Albert Charles:
Thank you again for being here for this interview. What were some of the skills and best practices that contributed to your early success at In-Q-Tel and Precursor Ventures?
Charles Hudson:
Working with people that have two things that I think are super valuable. One of those things was innate curiosity. I think you can tell we asked a lot of questions.
I think the other thing, I didn’t appreciate at the time, but there was this sort of openness to the idea that good ideas could come from anywhere. And even though we were a firm that had offices in Silicon Valley, we also had a big office in DC. And we also met founders who were starting companies from all over the country.
And it kind of opened my eyes to the fact that like, yes, the Bay Area and New York and DC have a lot of great startups, but there were great startups we met in other places too. And just being at a firm that was open-minded to good ideas coming from different places and curious about how the world works. It was really awesome. It was really inspiring. And it gave me this optimistic view about what venture done right could do and what it could mean in terms of impact.
Albert Charles:
How did that shape out for the incubation for these startups?
Charles Hudson:
I think the other thing I realized though was there were real benefits to starting companies in places where there were existing entrepreneurial ecosystems. Part of it was because there was a lot of money there. The other piece was there’s a lot of expertise.
And I think in the early 2000s when I first got into venture, the world was not as flexible when it comes to location. People didn’t use Zoom because there wasn’t a Zoom. People didn’t use Google Meet.
These meetings were in person. And as much as people talk about venture capital, we work for the entrepreneurs, we’re in service of them. What ended up happening is that we’re in service to you so long as you come to our office on Sand Hill Road. So you had poor founders hopping on an airplane and flying out to San Francisco, driving down to Sand Hill Road and having a meeting with the founder with the hope that they’d get money. And thankfully that has changed. Not everywhere, not uniformly across all firms, but I think most firms now use technology to meet people. They don’t insist on founders flying out to them. These are all positive developments.
Albert Charles:
As a solo GP, you make around 75 to 100 investments per fund. How does that shape out for you? I know you have some staff, but I’d love to learn a little bit about those logistics and how it can be possible for other future solo GPs.
Charles Hudson:
Well, probably the most common question I get from LPs is how do you support such a large portfolio? Yeah. Which I think is a fair question.
The way I think about it is we are here to help people with a very specific stage of life. We are here to help them from zero to one, from the time that they have the idea to the time that we’re pretty sure that the idea is working and has merit. There’s a lot we can do to help people.
Some of that’s helping them with fundraising. Some of that is helping them plug into a founder community that can give them some hands-on founder-to-founder advice because I think that is a really important consideration. And the third one is to have a relationship with me such that I can hopefully earn their trust so that when they need valuable advice, they’ll know that it’s coming from someone who cares about them.
And that for me is the plan. And so it turns out from pre-seed to Series A, we’re pretty helpful to people based on what they tell us. And once you get beyond that, there are other people. Your Series A investor will help you, your team will help you, advisors. Like we’re really focused on the zero to one. That’s what we’re focused on, just that.
Albert Charles:
Makes sense. And you’ve had quite a bit of success with that as well. And then as a solo GP as well, what does that look like finding and fundraising from limited partners and fielding those types of questions?
Charles Hudson:
Oh, it’s so hard. It’s so hard because there’s a lot of limited partners who think venture is a team sport. And I don’t disagree with them to some extent.
Venture is a team sport, but as I always tell them, soccer is a team sport and so is golf, but they operate differently. Soccer, in my opinion, you’re only as good as your weakest player. And golf is an individual sport. It’s you against the course. And so I think a lot of LPs have reasons that single GP funds give them pause. And I understand that. You as a single GP have to do fundraising, day-to-day running of the business, and all the investing work. It’s three jobs. It’s a lot for one person, but I also think it’s totally worth it.
Albert Charles:
What makes it worth it for you?
Charles Hudson:
I think, I mean, the financial piece is certainly part of it. Precursor is not a nonprofit, but I also think one of the nice things about being a single GP is you really do have brand control over the firm that you’ve created. It should reflect your image and values. And that’s not just in the companies that you invest in. It should also be in the people that you hire and the way that you show up in places. And I think when you have partners, that’s something that you have to negotiate in a way you don’t as a single GP.
So I always, I talked to a lot of people who want to start their own fund. And I’m like, well, look, the money’s a piece of it. But for most people, it’s the ability to build something that reflects you in the world. It has to be a really strong motivator. Otherwise, it’s just too much work.
