Charles Hudson, Managing Partner of Precursor Ventures and 2023-2024 Chair of the NVCA Board of Directors
2022 and 2023 were eras where the amount of negativity that VCs were experiencing about their own business colored two important decisions that we all make:
(1) What new companies should I back?
(2) How do I think and feel about the companies where I'm already an investor?
It didn't just feel like capital dried up. It actually did dry up.
For almost everything other than AI, volume was way down, and sentiment was pretty negative.
Sometime around December last year, things started to change. Investors needed time to process the investments they’d made, sort through their own portfolio, and figure out what companies they were going to support. That work was done a long time ago, but we only started feeling good about putting new money to work at the end of last year. Still, we have not gone back to the 2021 energy of total optimism.
I've been a venture capitalist for about 20 years. The current landscape reminds me of the way investors felt in 2003 and 2004 after the Internet bubble burst. It took a while for everyone to say: “There are good companies building on the Internet. We just have to accept that we might have made some mistakes in 1999 and 2000. Some of those mistakes can be fixed, and some of them are simply mistakes.”
What I'm seeing in our portfolio: the companies able to raise money are the ones that have good businesses, that have been capital efficient, that are going after venture scale outcomes. The ones who don't tick those boxes cannot raise.
That's how it's supposed to work. But—for founders, it feels awful and like the world's worst whiplash.
You went from the enthusiasm of 2020 and 2021, to the doldrums of pessimism for two years, and now to something in between.
This kind of whiplash can be even harder on “non-traditional” founders: first-time founders, people outside the coast, women, people of color. Many of the founders I work with are such founders.
The thesis I started Precursor with was that venture capitalists are pretty good about giving money to people that they know, and venture capitalists don't know everybody. There are certain communities where venture capitalists really don't know people — a lot of communities that are on the outside looking in.
During my time as a VC at Uncork Capital, I was meeting all of these founders who didn't have much product traction, but also didn't have particularly strong relationships with VCs. I noticed that you had to have one or the other. You had to know people socially and professionally, or you had to have a product that they could touch and feel.
I wanted to serve these pockets of founders who were not well served. Today, we remain true to that original vision and I still work with many of these communities of founders. Many of these founders don’t have a group of people to support them through the high highs and low lows. They can feel so alone spinning in their heads, with not enough time to come up for air.
That’s why creating community and connective tissue in start-up ecosystems for founders is critical.
They need a safe space to just let out a sigh of relief: 'Okay, you all really get it.'
When I started the fund, all these LPs would ask me: how are you going to help all of these founders?
Most of the founders I work with need a couple of things. They need somebody who can help them remain accountable to their vision, hold up a mirror, and say: “This is what you told me. You wanted to build this. This is what you told me you wanted to achieve. Let's look in the mirror together.”
Sometimes founders need connections to resources and introductions.
But I've come to believe the thing founders need most is community. It's my job to facilitate that, not to be that.
Half the things founders bring me as questions, I think: I could answer that, but I could also just put you in conversation with another founder.
For example, last night I talked to somebody who's going through a very difficult co-founder breakup, and he asked: “What advice do you have?”
I said: “I can give you my general view on this. I've seen probably a hundred of these at this point in my career.
But, if you'll give me a minute, I'm going to text other founders who went through this six months ago. They're on the other side. I think what would be more valuable for you is to talk to them. They can tell you what they did, what they wish they’d done differently, how they talked to their team about it, what went well—I think you are searching for more tactical answers than I can give you.”
My poor assistant said today: “Your calendar is crazy, what is going on?” All of these founders have asked to skip the line, and they don't want to wait.
People right now are under a lot of stress, and I feel fortunate that they feel like talking to me can help them address that stress.
My job is to be available, but also part of my job is to help connect people with the resources that they need when they get stuck.
I don't have to be the answer. It's totally fine if I am not the person to help you with this issue—the right person to help you may be somebody else in my network or another founder.
