051: Charles Hudson – Funding the Forgotten Founder

Jonathan DeYoe: Welcome back. On this episode of the Mindful Money podcast, I’m chatting with Charles Hudson. Charles is the founder and managing partner of Precursor Ventures, an early stage venture capital firm focused on investing in the first institutional round of investments for the most promising software and hardware companies. I wanted to interview Charles primarily because of the following statement taken directly from their website. Under philosophy, it says, and he doesn’t know I’m going to read this. So it is our belief that all entrepreneurs, regardless of background, benefit from having an institutional investor to help them scale and grow from the very beginning. Charles, welcome to the Mindful Money podcast.

Charles Hudson: Thank you so much for having me.

Jonathan DeYoe: I’m excited for the conversation. First to kick us off, where are you calling from? Where do you call home?

Charles Hudson: I live in the city of San Francisco on the north end, kind of near the presidio, and I moved our office about a year and a half ago to Jackson Square. So we are in the shadow of the Transamerica pyramid in an old building that used to be called the House of Pesco, where I’m told one of the many peaceco cocktails was actually allegedly invented in our office.

Jonathan DeYoe: So is that the specialty cocktail when people show up?

Charles Hudson: Yeah, we’re thinking about renaming the conference room after it.

Jonathan DeYoe: Cool. So did you grow up in the Bay Area or did you come here later?

Charles Hudson: It’s interesting. I came to the Bay Area in 1996, so I have now lived in the Bay Area almost continuously since then. So I’ve lived in the Bay Area longer than I’ve lived anywhere else in my entire life. So I consider myself now an adopted californian.

Jonathan DeYoe: But I’m originally from Michigan, so I came in 97. So we have the same historical view. Actually, no. 92. I started working downtown San Francisco in 97, but I was here for grad school before that. I’m just curious, growing up in Michigan, what did you learn about money or in your case, entrepreneurship?

Charles Hudson: Growing up. So it’s such a good. Jonathan, like, my dad worked in the auto industry. He effectively had two jobs. He worked for Ford Motor Company, and then Ford Motor Company spun out a company called Vistion that was effectively became a supplier back to Ford. That was like almost the totality of my father’s professional working experience. So classic midwestern one job for life career. My mom was an attorney who used to work for the government and then went out on her own and started her own law firm. I didn’t really think of, she wouldn’t have described herself as an entrepreneur, but she was. And in high school, I had all these little side businesses. I had a landscaping business, I had a paper route. I had a tutoring business. I was always interested in sort of like making my own money, but it was more like I liked making my own money. I also didn’t think of myself as an entrepreneur. And I came from a part of Michigan where the dominant career choice for most people was find one really stable long term employer, probably auto or auto adjacent, work there for 30 years, retire in your early fifty s and enjoy your life. You still got plenty of good years ahead of you to fish and drive your boat and hang out. And so that was sort of the dominant theme for most people where I grew up.

Jonathan DeYoe: I’m curious how I talked to quite a few people that are now entrepreneurs or investors, and they all had multiple businesses in middle school and high school. So what was the stimulant to sort of drive you to do that, that first one you started?

Charles Hudson: I’ll tell you, this is so funny. So my mom used to make me do yard work at our house, pulling weeds and all those.

Jonathan DeYoe: Oh, I’m familiar, I’m familiar.

Charles Hudson: I blame that for all my seasonal allergies, like, all that time I spent around pollen and ragweed. And so I started doing that, and I realized that I lived in a community where, again, I didn’t think like an economist. There were all of these families who didn’t make their kids do yard work, and there were all of these professional services that charged an arm and a leg to cut your grass or pull weeds. And I was like, well, if the families can’t compel or have, uh, chosen not to compel their children to do this work, and the professional service providers are charging an arm and a leg, what if I charge what would be a lot of money for me as a 16 year old, but it was 25% of the professional price. And it was funny, in my town, there was a high school that had a job board. It was literally in the 90s, there were little index cards that people would call into this job board, and they would post an index card and just say, I need someone to come move 200 pounds of mulch on Saturday. I need someone to come trim a tree. I need someone to come weed a flower bed. And I would just drop by this place every Thursday and just take all the cards off the board that I wanted and call all the families. And eventually the woman who ran the job board is like, why don’t I just save you time? Why don’t I just take your phone number and I’ll just have them all call you? She’s like, you’re the only person who really comes and takes these. I could make this a lot easier for you. So I had my own little book of clients. I had some regular Saturday people. I had this really nice elderly couple where I think part of what I was providing for them was companionship. And I would go to their house every Saturday from eight to noon, and I would do whatever they needed outdoors. Sometimes it was nothing. Sometimes I would just go for a walk with them. But sometimes they’re like, hey, can you go to the nursery, get a bunch of flowers? We want to do something beautiful around the tree in our front yard. So I had like, regular clients. I had like, one off clients, and I’ll say one of them, I decided very early on there’s two businesses I was not going to be in. I was not going to be in the snow shoveling business because I was like, the bang for the buck for this doesn’t seem to make sense. And the same thing with cutting grass. I was like, this is the other thing where the bang for the buck doesn’t seem to be great. And I didn’t like, I don’t know, I guess I was a little mini economist back then. I was like, intuitively, plants, weeding, this makes sense. The other things, I don’t think so.

