First Funders

FIFU 08 - Charles Hudson
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Intro
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Shaherose: [00:00:00] Welcome to the First Funders podcast. Today we have Charles Hudson of Precursor, a longtime friend and collaborator. And I wanted to start this interview by sharing a bit about how we know each other, because we kind of go way back. And even when I say we go way back, that also means you have gone way back in terms of how many years you have spent meeting founders at this like super early stage. And so I can't wait to dig in to that for my own learning. But when I dug through my email, the first exchange was 2009, but I do think it was earlier than

Charles Hudson: it has to be

earlier than that.

Early Days and Building Community
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Shaherose: I remember you had just left Google, you were at Gaia hosting gaming summits, and I saw some emails between [00:01:00] us promoting each other's conferences and communities, and you hadn't joined SoftTech yet.

Charles Hudson: Yeah.

Shaherose: Those were the early days when we really were building community in the ecosystem. You were focused on gaming. I was focused on women in tech. But then as you stepped into soft tech now called Uncorked, I brought you on along my journey and I said, please share your experiences as an investor, you are a mentor in our founder labs incubator. memories of you, even to this day is that every time you showed up, I learned something new, Whether it's about an insight into an industry. Opportunities you were seeing, I mean, you always had like an independent thought or a thesis about what was going on and even what to look for at early stage founders, which I know is a certain formula that we all talk about, but you have evolved that over the years. And every time you shared something, whether it was one on one over a drink or many drinks, which we, I know we did that and

That was always [00:02:00] fun.

Charles Hudson: That is for sure.

Shaherose: I mean, we brainstormed a lot of cool ideas. And some of which you ended

up investing in over time.

Charles Hudson: that's right.

Shaherose: anyway, there was just so many fun moments just talking about the future. and then you would also show up on stage and share those very thoughtfully and articulately. And so you're someone who's always lived in the future. even just things like, The Athletic, when you made that first investment.

I remember that everyone was like, why would you do a subscription business in media? Or Carrot, you did Carrot more than 10 years ago. And the fertility space is like on fire now, right?

Charles Hudson: it was not a thing back

Shaherose: Yeah. So you are someone who I really admire and look up to in terms of both a friend and a mentor to me as I've gone through my journey, but really just someone who has some thoughtful perspectives on where the future is. And that's someone who thinks in the longterm, right? Like for you to think about Carrot fertility or, , even The Athletic and many other spaces you've looked into. It takes a lot of patience for pivots. It takes a lot of your own independent thinking [00:03:00] and not following the herd to really hone those thoughts and put money behind them.

So with that intro, I want to say, you're amazing.

Interning at Smith Barney to the CIA's Venture firm
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Shaherose: I'd love for you now to introduce yourself, what really led you to becoming an investor and how maybe you ended up launching your own firm.

Charles Hudson: Boy, Uh,, well, thank you for having me. This is like really an honor and a treat. , I don't know. I mean, I'm from Michigan, like, you know, home of venture capital, uh, . So I moved to California for school. Not knowing anything at all about the venture capital business when I moved out here, but if I go back in time, there are probably some clues that I would do something like this.

In high school, I worked for like a local, basically like stock brokerage for this amazing guy named Mark Willis. And, , I did all of the really high value add tasks, like ordering sandwiches for the brokers and like other, , menial office tasks, because once the market closed and things [00:04:00] calmed down, they let me use the Smith Barney tools to research my own stocks.

So I was like, well, I'm willing to like order sandwiches and do errands for the guy who runs the office, if it means I can get access to better tools for my own personal portfolio. And that had all started because the summer before my senior year, I did program called LEAD in New York City, where I went and stayed at Columbia and learned about business.

And if you'd asked me what I wanted to do before that program, I would have said chemistry. I really liked science. Or writing, I would have been a writer. And I went, I was like, this business thing is pretty cool. Like maybe this is a thing. And I got really into like investing and like learning about companies.

And I was like, companies are these little puzzles that you get to figure out. And so the Smith Barney thing, got me interested in stocks. And then I was in college. I did more investing, student investment clubs, Stanford student enterprises. A bunch of things, and then [00:05:00] I think like is always the case in venture capital, if it's not a family business for you, like the way you get in is weird.

