics view leaving for industry as a personal failure
“If you're in CS academia, like, you know, high up and you decide to go to industry, even if you decide not to go to like pure industry, if you go into like industrial research, they almost feel people, you almost get the sense that people feel sorry for you. L…”
Volset: Being a university professor is remarkably similar to leading a startup
“Like people underestimate, particularly in the U S but also elsewhere, how similar being a professor is to being a startup, like a venture backed startup founder. Cause essentially what you're doing all the time is going out, grabbing money, getting the best p…”
Volset: Regional investors struggle because wealth comes from traditional industries
“Part of the problem is, is that the people with money in Silicon Valley typically made it doing early stage startups, you know, and they, so they understand it. Versus people in places like, you know, Vancouver, or Chicago, or, you know, DC, made their money e…”
Volset: Mailbox Was Among the First to Innovate Viral Queue Waitlists
“They effectively did what we did, but then we're smart enough to set up a waitlist system. They were one of the first people who did this thing. Like you get on the list, you have so many people in front of you, invite five people when you get to, you know, jo…”
Volset: YC Demo Day pitches dropped from four minutes to one minute
“I think we got I want to say four minutes, which is, it doesn't sound very much per pitch, but I think now it's down to one minute per company.”
Volset: Airbnb raised $600K for its Series A post-YC
“They actually just to give you a context for how things have changed, they did what they then called their Series A, which later got rebranded as a Series C because there wasn't such a thing, I think, as a Series C at the time. But they raised 600,000 dollars …”
Volset: 2010 tech startup acquisitions yielded only mid-single-digit millions
“This is not like even valuations for very successful companies that you would now probably expect to sell for a hundred and 152 hundred and fifty million. We're selling for mid digits millions, you know.”
Volset: Funded YC startups refused to give equity for app prototyping
“The companies are coming to me. They were already YC companies. Usually, they were already funded YC, post-funded YC companies, and so they were wise to how, how, you know, expensive equity was. So they weren't just going to dish it out to somebody for buildin…”
Volset: Maintaining long-term focus is the hardest part of remote engineering
“Like the hardest part of doing remote is like a figuring out if they're any good and then making sure they stay good. Because a lot of the time, like you hire someone, they're amazing for a month. And then all of a sudden, like you clearly cannot be working on…”
Volset: Productized maintenance businesses require strict customer pre-qualification
“A large part of how to make that kind of a business successful is to make sure that you're pre-qualifying
Is make sure that you're pre-qualifying your customers before you sign them up.”
Volset: $1M to $2M B2B SaaS businesses can achieve meaningful PE exits
“Fundamentally, what I realized pretty quickly is that things have changed very much the last 10 years, like certainly even potentially the last five years, in that, so back in, you know, nine, 2010, if you had a, say, a 1,000,002 million ARR B to B SaaS compan…”
Volset: Non-software businesses at breakeven cannot sell for 3x-6x revenue
“Like if you have, say juice delivery service that's doing two million a year. And like, are you going to be able to sell that, you know, like for any reasonable amount of money, you know, if you're a breakeven, probably not. No, like it's, you may make some mo…”
Volset: Private equity caps SaaS multiples at 10x; higher requires strategics
“If you're growing zero to 20%, then like what is an easy multiple to get, I think is about three X. And then and from 20 up to about 50%, you can probably get four X, maybe five. From 50 to about a hundred percent growth. This is annual growth. You can get any…”
Volset: Brokered sales anchor strategic acquirers to lower private equity multiples
“If you really want to get 30 X revenue or 20 X revenue or 15 times revenue it's hard to do that if you're in like a sales process with a broker. Like if a broker is going out to market, then the strategic knows that, okay, there's a floor in pricing because he…”
Volset: Value PE firms max out at 3.5x ARR for SaaS platforms
“The highest bid I've ever seen from any of them is like, at least for those type of operations is like three, three and a half times revenue.”
Volset: Traditional VC model forces startups to fundraise every 18 months
“They're sort of levered for growth, right? It's like they raise as much money as we can as quickly as we can. And in order to grow as much as we can and like, let's not, let's forget about, you know, profits or sustainability or really anything. It's just the …”
Volset: Founders can build profitable software businesses without Silicon Valley VC permission
“Like, you can have, you know, a sustainable, calm software business that's throwing off cash. Like, that's something that you can build without necessarily having to go ask permission from Silicon Valley VCs in order to do it.”
Volset: Traditional seed VCs will not fund realistic $50M ARR outcomes
“No seed investor will, traditional seed investor will give you any money, because their model doesn't work with that.”
Latka: Founders routinely fabricate massive market stories to secure venture capital
“Founders will just lie to themselves and make up a story that says they're going to be a big business to get the VC dollars. And that happens all the time.”
Volset: Sam Altman's $10B startup valuation rule makes no sense
“He wrote a piece and I think in January saying how to invest in a startup. And he said, you should never invest in any company that couldn't potentially be a ten billion dollar company. And I'm like, that doesn't make any sense. Like there's a lot of companies…”
Volset: TinySeed portfolio tracking at about 55% IRR
“Yeah, our current portfolio is about 55% last time I checked.”
Volset: A $75M exit at a low valuation reliably delivers 50x returns
“If you're coming in at one and a half million pre, Then a 50 X return is, is the company sells for 75. Now those kind of outcomes are much more doable and much more frequent than you know, you, I, something selling for seven hundred and fifty million or a bill…”
Volset: High valuations block founders from taking life-changing $30M exits
“Like if you take a high valuation, 1012, fifteen million dollars, and you raise a bunch of money, that's, that closes off your opportunity to exit for 10, 20, 30, forty million dollars. You simply won't be able to. Like there'll be, usually there are restricti…”
TinySeed relies on LP SPVs for follow-ons rather than dedicated funds
“We're doing SPVs. We haven't really focused on two, but I think that's what we'll still do. I think we'll effectively, what we're looking to do is make our money doing our primary business. Like we don't like, we're sort of similar to YC and that, that we're l…”
Volset: Most Angel Investors Fail Due to Insufficient Portfolio Diversification
“I personally think that's why most angel investors do really poorly at the early stage of tech investing. It's because they don't have enough portfolio companies in their portfolio.”
Volset: Seed funds need at least 50 portfolio companies for 5x returns
“I think you probably need to have at least 50 companies in your car to be, to have the outcome where you're expected to have it, like, at least like a five X return on capital.”
Volset: A 5x revenue exit equals 15 years of bootstrapped SaaS cashflow
“If your net margin is 30% and you can sell the company for five X revenue because of your current growth, then you have to wait 15 years to get the same money out in cash.”
Volset: Wall Street will eventually securitize bootstrapped SaaS cash flows
“I think people don't really fundamentally understand the fructibility and like the amazingness of these cashflow businesses once they get to a certain scale. And I think someone smart will end up like securitizing and packaging those type of cashflow.”
Volset: Less than 7% of software acquisitions get mainstream press coverage
“I looked at the, like, 3000 software acquisitions being done in the last three years, and I said, okay, how many of those companies are how many of those companies get mainstream tech press mention when they get sold? And it's less than seven percent.”