Jonathan DeYoe: Yeah, I don’t think most kids think like that. And I’m just inspired by people that think like that. I thought like that as a kid, as know, analyzing the bang for the buck and analyzing. If I do this, I get paid so much. So did you ever have a job, like, work for somebody else, or was it always.

Charles Hudson: Yeah, I had several. And some of them really had left a big imprint on me. So one of the jobs that really impacted me, especially in the world of money, was I worked at Kroger, which was our local grocery store, and I worked as a bag boy and in the stockroom. And I’ll never forget two things that have stuck with me forever. One is I was probably 15 or 16 when I worked there. And I worked with people in their 40s, where working at Kroger was like, that was their job and their career. And it was really different than the household I’d grown up in in terms of. So it was like a really clear look at a different path for people. And one of the guys who I started with still worked there 20 years later. Wow. He was a high school kid like me who started working at Kroger, continued to work there during high school, during college too, and ended up, he was like, by the time I went back last time, he was the manager of that store. And I was like, wow, this is so not the path I’ve envisioned for myself. It’s really. I also worked in a physical record storage place called the depository, where every day you’ll appreciate this, Jonathan. Like, I would get this big printout with a bunch of serial numbers on it. And my job was to take all of the records. They came in these big gray bins, take all of the records from each client, put them back on the shelf, and then check them off the list. These records all came back, they’re back in storage. And then there’d be a pull list three, four, five pages long. These are all the records we need back the next day. So I worked there after school, basically from probably 04:00 p.m. To 07:00 p.m. Three times a week, just in the back with the radio on, putting literally physical cassette records on a shelf and pulling cassette records off a shelf.

Jonathan DeYoe: So you’re pointing to two paths that I think is, uh, important to tease.

Charles Hudson: Out a little bit.

Jonathan DeYoe: There’s the person that started with you, 1617 years old, working at Kroger, and is still at Kroger 25 years later. And then there’s you who went on and you went to college and you’ve worked in the financial sector for a long time. We talk a little bit about money and building wealth. How important do you think it is for people to think about a side hustle or think about something entrepreneurial to build wealth for their families going forward? I know it’s still possible to put money in your just work a job and do that, and you can do that and people do that and are very successful. But I think most wealth is created by people who build something, create something, where do you fall in that?

Charles Hudson: I really believe. I wish someone had given me that advice earlier. I sort of like, backed into it out of interest, and I wish someone had told me earlier. And my mom did. As I got older, my mom was like, look, I own my own law practice, but for her, I think it was more flexibility. She’s like, I get to set my own hours. They’re long, but I get to set them. I get to choose my own clients, I get to set my own rates. And I think for her it was really important to have that level of control. And for me, the big, uh, aha was I started meeting business owners as I got further along my career. I’m like, oh, so that’s how you do it. One of them told me, when you’re first in line, you’re first in line. And he’s just like, look, I’m sitting at the very top of this whole thing, and when the first dollar comes in, I get to decide how that dollar is apportioned across the organization. And he’s like, there’s a lot of power in that. And, uh, for me, the light bulb went on, so I left Michigan and moved to California to go to Stanford. And I was there during kind of web 10, and I watched, oh, that’s what happens when you’re an early employee at something that really pops. Oh, that’s what happens when you’re the founder of a startup or a business. I was like, wow, this is like orders of magnitude, difference of wealth creation, also orders of magnitude, different levels of stress and challenge. But I was like, oh, this is the way, this is how you do it. If you want to create generational wealth for yourself and your family. And, uh, I was always kind of the person who always would like tinker. I probably built two side businesses on my own. One was a conference business that I built and sold, and that was, for me, the first time I actually got a meaningful chunk of money in one lump sum. And it was, for me in my probably late 20s, early thirty s. It was literally life changing for me, John. I was like, wow. All of the stress I’ve had about money and making ends meet and having a cushion, it’s all gone.

Jonathan DeYoe: That’s incredible. I had a similar experience. I merged my firm, mindful money, into Ep wealth, and I had a very similar experience where a lot of the stress, and I’m still coming to understand how much stress has been lifted off. It’s been 15 months, and I’m still acting as if it’s so critical that I do this thing and do this thing and do this thing, and it’s not critical anymore. It’s like I can relax, but I have a hard, uh, time relaxing. So give us a thumbnail sketch of your career path. You mentioned you went to Stanford. What happened after Stanford and how did that lead to founding precursor?

Charles Hudson: I’ll also tell people life makes a lot more sense in the rear view mirror when you can connect the dots. I would not have been able to tell you this story 20 years ago. So I worked at an Internet company that is no longer with us called excite.

Jonathan DeYoe: Oh yeah.