And so I was an intern at a tech company my junior year. I really liked it. I stayed on my senior year of college and I met a woman, Amy Chan, who kind of took me under her wing. And she was just like, Hey, I see you here at this company called Excite. What are you going to do after you graduate? And I was like, I'm going to do what most Stanford students do.

At the time did investment banking or consulting, one of those two things. And she said, you know, my husband is starting this venture capital fund. He's already started it. He has money from the CIA. I think he could use some help. You should go meet him. So I went and had breakfast with her husband. In San Francisco, which from Palo Alto was a long drive at

the time. at the time.

Shaherose: It's still a long drive.

Charles Hudson: still, and we had breakfast, and he's like, do you want to join my venture [00:06:00] capital firm? And I'm thinking in my head, sir, I don't even know what a venture capital firm is, but he sort of explained it to me. I was like, Oh, this is like the work I like doing with public companies. It's just like, they're not public.

And honestly, I took that job because I was like, I think investment banking consulting will be there for me in a year or two, if at some point I conclude this CIA thing is either a total scam, which my parents were convinced, like this is a scam, they watched too many James Bond movies, , or I just didn't like it.

And I was like, this is an adventure. This is going to be kind of fun. Let's try it. I ended up staying for four years. I learned I really, really liked Early Stage Venture Capital. Mostly because, as you said, you get to see the future, but early. And one of my friends is like, man, VCs are so smart. I'm like, well, you would be smart too, if people told you this is what the world's going to look like three to five years from now, and I'm just showing it to you now. And I was like, I really like [00:07:00] this. And I also just liked meeting entrepreneurs. Like growing up in Michigan, a lot of my family worked in the auto industry or worked in like more traditional businesses. And the entrepreneurs I knew were people who own like their own barber shop or their own law firm or their own accountancy.

They were like small business entrepreneurs, but I'd never really met people whose ambition it was to build something really big that wasn't already a family business. And I was like, Oh boy, am I lucky to have come to Stanford at the very time that I was here. And to have had the opportunity to be around all of this really interesting innovation and like, sometimes you just happen to be born in an era and find yourself in a place where the things that are interesting to you are just like literally shoved in front of

Shaherose: And what's interesting about what you just said is sometimes you are born in an era and a place where these things are in front of you and they become the water in which you're swimming and you forget how lucky you are. I [00:08:00] know I've had that many times and it, takes sort of like stepping away from it all to acknowledge what a moment that was.

To be in,

Charles Hudson: And I think a lot about like, would I be where I am today if I hadn't gone to the school I went to at the time I went, and I can say almost unequivocally. No, I don't think I would have, if you'd asked me like freshman year, what are you gonna do? I'm like, I'm absolutely gonna go into a finance job.

And I think if I'd gone to another school, I would have happily And I would have gone and taken an IB or you know, a portfolio manager in trading. I would have gone into a traditional public equities investing role, or I would have gone into it as a, and who knows?

Shaherose: And I was just going to say that, that you may not have ended up here for the amount of time that you are here, but from what I know about you, you belong in this industry.

Embracing Risk and Independent Thinking defines a solo GP
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Shaherose: [00:09:00] And you're someone who, as you said, sort of embrace adventure and fun, also known as risk, right? You're someone who embraces risk in a very sort of natural way. And you pair that with. A purpose, which is, investing in the future.

Charles Hudson: It's really funny because like, I don't think of myself as a risk taker.

And it's so funny because you're like, Oh God, it must be so scary to do what you do. Betting on these people with no traction. And like, , it causes me no stress or anxiety. I pick the people who I think are going to be successful.

And they're like, well, how do you evaluate these companies with no data? And I'm like, I don't know. I turn it around and then I go, well, your job is hard too. You're a series C investor. By definition, every company you see is probably pretty good, but your job is to find the very excellent companies out of the pretty good, and that's a [00:10:00] much more quantitative process that, I joke with my LPs.

I don't think they like it when I say this. Some days my goal is to never open Excel. I'm like, if I can get through a whole day without opening Excel, I'm like, I'm probably spending my day in my zone of genius. If I'm spending a lot of time in Excel or Google sheets, I'm probably not doing my highest and best work.