We've made over 400 investments now at Precursor, and there are definitely some themes.
I keep using The Grand because the founders in our portfolio will tell me specific situations, and oftentimes it comes down to a couple of things: “I didn't realize that when I was presenting or talking to people about Subject X in this way, that the way I thought I was communicating was very different from the way they were receiving it.”
They’ll say: “I was stuck on this issue, and I only could view it through one lens, and by being in conversation with the group, I was able to shift my perspective and see the root cause of the issue through a different lens.”
I’m watching people have these breakthroughs.
It's so hard, especially for first-time founders, when you don't have previous experience to draw on.
None of your friends or family are founders. It can be hard to talk about things you're trying to solve. Everyone says: “I don't have that problem, never solved it, never seen it, can't relate to why it feels so weighty to you.”
I don't care how nice of a VC you are. I'm pretty nice. There's always a power dynamic between you and the founders, because you gave them money. No matter how much they like you and trust you, there will always be certain conversations that are not appropriate for them to have with you first.
I'm a big believer that you have to give founders space to get those problems and issues resolved without you.
This is one of the things we miss as an industry. In all this talk about being founder-friendly, being nice—it's all true, you should do all those things.
But, you should also acknowledge that the power dynamic is real. At best, two people can acknowledge that it exists and still discuss the issue. At worst, it becomes a blocker to having an important conversation. To pretend that it doesn't exist is silly and counterproductive.
I don't expect every founder to bring me everything all the time. I want them to have a space where I don't exist. I'm not present. I can't see what's happening.
They can workshop things. They can express things that are thoughts in process, share things that they're not sure they want to share with me.
Those spaces are important for founders.
The big thing I try to teach founders: the culture that worked for your company at four people is probably different than the company that works at 20. The best founders intuitively get this.
It doesn't mean you have to abandon your values. But your rituals and practices need to change as your company gets bigger. You can't get everybody in a conference room. Not everybody remembers the product review meeting from two years ago.
When people come to me and say the culture feels off, I say, “Let’s look at what the company looks like today.”
Are you still trying to run the company using the management tools that worked when it was a quarter of the size?
Founders are so busy running and operating that they don't think: “Oh yeah, this company is a lot different.”
When I get an inkling that's coming, I will put them in contact with somebody who's usually a stage or so ahead of them in company development.
Again, that’s because oftentimes those people can say: “Let me guess, these are the things that you're observing in your company.” And the founder says: “How do you know?” And they say: “Because I had the same thing in my company 18 months ago.”
I try to give people more than one story. I try to give them a handful of people who've navigated this and that, so they get a variety of perspectives on how they can push through.
I also tell them that at some point, they’re going to have to educate other leaders in the company to deliver these messages. Increasingly, there will be layers of people between the founders and individual contributors, and they will have to figure out how to create cultural ambassadors.
They have to figure out how to create space for people in their company to do the kind of things they do with me: learn and grow and share.
So, a lot of them will look at things like The Grand. They will look at creating employee resource groups or affinity groups.
But a lot of what I tell them is: do we have the right management practices in place given the size of our company.
Charles Hudson is the Managing Partner and Founder of Precursor Ventures, an early stage venture capital firm focused on the first institutional round of investment for the most promising software and hardware companies. He invests in people over product at the earliest stage of their entrepreneurial journey.
Precursor Ventures has raised four funds with over $175M under management. Charles has invested in 375+ companies and supported 400+ founders. He is the 2023-2024 Chair of the NVCA Board of Directors.
Prior to founding Precursor Ventures, Charles was a Partner at Uncork Capital and the CoFounder and CEO of Bionic Panda Games, an Android-focused mobile games startup based in San Francisco, CA.
Charles holds an MBA from the Stanford Graduate School of Business and a B.A. in Economics and Spanish from Stanford University. He writes about his reflections on the startup and venture capital ecosystems in his newsletter: Venture Reflections.