Charles Hudson: In 99. And there was a woman there who was not my manager, but sort of took me under her wing. She introduced me to her husband. Her husband ran a venture capital fund that invested money for the Central Intelligence Agency. I knew what the CIA was. I did not know anything at all about venture capital, but I really trusted her judgment. And she was like, you should go interview with my husband. He needs help. He needs people. This could be a great opportunity for you. So I ended up on a lark turning down what I would describe in retrospect, far safer, far more prestigious jobs in financial services and consulting to go work for this brand new fledgling startup company. My parents are like, isn’t it risky? I’m like, mom, this job is never going to come around again. If this doesn’t work. I sure hope those investment banks and consulting firms don’t think I got dumber by working at this startup venture capital firm for a year. Those jobs will be around. I have a feeling I won’t get this opportunity ever again. So I took it and it was an amazing experience. I did that for almost four years, went back to business school at Stanford because I kind of realized in venture capital, at some point you get to the point where part of the job is advising startups and trying to help them figure out what to do. And I’m like, I’m 24, 25. My whole primary full time work experience is in this building as a vc. I’m not sure I’m really equipped or in a position to provide people with high quality advice. So I went back to business school, came out and, um, worked in startups for a couple of years because wanted to try that, really enjoyed it. Went to work at Google to see what it was like to work at a big company. Enjoyed my time at Google, but pretty quickly realized this is not the right environment for me at not. I now can see in crystal clear terms why I’m not meant to be at a place of this size. And then I went and joined two more startups, did one on my own, joined another venture capital firm called Uncork with my partner. And after five years, I realized in the end, the thing that really got me excited was not investing big checks into companies that had really experienced management teams, repeat founders. The thing that got me excited to get out of bed every day was really working with less experienced first time founders where the money really made a difference and where the advice really made a difference. And I was like, this is a harder way to make money, but it’s way more satisfying and way more engaging for me. And if I’m going to do something professionally, I want it to meet my needs in that dimension. So I’ve been doing precursor now for almost nine years.

Jonathan DeYoe: Yes. I want to go back to the beginning and just highlight it. Sounds like you had a boss who was a good mentor, that made a suggestion that wasn’t in her best interest necessarily because she was going to lose you as someone that she got to work with if you went to work with her husband. I think that that’s a really critical thing to point to. And how do you think in today’s environment, where we’re maybe 50% working from home, we’re not engaged as much in the office, we don’t have the same relationships. I can’t maintain relationships as well over Zoom as I can over coffee. How do people find mentors like that, that will like, here, try this, do this, and make suggestions?

Charles Hudson: I think it’s harder. So I can tell you the positive is I think there are people that are hard to pin down for Zoom that you pin down for coffee that you can get on Zoom. So to some extent, uh, the universe of people who could provide you with mentorship and advice is much richer, potentially, than what’s available in your local environment. The hard thing is, to your point, it’s hard, and I think a lot about this. We’ve got people on my team who are early to mid career. A lot of the things I’ve learned about the venture capital business were because I was in an office and I overheard my boss having a conversation with somebody about something, and I was like, I think I caught half of that. Could you fill me in on the other half? And I think we haven’t figured out how to replicate that yet. I was talking to somebody yesterday. I was like, you know, the thing about COVID was it put everybody on the same footing. We all had to be on Zoom. That doesn’t mean we did it well. It just meant we were all on the same equal footing, and now we’re in a world where some people are in the office and some people aren’t, and it’s very unequal footing. So I’ve encouraged people. If you’re transitioning into a new role or you’re joining a new team or you’re a new college grad, if you can find a way to be around people, I would encourage you to do so. Because a lot of the things I learned about this job, no one was going to stop and say, wait a minute, Jonathan, we’re about to have a really important me. Let’s go into the zoom room, let’s turn on the camera, let’s go track down the people who we think need to be. And, like, I think we will eventually get to a place where remote and distributed culture is well understood and the norms and practices around including people are better. But right now, we’re just not there. In my opinion, we still have a lot to learn.

Jonathan DeYoe: It’s on the mentee, it’s on the young person to find the people, to mentor them. They can’t just happenstance, getting coffee, overhear the conversation, and then, uh, they have to seek the support. And I think that’s the big change. I mean, it’s so difficult now.

Charles Hudson: I think as a mentor, too, it’s harder to get. I was telling my team this, when people are in the office, you get a lot of clues about how they’re doing. Body language, energy level, activity level, arrival. You get a lot of metadata about how somebody’s doing. I feel like I lost all of that with Zoom, um, because I’m like, oh, I see you in a postage stamp window for 30 minutes, two to three times a day. The rest of your life is basically a black box to me. And there are certain things I’m like, I don’t know if you want to talk about your home situation. I don’t know that I want to pry that deeply. And I miss the free metadata that I would get about people just by being able to observe how they showed up to work every day.

Jonathan DeYoe: Yeah, for sure. We keep throwing around terms like venture capital and pre early stage and all that. Could you just give us what the landscape of venture capital tell us about the industry itself?