As an investor. But it's so funny. my friends like, wow, you turned down Goldman Sachs and a consulting job to go work at In Q Tel that must've been risky. I was like, it just didn't feel

risky. It felt like the thing that made sense to do. And I've always kind of followed my sense of like, well, this is the thing I think is a good idea.

And I kind of like trust my own judgment. My friend's like, well, of course you're a solo GP. Because you're wired to be, an independent thinker who follows their own judgment. And he's like, you're exactly where you're supposed to be. You're a solo GP doing pre seed because you kind of just like are comfortable doing your own thing for long periods of time with like very little feedback.

I'm like, [00:11:00] that is the definition of being. A solo GP pre- seed investor.

Shaherose: A hundred percent. You nailed it.

Operating Experience As Product Manager, then Business Development at Google and a Return to VC
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Shaherose: And so you, took this, first VC job, but then you went into operating. And then you returned back. Tell us a bit about that journey.

Charles Hudson: So I, I worked at In Q Tel for four years and In Q Tel wasn't really designed to take an analyst to a partner, just like most VC firms. So I kind of had reached a point where I was like, this is probably as far as I can go. At In Q Tel, ,

and whatever comes next is probably out there. So I said, well, why don't I go do two things? I like venture. Maybe I should just go to another venture fund. So I interviewed with a few other VC funds and I was like, the thing I have at In Q Tel cannot be replicated. I have so much autonomy. I have so much freedom.

I have so much access to the people who run this firm. Anywhere else I would go. Is like an inferior experience in terms of like what I [00:12:00] have. So I went to business school really.

Cause I thought it'd be the most efficient way to learn a bunch of different functions and like figure out, well, what am I supposed to be when I grow up and I knew I wanted to start a business having been around entrepreneurism. Ooh, I want what they have. And I asked all these people, like, what's the best path to being an entrepreneur if you're non technical?

Cause I studied. Languages and econ. And everyone was like, Oh, you should go become a product manager. That's the thing. I was like, okay, well, I'm going to go become a product manager.

So I went to a startup and was a product manager for six months and very quickly concluded I didn't think I was ever going to be an amazing product manager. I was like, this job does not come naturally to me. Sometimes the point of a job is to help you close a door. And like, I was like, wow, in six months, I learned this is not a job that I think I would be great at. I don't ever have to like, wonder, could I have been a PM again?

I can just like close that door. And then in the true Silicon Valley circularity. Where you eventually end up [00:13:00] working for somebody who worked for you. I had an intern in college who worked for me, who was like clearly going places. , and he was at Google and he and I were chatting. He's like, I have this job.

You should probably come interview for this job at Google. I think you'd really like it. It's not in my group. It's in an adjacent group. And that got me into Google. And that's where I realized, Oh, I like this business development, like deal making, dealing with people, partnerships thing, this is my thing.

So I did that for a while at Google. And then I was like, wow, Google went from 4, 500 to 25, 000 people in the relatively short time I was there. This is not the right environment for me anymore.

Charles Hudson: and that's okay. And I met a guy, Craig Sherman, who was running a company called Gaia Interactive. And I was doing this conference on the future of games. And of all the people I invited to speak, Craig was the one person who was like, I'd like to get to know you better. And like, we hung out and had coffee at Old Precipice at Red Rock down in [00:14:00] downtown Mountain View.

He was just like, would you ever want to join a startup? I'm like, funny, you should ask, thinking about life after Google. And he brought me to Gaia. And that was the first time I'd really worked in a startup where there was like, no playbook. And like, The big aha I had was, you know, at Google, there were all of these systems designed to make sure I didn't get Google in trouble, which is probably a good thing when you're a public company, but it kind of inhibits your learning when people put all these guardrails on you.

I went to Gaia, our BD team was me and my boss. That was it. And we would work on projects. He's like, what do you think we should do here? And I was like, I don't know. He's like, try again. Like, we need an answer. Like, what are we going to do? And I was like, oh, there is no one to go at. Like, he and I have to figure this out.

And more importantly, I have to figure this out for him. Cause that's what he's like asking me to do. [00:15:00] And his name's Joe Herkin. He's like an amazing human and one of my favorite people. And I tell everybody, I learned a lot working for Joe and Joe and I are not like the same person, but I learned so much, but I also just learned, I love this freedom of being at a startup where it's you and one other person in a function.