Albert Charles:
That’s fair. And then at the start of Precursor, you said you were focusing on these idea stage companies. What was it like developing that thesis? And how has that evolved over time? If it has?
Charles Hudson:
I think the more of these we’ve done, the more I understand what we’re looking for. And the more clear picture I have of what works for us. And I think in the beginning, it was probably 60% the founder, 40% the idea. And with each passing year, the percentage of our analysis that focuses on the founder goes up. And the percentage that focuses on the market slash idea goes down. I don’t think it will ever go to zero.
Just because we’re not giving people so much money that they could live forever. So you do have to pick a good idea. But it doesn’t have to be perfect. So that’s probably been one of the big learnings for me is that the idea matters, but don’t put so much weight on your subjective view of the idea unless you really know what you’re talking about. Okay.
Albert Charles:
And this is a perfect segue into my next question, talking about underrepresented founders and how they can succeed in today’s market. What tools should they be trying to develop to be good founders or develop good teams?
Charles Hudson:
It’s a good question. Um. I think, you know, one thing I’ve observed is a lot of underrepresented founders don’t get as much candid feedback on the investment worthiness of their ideas, which is actually different from the quality of their idea.
And I find that that’s oftentimes because many underrepresented founders I meet, they don’t have the ability to bounce these ideas off of VCs in the early stage. So they end up in this weird world where they’re working on something, but no one really told them that is not remotely close to what a venture fundable business looks like. And they kind of waste time going to talk to VCs who are either not interested in their category or who don’t see the genius that they have inside of them and can’t connect the dots between what they want to fund and what that person’s building.
Whereas I think a lot of other people I meet who have access to these networks, they get that feedback earlier and they tend to work on things that are bigger businesses and that are better fit for venture. So I always feel bad when I meet an underrepresented founder who’s kind of pursuing venture capital for an idea that even at first blush, you just know like this isn’t something that VCs are going to get excited about based on the market opportunity that they’re going after.
Albert Charles:
So there’s like an information and mentorship gap for underrepresented founders that need to do that. There are people who get into entrepreneurship after school and want to find that sort of small cohort of entrepreneurs. Do you have to really be in those hubs like San Francisco, New York and DC to really find that?
Charles Hudson:
I think it’s interesting Albert. I think the jobs are still in the hubs but the information isn’t if that makes sense.
So I think what I tell people is there’s things like goingVC, their Slack groups and newsletters that I think provide lots of information and insight about what opportunities are out there, who’s hiring, and the necessary education so that when you show up for those interviews, you know what a term sheet is, you know how to manipulate a cap table, you know what an option pool is. That didn’t exist 10 years ago. 10 years ago, Venture was a black box and you showed up to an interview and they ask you a bunch of questions and if you hadn’t been a VC or hadn’t been coached by VC, the odds of you doing well in that interview were very low.
But the odds of you knowing somebody was pretty high because Venture pretty much only hired people that they knew.
And so one byproduct of opening the aperture of who can be in the businesses, it’s meant the information has had to become more widely available for people about what is Venture Capital? How does it work? What are the skills you need? And I’d argue unlike investment banking or consulting, early-stage Venture Capital doesn’t have the same set of rigorous, well-defined skills. It’s not,, “I need you to be a wiz at Excel. I need you to know accounting and finance.” I need you to know what a good founder looks like. That’s a much more nuanced skill.
Albert Charles:
Yeah. Okay. And then in terms of developing a network in this virtual society that we have is cold emailing the best way to go about it or founder events or maybe even having a fly out to the hubs at first to generate the first circle and then develop outside of that.
Charles Hudson:
I think in-person is just better for building those relationships. Not the only way if you’re really off, if you’re really not able to get to the places where people are, I get it. You can still do it.
But I tell people if you’re going to do cold email, there should be some reason or some affinity. If it’s peer to peer, it could be trying to connect with other people who are trying to start their careers in venture. Maybe we can help each other.
If it’s somebody like me, a managing partner, let me know what it is. The ones I get where they say, “I just want to talk to you.” Well, I’m happy to talk to you. Just help me understand what it is that I can do to help you. Is it introductions to firms that are hiring? Is it perspective on careers in venture?
I always like to help people, but it’s so much easier if the person tells me what it is that they’re looking for. Because in some cases, people will ask me for things and I’m not the right person to help you with that, but I know somebody who is. And let me make an introduction to you there.
Albert Charles:
That wraps up the interview. Again, really appreciate your time providing these insights to perspective investors and founders as well.
Charles Hudson:
My pleasure. It’s good to see you.