Charles Hudson: So I would say, at broad strokes, the job of a venture capitalist is to find really good private companies, invest money, provide some level of support, and help those companies grow and scale. Now, there’s a pretty broad spectrum. On the earliest of early stage, I would say if you’re fortunate enough to have friends and family who have the means to invest in your business. Those are oftentimes the first people to invest, and your friends and family might invest in you before you even have an idea, just because they know that you’re smart or you’re your rich uncle, whatever it might be. We’re usually like people’s first institutional money. Institutional. It’s like at uh, precursor. I go out every two years. I go raise capital from individuals, from foundations, from people who are looking to generate a, ah, return on their investment, but don’t want all their money in the stock market, don’t want all their money in bonds, don’t want all their money in real estate. We’re part of what they call their alternative investments, so they’ll put a portion of their investment dollars with us. My job is to then go scour the world and find the very best founders that we can. And typically when we meet people, they have an idea, but usually the product hasn’t been built and there’s no revenue. And oftentimes many of the people that we meet are outside of my immediate network. They’re people that I don’t know super well. So our whole job is to, uh, evaluate those folks, pick the ones that we think have the highest potential and provide them capital. At some point, though, they get to a point where the business is working, but they need more investment dollars. And if the amount of investment dollars they need are greater than what we can provide, we introduce them to someone later in the value chain, someone who’s like, okay, I invest not in companies at the idea stage. I invest in companies where the product is live and there’s some revenue. Then once the companies outgrow, uh, the capital needs of those people, they go to someone who says, well, I invest in companies that have a working product, a reasonably complete management team and real revenue. And then at some point we all hand them off to the public markets and those companies go public. That’s sort of think of it kind of as a big conveyor belt. We’re the front end. We take people, we work with them for a while, but we eventually hand them off to the next person in the chain who works with them and then hands them off to the next person. And the end of that chain is basically the public market.

Jonathan DeYoe: Is it fair to say that you’re at the space where the greatest risk is?

Charles Hudson: Yes, we are. As you can imagine, when you’re investing in people with an idea, sometimes those teams are unable to turn that idea into reality, or sometimes they turn that idea into reality. But the customers aren’t as excited about the product as the team that built it is. Sometimes the companies aren’t able to raise the capital that they need. Sometimes the teams fall apart because of conflict or dissension. So when you’re investing at the Sage, there’s a million things that can go wrong. The good news is we invest at a price that’s so low that the risk reward to me feels fair. We’re investing at very low value, but we’re taking a lot of risk. So for us, uh, in a normal fund, we’ll invest in 100 companies. Ten of those companies will account for 75% of our performance. And of those ten, the top half will probably be the majority of our performance. So five companies out of the hundred and basically determining the fate of our.

Jonathan DeYoe: Fund, one out of 20, it’s 5%, are really successful, and that’s what makes the whole thing successful. And to accomplish that, you’ve got to interview, discover 300 to find the 100. Right. So what are the markers to you of this company has the potential. How do you make that decision when they don’t have anything to show? It’s an idea in somebody’s head.

Charles Hudson: A lot of what we’re doing is we’re looking for character traits. So there’s two things we think about. One is like, who’s this founder? Who’s this founding team? What are they great at doing, and what insights do they have on the market they’re going after? That’s probably two thirds of our decision making is really about the people. The other third is, what problem are they solving? And is that an interesting problem to solve? And the reason we put so much work on the people is when we fund people, it’s usually for twelve to 18 months. We, generally speaking, cannot recruit a new team if the people that we decided to back aren’t the right folks. With a more mature company, with a public company, you could bring in a new CEO, uh, for better. We’re stuck with the management that we invest in when we pick the company. So we spent a lot of time trying to figure out, how much does this person understand about the problem? How motivated are they to solve it? How much insight have they gathered? Is the approach novel? Do they understand that they’re signing up for a fundamentally risky thing and starting a company? So we meet thousands of founders a year. So we’ve developed a sense of what we’re looking for. And I’d say it’s some mix of confidence and naivete, because you do have to be a little naive to start these things in most cases. If people really knew how hard it is to get them started, you wouldn’t do it, right?

Jonathan DeYoe: I don’t know if it’s naivete or stupidity, like, you have to be a.

Charles Hudson: Little dumb oftentimes a bit of both. And then I think the other thing is you got to pick a problem where I think a startup has a chance and there’s some problems where I’m like, yes, that’s a really interesting problem, but that’s not a problem for a startup to solve, or that’s a really interesting problem, but you’re competing against really well funded, successful companies. Are you sure you want to go down this path?

Jonathan DeYoe: Yeah.

Charles Hudson: Then we make our decisions and we work with the companies.

Jonathan DeYoe: Yeah. I want to go back to that original quote from your website, from the philosophy section. You have kind of stated, and I know this isn’t actually stated on the website, but, uh, we’ve talked and you’ve said you try to invest in people that don’t ordinarily have access to capital. So tell us about the importance of investing in diverse founders and what does that mean for the founders and what does that mean for your portfolio?