And that's the team. I tell a bunch of our founders, I was like, you know what? good news and bad news for you. You are the very best marketer at your startup, mostly because you're the only person here. So you need to become the marketer that your startup needs.

And like, that was one of those lessons I learned at startups is like you, and it's really informed the way I

invest.

Shaherose: Yeah.

Charles Hudson: in many cases, like being forced to do things is how you figure out your capacity.

Shaherose: Yes.

Charles Hudson: And, , I've always enjoyed that about startups. I liked Gaia so much. I was like, well, Gaia is like 50 or 60 people.

How do I get even closer to the metal? So I went to a company that was, it was very small. It was under 10 people. When I joined, I walked in there [00:16:00] and I was like, Oh, this is like very different, even than

60 people. Yeah.

And I was like, but this is where I want to be, like in the room with the people, like figuring stuff out that hasn't been like solved before.

So much of my journey has been like figuring out what I like, and I like unstructured environments and like the freedom to create. The lack of structure and like freedom is invigorating, not paralyzing.

Shaherose: absolutely. Yeah. I, and I totally resonate with that. I think being a builder and creator is someone who like looks at a blank sheet of paper and is like, yes, as opposed to, , what do I do? Right. , there's a level of excitement to take that blank sheet and create something that has never been created before.

Charles Hudson: Yeah.

Yeah.

Shaherose: And that took you to investing. So how did you end up where you are today?

Charles' first role as an advisor surprisingly had a $300M acquisition by Paypal
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Charles Hudson: it's a funny story. And since we go way back, I can tell you like more of this than I normally tell people. I had been running that conferences business [00:17:00] and I met this very interesting guy who had a payments business. And he was moving it from Switzerland to the United States. And part, as you know, part of the events business is you sell sponsorships.

And so this guy calls me up. He's like, you've never heard of my company, but like, we want to sponsor your event. I'm sure. And he sponsored it. And he's like, I got to know him. And he like sponsored the next event. I got to know him a little better. And finally he came to me. He goes, Hey, can I make you an advisor in my company?

I said, I'm a little worried that like that will create conflict. He's like, it doesn't have nothing to do with the events business. Like you don't have to privilege us relative to other people. I just would like you to be an advisor in the company. I was like, I'd never done it before. I'm like, I'm honored, flattered, sure.

That company ended up getting acquired by PayPal for 300 million in cash. And it was like the first time I'd actually. Made money [00:18:00] from a startup. And I was like, Oh, including the ones that I'd worked on, I'd left them all before and I had, you know, left my options and everything I was like, Oh, this is cool.

So you like angel investor, you advised and like money shows up. Like I should just do more of this. It's amazing. It's great. And so, , that really opened my eyes to what was possible. , cause it had been a while since at that point I'd been out of In Q Tel seven or eight years at that point. , I made some other angel investments.

I was like, Oh, I'm good at this. Clearly I'm one for one, not even a real investment in about one for one. It's great. This is so easy. And then promptly, like did not go three for three. And, I had a big epiphany. I was like, I really like doing this. I do not have the personal balance sheet to do this at scale or at the scale that I want to do it.

So I'm going to have to find a structure. Where I can do this. And I feel like I've done enough operating stuff that I'm ready to go back to being an investor. And [00:19:00] I started talking to a venture firm that you and I know very well. And I could not wrap my head around the operating model for this firm. I was like, clearly has great access, clearly picks good companies.

It's the operating model for this firm. So I called Jeff Clavier at Uncorked cause I had known Jeff when he was at Reuters Greenhouse Fund because turns out Reuters and the CIA have a lot of shared technology interests. For reasons I understand, like Reuters processes goo gobs of information, but for the financial markets and the CIA processes goo gobs of information for intelligence purposes, very similar

problem sets. And I talked to Jeff and I was like, Hey man, I'm like trying to figure out, I've never been in a fund. I'm trying to do fund math. Like, what am I missing? He's like, you're not missing anything. Like it's a complicated model. It's probably going to work, but it's more complicated. And he's like, Hey, if you want to get back in venture and like, you decide not to go in that direction, we should talk.

