Einar Vollset, PhD is the Founder and General Partner at TinySeed – the first startup accelerator designed for bootstrappers. TinySeed is an accelerator, but it’s remote, runs for a full year, focuses on SaaS, and “non-unicorns” (companies that don’t aspire to grow at all costs to reach a $1B valuation.
To venture capitalists, a company doing $10m in annual revenue is a miss. To Tinyseed, it’s a great business!
Einar used to be a professor of Computer Science at Cornell, and co-founded a YCombinator funded company acquired by Google. He also founded and bootstrapped AppAftercare from zero revenues through acquisition in 2016.
Einar is also the founder and Managing Partner of Discretion Capital, a technology enabled Investment Bank. Discretion Capital is a technology enabled Investment Bank focused on M&A, due diligence and strategic partnership development for technology enabled services businesses with $1m to $25m in revenue.
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Welcome Einar! Could you please tell us more about Discretion Capital? How would you define a ‘technology enabled investment bank’?
Discretion Capital is a sell side M&A advisory firm specializing in $1m-$25m ARR SaaS.
It’s technology enabled because (out of laziness) we built a bunch of crawlers and internal databases that keep track of pretty much every financial sponsor (e.g. PE Fund) and strategic and their portfolio + deal makers.
The system is proprietary and ever evolving.
How many of Tinyseed’s portfolio companies do you think will go on to raise additional equity financing?
Tinyseed invests $120k for 8-15% of the business. We set salary cap with the founder. If company generates profits, TinySeed gets dividends on pro-rata basis. TinySeed has right to participate in next round of equity financing and their investment converts.
So far, only 1 has taken a small additional round and on same terms as us (I think). I’m expecting 20-30% of companies to do that at some point, but I have no data to back that.
Do you get “re-capped” out by later stage folks or they cool with you staying on cap table?
We have pro-rata rights to defend our stake, but expecting to have some interesting fights down the line.
Hi Einar, thanks for taking time to do this AMA! How much structure is there in the TinySeed program? Is it more of a mentorship ‘as needed’ type program, or is there more structure throughout the year?
There’s more structure. It’s weekly mastermind/video calls either with cohort or mentor on a specific topic + 3-4 in person retreats a year. The cohort is pretty tight.
So far we’ve covered retreat expenses (minus travel), in future there will be some co-pay type amounts.
Another question from me, was really close to actually applying to TinySeed. You mention that you typically look for companies with at least some form of MRR, but whats been the average stage and MRR that accepted companies have been at?
Avg prob $5k, range $100 - $20k+
How has the “bootstrapped founder” approach played out compared to the traditional VC route? Asking in terms of growth for the company and from the view of the funder
Too early to tell IMHO. We just made our first few investments 6 months ago.
Einar, thanks for taking the time. I was reading your FAQ “TinySeed invests $120k for the first founder + $60k per additional founder. Our standard terms are for 10-12% equity.” Based on what I read it looks like I would have a better valuation if I have more founders (I get more money), is that accurate or am I missing something?
Yes that’s accurate (similar to how YC used to operate).
Do most companies funded by Tinyseed have a technical founder already, or do you entertain companies with non-technical founders that have got an MVP built with outside resources and are trying to scale?
Most have a technical founder, but there are also companies with non-technical and outside resources. We don’t disciminate.
Einar, in your mind what does a company need to demonstrate in order to be a candidate for a proper seed round vs. typical accelerator program (eg. $2mm at 15-20% vs. 120k at ~10%)?
Think there is a notion that accelerators can be expensive money. What are the tradeoffs here? Can an accelerator give you the credibility/platform to raise money after the program on more favorable terms even though the initial equity investment may have been ‘expensive’?
So I’m not the best to answer that question, as we’re expecting that most of our successful companies will not choose to raise further funding.
I’m also old school in the sense that I did YC with Airbnb and saw what they could do with their $600k seed.
don’t know what AirBnb spent it on specifically, but my point was - if AirBnb can “make do” with $600k after they found product/market fit, why does an idea stage company need $2m?
From your experience going through YC then, are terms generally more favorable coming out of the program after demo day (eg. 150k from YC for 7%, then raising 600k more seed money at demo day using YC stage) vs. forgoing an accelerator program like YC and raising a 600k seed round outright?
In my view, if you get into YC you’d be a complete moron not to take it. The expected valuation bump going into subsequent fundraising more than makes up for any concerns about valuation at that stage. I have friends who turned down YC a decade ago because of valuation concerns, and they all regretted it (some bitterly, particularly as YC brand value rose)
Do you invest in companies who are yet to figure out their product-market fit and help them achieve the same?
Depends. We like to see some revenue, we don’t typically back 100% idea stage companies. $2k to $8-9k MRR probably.
What is the typical ‘bootstrapped founder’ salary for a Tinyseed company? Do you give recommendations?
Our cap is roughly equivalent to senior software engineer in largest close city. Actual salary varies of course.
You bootstrapped a company yourself and experienced the challenges. Close us out by telling us about the story and inspiration behind Tinyseed. It’s currently an underserved market by trad VC and aren’t many funds in the space yet. What’s next?
TinySeed came to be because Rob and I realized that there was a gap in the very early stage market for the kinds of companies that we wanted to support. Similar to how YC and First Round filled that gap in trad VC in ’05-06. That coupled with my experience witnessing institutional capital move down market on the buy side, meant that a $5-20m ARR business should be considered a success, not merely a fail (as it would be by more traditional VCs).