Charles Hudson: Yeah, I’ve been a venture capitalist off and on now for 20 years. One big thing I’ve learned is the easiest thing to do in venture capital is to simply invest in your friends, the people that you know well. It’s a low regrets framework. Presumably if you’ve been successful, your friends are hopefully successful too, and you have the comfort of that relationship. As you can imagine, giving or investing money in people that you don’t know very well, you’re implicitly saying, I trust you with my money, even though I don’t know you super well. It’s a lot easier to say I trust you with my money because I know you super well and I know where you live and our families know each other and we have history. That’s an easier way. So that’s the easiest thing to do. The second easiest thing to do is to invest in people that have the attributes that most people think correlate with success. You went to a fancy elite school. You have a graduate degree from an equally fancy elite school. You worked at a highly famous, well known company. You’ve been a founder before. These are all attributes that give people comfort when they’re making decisions under uncertainty. The hardest thing to do is to invest money with people that you don’t know very well, who also don’t have connections. But I would argue, like social proximity is only one way to invest. You could also just say, I’m going to meet a bunch of people, I’m going to make my independent assessment on their ideas, and I’m going to pick the ones that I think are good, which at the end of the day is what we do. And I think what ends up happening is you find all these people who. I don’t blame any entrepreneur for not having relationships with vcs. Why should that be a requirement for success? It seems like a very, it’d be like, jonathan, you can’t walk into Morgan Chase unless you have a relationship with a, you’re like, well, like, why should that gate my ability to open an account? Like, I should be able to walk in here and apply and get an account. And I think for too long, venture capital has really focused on social proximity as a necessary ingredient. And I was just like, well, what if we’re just inadvertently locking a lot of people out of the system and missing out on great founders simply because they’re not part of our world? As you can imagine, the people who have the worst access in general to these sort of social networks of venture capital are women and people of color. So my philosophy is if we focus on people who are on the outside looking in from a connectivity standpoint, we are naturally going to end up with more women and people of color in our portfolio because we’re basically the social bridge for them. At, uh, breegers, we have the relationships. So I can say, I can take you from a person who’s not an outsider, work with you, and I can use our relationships to bridge you into the network so that you have access to things that people who sort, uh, of start their companies with those resources do and try to create more opportunity for those folks.

Jonathan DeYoe: How did you first sort of plant your flag and say, hey, I’m somebody that’s willing to bridge that gap?

Charles Hudson: It’s really funny, at, uh, my old firm, I started looking at the kind of founders where we were having the best outcomes financially. And I’m like, it’s actually not the repeat founders. It’s not the people who know early at Google or Twitter. It’s actually these people that we don’t know super well, where the idea was so good that we got over the fact that we don’t know them. Those were honestly our best investments. And I was like, the energy, though, in venture is the longer you do this, the more connections you have, the more people who are in your network, and the harder it is to create space for new people. And I was like, I think we need to continue to create space for new people, because the new people are the ones that are building all the amazing companies in our portfolio. The people that we know well are doing great. They’re doing fine. It’s not like they’re bad, but that upper echelon of our portfolio is mostly new relationships and first time founders. So I looked at that and said, well, what if we had a firm that sort of kind of never grew up, that sort of tried to hold on to that? Because a lot of venture firms, when they start, they have this more outsider, renegade point of view, and then you become part of the system and you become more conventional. And I was like, what if we just fought really hard to resist assimilation and said, no, we’re going to continue to look for the same kind of people, even as we’re more successful, even as you have access to more capital, even when we could do the easy thing, let’s fight that urge and continue to do the thing that got us here. And I felt like I needed to be at my own firm to really make that happen, which was a bummer, because I like my old colleagues, they’re great people, but I felt like I need something different.

Jonathan DeYoe: I love the idea of venture capital industry as Borg. We will assimilate you.

Charles Hudson: It has some Borg like elements to it, and I think I’ve just watched, and that’s the other thing. I’d seen a lot of firms that started out scrappy and very, I’d say, like underdog. I don’t really outsider oriented. And then as those firms became more successful, they just began to act more like their institutional peers. Because part of running a venture capital fund is there are things that are logical and rational to do as your firm grows. And the biggest one is to write bigger checks.

Jonathan DeYoe: Right.

Charles Hudson: And I think it’s one thing to write a 200k check to someone you don’t know. It’s a different thing altogether to write a $2 million check to someone you don’t know. Right.

Jonathan DeYoe: That’s big risk. I’m curious. The companies are first time founders that are really successful. They don’t have the relationships or access to the networks that you have. Do they also come in with less knowledge of how to run a company? Are there other skill sets that they’re missing? And then how do you backfill?

Charles Hudson: Yeah, so generally, they know less about raising money. They tend to know less about running companies just because they haven’t done it before. For the most part. They’ve worked in startups, though, so they have some vague notion of what they’re signing up for. I’d say one of the humbling things I’ve learned from pregurshire is a significant value in what we do for founders is not telling them what to do or giving them advice, but connecting them with peers who have solved that problem recently. So, perfect example. This happens to me all the time. Last week, one of our portfolio gummy founders called me up and said, I’m having a high level of friction with my co founder. We talked about the issue and I was like, I think I know what’s going on here. I actually think I know how this is going to end, but, uh, not going to give you the whole story. What I want you to do, I’m going to text this person. I want the two of you to go get coffee because this person just navigated the exact same situation six months ago and came out the other side. And I think this is a topic where you will get much better advice and perspective from a peer who’s gone through it recently than you will from me. I can give you some frameworks. I can talk to you about what I think the underlying issue is, but when it comes to resolving it, I think you want to talk to somebody who went through it recently. And when you talk to that somebody, I got two more somebody for you to talk to, because you shouldn’t just take one perspective. And that’s a big part of what we do, is peer education here. The good news is most of these things, you can learn them. My goal though, is like, how can I accelerate your learning instead of you learning everything by doing and making a mistake and saying, well, I won’t do that again. Can I give you some shortcuts? And some of those shortcuts come from me and my team. Others come from the community of founders that we’ve built. And I have no ego about saying the right answer for this question is for you to have a peer to peer conversation with someone in the portfolio. It is not for me to dispense wisdom.

Jonathan DeYoe: Yeah, I want to go back to numbers really quick. Can you talk about in percentages, maybe the breakdown of the investments in your funds, the founders versus the industry? I want to make a good solid contrast there. And then I’m going to ask you if there are other people that are doing what you’re doing. Yeah.