Joining Softech (now Uncorked) in 2010 when Seed investors were known as Super Angels
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Charles Hudson: And we started just. Sharing angel deals [00:20:00] back and forth. And he'd send me stuff and I'm like, this doesn't really do it for me. I'd send him stuff. He'd be like, I don't think you want to do that one. And then at one point he's like, I think I'd hire a partner. Like, are you interested in coming to work at Uncork or then soft tech?

And I remember telling my friend, I was like, , we disagree enough on companies that like, both of our opinions are needed. And we agree enough on companies that we'll get to consensus and, there'd be no precursor without the time I spent at Uncork. For a bunch of reasons and not the reasons I think most people at them.

One of the big ones is like, I got to see firsthand how much work it takes to be a fund manager because Jeff Clavier is one of the single hardest working people I've ever met in my entire life. And he gave me the greatest gift that a managing partner can give, which is to abstract away all of the hard stuff for you. And if you're not the managing partner, allow you to just focus on the [00:21:00] job of meeting companies and investing. But I was like aware that there's all of this stuff happening behind the scenes that he's doing that keeps the lights on here.

Launching Precursor to fill the gap created by Super Angel Funds going upstream and defining a new category - "pre-seed"
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Charles Hudson: And one day I just realized Uncork had gotten to a place where we were going to be able to raise a lot more money. And in doing so, we were going to go from a firm that primarily invested, I would say kind of more like an angel.

I mean, for those of us who haven't been around as long, like, The original origin of these micro VC funds, these people were called super angels. They were like angels who just had bigger checkbooks and could write bigger checks.

And, , seed was not that institutional. It was much more like a cottage angel industry. And I could just tell that seed was growing up and seed was going to feel a lot more institutional and that my heart was in something that felt a lot more angel.

Shaherose: A lot more scrappy,

Charles Hudson: And

Scrappy, yeah, I just felt like if I stayed, [00:22:00] I was going to be the problem because I was like, I want to do something that is not what we do anymore. I miss meeting people who don't have anything figured out and writing them small checks and knowing that like some of them will figure it out and that the ones that figure it out will more than cover the ones who don't. And I'm like, I don't really want to sit on boards and like, I just want something different and I don't want to hold my partners back.

And I just also looked around and I was like, but wait a minute, all of the venture firms that used to bet on the like underdog and like new person or person with like limited access.

All of those firms are leveling up. I'm like, so there's like this giant sucking sound of everybody who's earned the right to move up market. They're all doing it. And like, I totally understand why, but maybe that's the conditions I need to start a new fund. Because venture sure is easier when you launch a new fund into a category, that's not super crowded.

Shaherose: And [00:23:00] that's the leap you took. And so here you are now fund. What number are we at?

Charles Hudson: Uh, we have closed four funds.

Shaherose: Oh my gosh.

You've closed four funds and I would say you've become synonymous. With the word, the definition and the meaning of what it means to invest in pre seed, right? You really, within 10 years, by the way, which is a long and not a long time to really own a category. , when anyone thinks of their first institutional true check, right?

Their first institutional check, they a hundred percent think of you and they think of Precursor. And I think that's, An incredible feat, by the way, to have, again, seen the future and seen , the sucking sound and moved yourself into that space first and early.

First Investments: the role of macro tailwinds and headwinds
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Shaherose: So let's maybe talk about that first investment that you made as precursor or the sort of the, an early investment that really sort of stuck with you [00:24:00] as something that was memorable and you learned a lot from it because you really were stepping early-stage into a space as an institutional investor that to your point was really focused on individuals making investments at this pre seed slash angel stage.

So can you share a bit about sort of that first investment that you made as the GP precursor?

Charles Hudson: Yeah. I remember our first investment. Sadly, it didn't work out, but, it's really interesting because when I was pitching Precursor to LPs, the most common question I got was like, well, these companies don't exist. Like they're seed investors. The seed investors are good at finding early stage companies.

I think it's also worth remembering when I started working on pre cursor in 2014, LPs were just starting to get their head around seed. They were like, I finally understand and believe in seed. And now you want me to go learn [00:25:00] this whole new thing called pre seed? No, And , the other person who like really helped me see the opportunity here was like Manu Kumar at K9.