Charles Hudson: You mean in terms of the backgrounds of the founders?

Jonathan DeYoe: Yeah.

Charles Hudson: More than 50% of the founders that we’ve backed are women. That’s probably 2025 times industry average. About a quarter are black, indigenous, or people of color. That’s ten to 20 x or more. I don’t know. It’s significantly higher. We have more geographic diversity than most funds. We have a lot of California and New York. Obviously, we have people in Texas, Colorado, Massachusetts, Florida. Uh, we have founders all over. We just recently started tracking, like, LGBTQIA affiliation and some other things. So this might sound cheesy, Jonathan, but I wanted to build a firm where everybody felt welcome. Like white dudes, black female founders. I wanted a firm where everybody felt welcome, which is why the first decision we made on our website was to lead with the faces of the people, not the logos of the company. Because a lot of people were just like, oh, well, I’m a white guy. Can I get money at Predator? I’m like, of course you can. You’re a significant chunk of our portfolio. And I didn’t want a firm where anybody felt, well, that place isn’t for me. I think there are lots of people who. I think the experience they have when they look at a venture capital firm’s website is the question, do they want people that look like or sound like me? And I was like, I wanted to send a signal to people that everybody’s welcome here. We literally don’t discriminate. I’m happy to have people of all backgrounds, genders, races, ethnicities, um, as part of our community.

Jonathan DeYoe: Great. I’m trying to figure out how to formulate this question, so I’m going to kind of just sort of dance through it and see if it comes out right. I’m wondering if, because there are areas of investment that have been ignored for so long by the regular industry. And it’s not that the people are less capable, less intelligent, have less experience, it’s just they’ve been ignored by the industry because of that proximity issue. Do you think that you find better opportunity because you’re open to all the different kinds of founders?

Charles Hudson: I do. If I think about the categories where we’ve done well for a while, we had one of the largest women, we probably still do. Largest early stage portfolios in women’s health. Like, what on earth is a firm run by a man doing being the largest or, uh, second largest investor in early stage? It’s because I kept meeting all these really talented founders who were like, there are all these problems in women’s health that are simply not getting addressed. And that started for us with fertility at the core, and it since has expanded. But that was something we started doing seven years ago. And all I peers were like, digital health and women’s health isn’t that niche. I’m like, aren’t women like 52% of the, they’re at least half of the population. How can the health needs of such a large community be considered niche? And it’s underfunded. It’s not well understood. And I think some of it was that the people who were writing the checks couldn’t relate. It’s interesting, I think they couldn’t relate to the founders, they couldn’t relate to the problem, right. And, uh, my view was like, I don’t need to have affinity for the problem. If I did, I would only invest in things that are interesting to me, which is a small subset of the things that are investment worthy. I’m like, I need to have affinity for the person and believe they can be successful, and I have to believe that they’ve chosen a good idea. I myself don’t have to see myself as a customer or have an informed point of view about the market they’re going after. And that really enabled us to do a lot of things in women’s health and in other categories where I would say we are not subject matter experts on anything other than picking people that we think are likely to change those industries.

Jonathan DeYoe: That’s awesome. I mean, just the idea of the ignored founder who has a great idea and it just doesn’t have access. You give them access, they’re very successful. Great for them, great for the industry, great for the problem, great for you as an investor. It just works better all around.

Charles Hudson: And, um, the same thing with immigrant founders who would come to the United States without a network. Really smart people, maybe people don’t know the prestige of the educational institution they went to. They went to work for startups in their home country that you’ve never heard of. But again, we’ve had some great outcomes there as well.

Jonathan DeYoe: So at what points? There’s lots of different businesses out there that are like small mom and pop retail. There’s local neighborhood businesses. What kinds of business? And at what stage should they be like, hey, I need to talk to somebody like precursor or somebody that’s doing early stage investing?

Charles Hudson: Yeah. I go into every pitch meeting I have, thinking this could be the meeting where I meet the next company that returns our whole fund. And I’m always asking myself essentially the same question, do I think this company can get to $100 million in annual recurring revenue in seven to ten years with reasonably good margins? That’s like the starting point that I’m running through in my head when I hear somebody pitch and for me, those things are important. $100 million in annual recurring revenue puts you in the universe of a company that could go public someday. So it’s probably not enough anymore. Probably more like 250. If you can get to 100, that’s a real accomplishment. Seven to ten years means not overnight, but also seven to ten years is not never, it’s also not tomorrow. So we give people time to grow into it. And good margins means you probably have a business where the cost of providing service to your customer still leaves you with something interesting after the fact. And our best companies honestly hit those numbers. They get in that 100 million dollar annual run rate for revenue in about seven to ten years with good margins. So I’m like, that formula works. Sometimes I meet companies and I’m just like, I don’t think you can achieve that with the customer segment you’re going after, with the business that you have. I don’t think you can do it in that time frame. In some cases, I’m like, I don’t think you can do it at all. Just like the market you’re in won’t allow you to scale that way. And so that, for me, is always like, one of the questions, aside from my assessment of people. But I would say if you have an ambition to grow a big company and you need access to capital, you should absolutely come visit us.

Jonathan DeYoe: So you’ve talked about the people you’ve talked about. The opportunity has to be the 100 million. What’s maybe the, you find somebody that the idea seems great, the profit opportunity is there, but what’s the next thing? What’s the third thing?

Charles Hudson: I think the third thing, and this is, I think the hardest thing for founders to internalize is we also do this kind of leveling across opportunities. And I’m like, we’re only going to do 50 new companies a year ish. So I’m also asking myself, this is a really great company, but is it one of the top 50 things that I think I’m going to see this year? And that could be 50 most interesting, 50 that I think have the highest probability of being successful. 50 most interesting founder. I’m like, is this company in the top 50? For me, harder to know in January and February and March, because you still got the most of the year. But when you’re doing it for nine years, you have some sense of, like, on the distribution of special companies. Where is this one? And so we say no to people all the time, where I’m like, I am quite convinced that person is going to be successful. I am quite convinced that person is going to have a good outcome for that company. And I’m also quite convinced if I’m patient, I’m going to find something that I’m more excited about than this one.

Jonathan DeYoe: It’s really interesting.

Charles Hudson: It’s hard.

Jonathan DeYoe: There’s a luck factor, right? There’s a judgment factor and a luck factor in here. And it’s just something that, as potential entrepreneurs, we should be aware of that you can have a great idea, you can be a great person, you can meet up with somebody, and it’s just not the right, you know, it’s not the right time, it’s not the right fit, and you should just keep going, find somebody else. I’m assuming you have a network of early stage seed investors. You might say, hey, this isn’t in my wheelhouse, but go talk to Sam or Sally over here, and they’re going to give you something that makes more sense.

Charles Hudson: And particularly, I have a few friends who have, uh, real specialty expertise in financial services, technology, or maybe digital healthcare, or maybe consumer products. Sometimes I’m just like, I don’t even know how to assess this, but I have a friend who’s a specialist. You should go talk to them because they’re going to ask you better questions. They’re more informed on this. You really should go talk to my friend. And we do that all the time. And same thing, we have companies that are like, hey, um, I want to add some new investors to the mix. And I always ask them, like, well, what are you looking for, both in terms of style, uh, how that person is going to show up and help you, but also skill set. What do you need? I need someone who’s great at recruiting. I’m like, I got someone for you. We’ll make that intro. So we’re constantly thinking about how do we bring more resources to bear on our portfolio companies? How do we set them up for success?

Jonathan DeYoe: Is there ever a company that you’re like, I love this company. I don’t want them to go public or merge with another large firm. It’s a great operating company. The margins are fantastic. Let’s just keep that in the portfolio. Or is it like, all venture capital, where we’re trying to scale and sell?

Charles Hudson: Yeah, I think, uh, there are a lot of challenges in the venture capital model. One of the big challenges, without getting too far in the weeds, is we’ve seen some businesses that generate a ton of cash. And my investors, largely for tax reasons, are like, what we don’t want you to do is take a cash dividend from that company and then pass it on to us. Which in any other universe you’d be like, what could be better? That company is generating cash every 1231. I’m going to get a check from them. That would be great, except in the construct of the venture capital business, for a bunch of tax reasons that would not be worth going into. So those businesses are off the table for us. However, we have a few of them that have gotten to the point where they’re very profitable. They don’t want to go public. And we’ve started having other large private investment firms say, we’d like to come buy that business from you, and we will pay you a nice price for it. But we also want to continue to operate it as a private business. But we want to start to scale it. And we’re going to go out and borrow some money to go buy some more companies and start to really grow this thing, maybe through acquisitions. But I tell our companies is, if you build a good, highly profitable business, I’m not worried about how I’m going to get my money out. I’m really not. Those companies always have options.

Jonathan DeYoe: Now, there’s a ton of noise out there, and I ask everyone that sits down in the podcast to simplify something for us in two ways. Let’s say you meet an opportunity who’s ready to raise an entrepreneur, who’s ready to raise capital. What’s one thing that she should focus on that would help her find investors?

Charles Hudson: Oh, you need to nail your elevator pitch, and you need that 15 to 22nd, pithy, memorable description of what it is that you do. It’s funny, I, uh, spend a lot of time coaching our founders on their own fundraises, and the biggest thing I try to get them to do is think about this world. Jonathan, like, I meet on a normal week, 20 to 30 new companies. Wow. When I sit down on Saturday to process everything and figure out what I’m going to spend time on next week, the ones I gravitate toward are the ones I remember what the company does. And sometimes I’m like, well, it’s this, like, kind of. Whenever my recollection is fuzzy, I tend not to gravitate towards working on those companies. Of course, uh, it usually means either I wasn’t that excited, or the way they presented it to me wasn’t memorable. The memorable ones stick with you. So I tell people, like, be memorable in your pitch. Give this person such a pithy, easy to remember thing. That’s how that person who that founder meets in the elevator who may or may not invest. Two days later, I’d be like, hey, I met this young woman in an elevator. Share this company. It sounds like what you’re looking for. I get so many intros this way, Jonathan, people are like, I just met somebody who I want to introduce you to. I’m like, what do they do? And when the person can tell me crispy, I’m like, that sounds great. When I’m like, you should just meet them. I’m like, okay. I now cannot assess whether this is going to be a good meeting. I can only assess the quality of the refer, not the quality of the referral, if that makes what is.