Who I consider the godfather of pre seed because he was doing it even before I was, albeit in like a different fashion. And the first investment I made was with Manu and It was in a hardware company that I thought was incredibly interesting. And I thought the founder was great. And the founder was a friend of, , somebody else who I'd backed before and made money with and who I'd gone to college with and who I think very highly of as like, and the price I was like, this is the perfect deal, right?

Valuation, amazing founder, really cool hardware application and sort of the energy management space. And it just goes to show you like as an investor. So I think that Founder is a terrific human being [00:26:00] and very talented. , it was an electronic product and this was during the Trump tariffs on electronics.

I'm like, sometimes like if COVID and like other things have taught us things, sometimes there are external factors that were not part of your underwriting. And one thing that wasn't part of my underwriting was that like the U. S. government was going to slap gigantic. , protectionist tariffs on electronics imports that would dramatically change the cost of goods sold profile for the products we were selling.

And that made it really hard. Also it was a good reminder that sometimes like a really good technical innovation can be difficult to bring to market. And to scale. , and so I learned so much from that investment that like, A, things I learned backing people that you want to see succeed, who you think are great and work hard, even when it doesn't work out, still feels [00:27:00] good.

Second, not everything in your underwriting ends up being the thing that matters for companies. I just think about that in the context of like, we have two companies. Modern Health and Bobby, who both have benefited from like, you know, for Bobby, like the formula shortage and for Modern Health, like the COVID focus on mental, like those were not things, those were tailwinds I did not anticipate, but that were helpful.

And it was just a really good education that like, To some extent, venture is a weird business. You get judged on your outcomes, but like consistent underwriting is also like the thing you could control every day. And I always ask myself, like, would I do that investment again today? And I think I a hundred percent would just based on like what I thought of the founder and the quality of the thinking that went into the product and like the market opportunity, I think I totally would do it again.

Evaluating Founders 70% and Ideas 30%
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Shaherose: So if you were to like [00:28:00] outline what you look for when you invest today, based on all these learnings, even this particular first one, like shortlist that goes through your mind as soon as someone jumps onto a first meeting over zoom or in person with you?

Charles Hudson: , over time I have tinkered with the weighting between the idea and the person. , right now I'm like 70 percent person and 30 percent idea. And I often toyed with what if you went 100 percent person. My whole theory is like a million dollars goes pretty fast. And if you're pointed in a completely ridiculous direction, you might spend too much money before you realize it and just simply run out of cash.

So the idea has to matter, but I'd say in the beginning of the firm, there's some things I passed on because I had strong opinions of businesses where I actually didn't know that much. And so now what 70 30 to me [00:29:00] means is like the people have to be incredibly compelling. And the idea has to be good enough.

I say you have to be in the right zip code of a good idea.

Shaherose: I love that.

Let's drill a little bit into those two areas, right? So when you say someone has to be incredibly compelling,, what does that look like to you?

Charles Hudson: I've tried to like break it down for other people on my team. I think it goes back to something you and I talked about before, which is, I think most of the people I invest in, they are not repeat founders. They are doing this for the first time. And most of them have been in what I call small jobs. Not that they weren't important.

But that like the zone of control you have over your job is small.

Like you get a budget, you're going to hire somebody. You're using the ATS and the hiring rubric that they cut. Like you are not a designer of anything. When you're a founder, you're a designer of everything. And so I'm looking for these people where I'm like, [00:30:00] well, if they're in a small job and I take away all of these, like very intentional people.

constraints that the organization has put on them. Are they going to flourish? Are they going to tap in? And usually if I look in their life, I will find evidence that they've done something that was risky or scary, or at least interesting. Cause I think those people, , tend to be the ones that have done well for us.

I don't really care if people are technical. It's funny. You have a bunch of companies where. The founders knew nothing about the category they went into. , and when it comes to the idea, I really prefer categories where like, nobody knows anything yet they're new because like the rules of engagement haven't been defined and like, there are no incumbents versus categories where I'm like, Oh, there are very good companies in here.

And they're sort of like established rules that if you don't understand them, it's really hard.

Shaherose: And so when you really talk about idea, you are talking about the space or [00:31:00] the market that they're operating in.

Charles Hudson: Yeah.