Jonathan DeYoe: And then the second part of the question is, what’s one thing that maybe founders have been told or they’ve heard in the soup that they should do, that they shouldn’t do, like, the thing that they’re doing that they should stop doing?

Charles Hudson: Yeah, I think, I hate to say it, uh, at the end of the day, venture capitalists respond to competitive pressure and fear of missing out. We do. It’s a competitive business. I want to be in the good companies, and so do my friends. There is some narrative out there that you should do whatever you have to do to create the appearance of a competitive dynamic. And I simply tell our portfolio companies, just never, like, just never can’t. As a startup founder in a fundraising process or a relationship with the VC, you can’t recover from a lie, because I have to forever question whether you’re being truthful. So there’s a big difference between saying, I have an offer from someone to invest. If you don’t have one, that’s a lie or a bluff. If you want to be cute, that’s different than saying, we think we’re pretty close to getting an offer this week based on where our conversations are with eight or nine firms. Those things are semantically similar, but practically quite different. And I’ve seen about 1% of the time, I see people do things that cross over into the line of, like, that’s simply a lie. And I’ve seen those fundraisers just blow up. And so I tell people, it’s just not worth it. If you don’t have the right level of competitive dynamic around your investment, work harder to create that environment as opposed to lie.

Jonathan DeYoe: Yeah, I think that, uh, speaks to reputation, and I think that once you’re, and I’m sure, I’m positive maybe you don’t, but many investors do. Once you’re lied to by somebody, everyone in your network knows that that person.

Charles Hudson: Lies to you, right?

Jonathan DeYoe: It’s not worth it. Reputation is everything. You’ll never get funding if you lie that one time. That’s great. But before we wrap up, I want to go back to personal a little bit. I, ah, like to add sort of two zingers here at the end. Is there anything that people don’t know about you that you really want them to know?

Charles Hudson: That is such a good question. Yes. I’ve been thinking about this a lot. Given how crazy things have been here at work, I would much rather you reach out when you need help than to try to make your own independent assessment of my availability and accessibility. And I have founders that I work with who from time to time will be like, well, I wanted your help on this thing, but I know how busy you are, so I didn’t ask. I was like, I would have rather you just make the app. Let me figure out how to make myself available. Don’t kind of like self censor. And that happens sometimes. And I always get frustrated. I don’t get angry, I get frustrated. I’m like, I want the people we work with to know that my job is to be available. And I was like, look, the only way I know how to manage my capacity is I have to actually know the true demand on my time.

Jonathan DeYoe: Yes.

Charles Hudson: And not telling me, I’m missing out on the ability to take that signal and say, hey, I need more time on my schedule for these one off things that founders ask for. And if I don’t get the demand signal, I don’t know how to reprioritize my time. So that’s one thing I wish people would do.

Jonathan DeYoe: Yeah, that’s awesome. That’s a good 1. Second thing is, can you name a place that you visited that has had an impact on you? And then what is the impact?

Charles Hudson: Oh, wow, these are both really good. They’re really like, I would say so. I lived in Japan for three months. It’s the one time I lived for an extended period of time outside of the Bay area. And being in a country where you don’t speak the language and you don’t really understand the culture for a very extended period of time. It’s one thing to go to a place for a day or two and you power through, but 90 days in a place you don’t really understand, or it’s very humbling. And it made me think about how many other people I encounter in my life who are in like, it could be a work environment, it could be a social environment, it could be a professional environment, it could be where they don’t know the rules and they don’t know how to communicate. And I just always think about how it felt to be in Japan and feel like I’m, um, really at the mercy of all these people to not take advantage of me or to help show me the way. And it really makes me think. Every time I walk into a room or I go to a meeting, I’m like, who here might be struggling? Who might feel like an imposter? Or who might be like, I don’t know how this all works, and try to be kind to those people.

Jonathan DeYoe: That is just super interesting because even I’m talking to a business school professor, they don’t understand money. Uh, it blows my mind. And how many people don’t understand money? So when people come to the money conversation, whether it’s raising money or investing money or personal finance, long term planning, they don’t understand how it works. And so they’re scared, and there’s, like, defenses up, and they may say something that you could take wrong, but they’re coming from a place of vulnerability and fear. Right. So how do you. That’s genius, man. I love it. That’s one of the best answers I’ve heard. It’s great. So can you tell us, how can people connect with you? Where do they find you?

Charles Hudson: You can always email me. I’m just charles@precursorvc.com. I read every email I get. Sometimes it takes me a little longer. I’d like to get back to people, but we’re committed to reading them all. If you’ve got an idea, you can also just apply directly on our website, precursorvc.com. We have four people here, and we kind of round robin our way through everything that comes. So there’s a 25% chance if you buy the website, it’ll be me. There’s a 25% chance it’ll be one of my teammates, or 75% chance it’ll be one of my teammates. That takes a look. But we’ve actually invested in companies that have applied through the website, so it’s not some black hole. Awesome.

Jonathan DeYoe: I just want to say thank you for coming on and kind of laying this all out for us and for our listeners. We really appreciate it. Thanks, Trevor.

Charles Hudson: This was awesome. Thanks for having me.

Jonathan DeYoe: You bet. Awesome.