The Role of Business Model Innovation in Generating Alpha
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Charles Hudson: I, I went and looked at a lot of companies we've done, a lot of them are business model innovations. Like it's somebody looking at a problem and saying, I think there's another way to solve this. I'm going to take something that's expensive and clunky and make it simple and free. I'm going to take something that works well for this category of people and come up with a model that allows it to work for a much larger category of people.

It ends up being a lot of business model innovations.

Shaherose: So it sounds like , accessibility is sometimes what the business model innovation leads to. It reaches more people or it becomes more accessible.

Charles Hudson: And usually what ends up happening is that business model unlocks something that's hard for other people to copy. Like, you know, when I first met Tammy, when she was building Carrot, like the goal wasn't to sell through the employer channel. That was a learning that happened from trying to build a consumer version of the product.[00:32:00]

And I was like, Oh, we can get the employer in the loop. There's something for it in the employer in terms of like a benefit that should drive retention. And frankly, most people can't afford to pay for IVF or fertility assistance. Without a deep pocketed employer in the loop. Like it's like, this is maybe the only way to provide the service to a meaningful number of people.

And so I don't know. The nice thing about being a generalist is like, I learn things and like assemble all these bits and pieces from like meeting lots of people who are doing wildly different things.

Shaherose: Yeah. you are the true definition of a generalist because if I look at the portfolio, it spans all aspects of our economy.

Charles Hudson: Yeah.

We do a In a wonderful way.

Shaherose: Thank you for sharing.

So really, that sounds like what you're looking for is these people who really give you a sense that they can, if given the opportunity with no constraints, build something from nothing and entering into spaces [00:33:00] where, like you said, the rules of engagement have not been defined.

And so there's new opportunities. And so that just maybe keeps you out of certain crowded spaces. Is that right?

Charles Hudson: I try to stay out of those spaces. Occasionally I break my own rules and but no, I do have an affinity for things where I'm like, the answer here is like unsettled. We have to actually go discover the answer and like, that's, what's going to be fun.

Okay.

Learning from Challenging Investments: If you don't know its ok, but say something
---

Shaherose: Let's, go down to the dark side of this journey, right? Obviously you've had some wonderful companies, have some outcomes, have some markups, make some changes in the world, but investor life is not always full of roses. What is a really challenging experience that you remember in this journey.

We like to call it the worst investment. And what did you learn from it?

Charles Hudson: I had a company that I invested in that got off to just an incredibly rapid start, raised a fair amount of money [00:34:00] fairly quickly, grew really quickly, hired a lot of people. And , it's one of those companies where I always was like, do I totally understand how this model works?

I'm seeing revenue numbers. I'm seeing like, but do I really, really understand how this model works? And it was a company operating in a regulated industry. And I just had this nagging feeling. I was like, something here doesn't add up. I don't think that the founders are lying to us. I just don't think I'm asking them the right questions to get to the place where I fully understand how and why this model works or doesn't work so well.

And we were trying to raise a follow on round of financing for this company and we couldn't get it done. And we started getting notices from a regulator and it was [00:35:00] scary. sort of like, we have some questions about some of your business practices. We're not saying they're illegal, we just need to understand them better, and that like caused me to like really dig in and I was like, oh, this doesn't actually work as well as we thought it did.

Now that I fully piece the chain together, the founder doesn't yet see that this doesn't work. I think she hasn't connected the dots in the way that I have to show that this actually, like, there was one core hypothesis in the model. I'm like, it just isn't true or it hasn't proven to be true yet.

And like, this is a problem. This is probably why we can't raise this new round. And it was a company that was running out of money and it was like very stressful. And it didn't work out. And it was a company that had gotten off to such a really fast start. It was a very visible part of our [00:36:00] portfolio. And it was hard to explain to my LPs that something that we had thought would maybe return a significant chunk of the fund was not going to do that.

Shaherose: Do you think the key lesson was rooted in your judgment of the team or your judgment about the opportunity in the market?

Charles Hudson: I think, the big aha for me was like, it's okay to not understand things. It's not okay to continue to not understand things. And I really should have pushed much harder. To make sure I understood the connection between all of the hypotheses that were embedded in the company's product. And I think had I pushed on that sooner, the company would have been better off too, because the company would have had to confront, Oh, this doesn't work as well as we thought.

and I feel like that's, what's happening right now. In the aftermath of like 2020 and 2021 and all of the like enthusiasm during ZERP. There's [00:37:00] a lot of people like, well, we raised a lot of money with the assumption that these hypotheses were true, but we hadn't really tested them. Maybe we need to test them ASAP and Oh, like it turns out they're not as true as we thought they were now that we've tested them.

Shaherose: I mean, so much has changed, right? Not just the investing environment, but behavior has changed. Market dynamics have changed. All these things, like you said, you couldn't have underwritten. we all were hopeful

Charles Hudson: Mm hmm.

Shaherose: during the Zerp era, but I would say during Zerp of the few investors I got in touch with, you had your feet firmly planted on the ground.

Charles Hudson: We did.

Shaherose: Yeah. You didn't waver on, valuations and expectations, , but of course we all had some investments that understandably to your point, the hypotheses weren't tested and they weren't played it. They didn't end up playing out. And so going forward, as you think of this experience or you think of some of the more recent lessons, , what are you doing [00:38:00] differently as you invest?

Staying True to Your Investment Strategy
---

Charles Hudson: Um, nothing, which is actually really hard to do. It's funny. So when all of the crypto stuff happened, I went to my LPs and said, we're not going to be your crypto answer for a bunch of reasons, no shade to crypto. But it's like, this isn't what we do. And you can buy it yourself or find a manager who's dedicated.

This doesn't seem like a place where it's good to dabble. This isn't our focus. We had a similar conversation around web three and probably the hardest conversation was like, in the early days of AI, I was like. I'm not sure I see how we build enduring software companies with high margins and big revenue here, given the way that things work today.

So you're only going to get so much AI from us. And I know everybody else is like all in on it. And there's a risk that like, by not being all in on it, , , we [00:39:00] might miss out on the very best companies, but my job is to invest in things that make sense. And my imagination cannot tell me the story I need for many of these companies.

And we won't know if this was a good decision or a bad decision for four or five years, but I can tell you Is going to look bad for 12 to 24 months because of the amount of money I expect to flow into this category. And they were like, are you sure? I'm like, I'm as sure as I am every time I make a decision.

I just am not convinced that like, this is a great place for early stage companies to build. And I mean that in the sense that like, , I'm not willing to bet the whole fund on this thesis. , , our job is to like, invest in things that I think can make money for our fund in a meaningful way.

And this doesn't feel like one of them yet.

Shaherose: Yeah. , and I remember having that convo about crypto and then Web3 and even AI with you. And I think, , having, again, an independent thought on this and staying [00:40:00] diversified, especially at the zero to one stage. Sounds like your strategy.

Charles Hudson: And I mean, the other thing is, I have friends in pre seed who've been like, I'm going to continue to do pre seed, but like in this environment, we're just going to raise the traction bar , we're going to change what we look for. More traction, more experienced founders, people we know better, people who've built more.

And I'm like, that's cool. Like, I get it. That's a reasonable response. We're not going to do that. And it's a little crazy and it's a little scary, but That's what we're going to do.

Shaherose: I think you're doing that because you're proving out a hypothesis that takes time to come to fruition. So long. We'll go with over

So long. Okay. So let's talk about this so long. It's been so long.

Charles' best investment: The Athletic, acquired by the New York Times for $525M
---

Shaherose: You've made how many investments so far in your career?

far in your career?

Charles Hudson: 400.

Shaherose: Over 400.

Can you talk about your best investment thus far? Ideally one where you've had a realized outcome.

And what did you learn from [00:41:00] that?

Charles Hudson: Well, that one's easy. The Athletic is the best one. Well, I mean, in the context of precursor, The Athletic is the best one. I mean, the funny thing was like, that one just made sense for me from the very beginning. And I thought that like what Adam and Alex knew from Strava would be super valuable, , and that they'd be able to put it to good use.

And that turned out to be really true. And I think also every good company I've invested in has a good macro tailwind. And for them, unfortunately, the demise of local newspapers just meant there was a ton of writing talent that needed a new home and the rise of social media meant a lot of these authors had a direct relationship with their readers that they could kind of take with them.

And it was sort of this like perfect storm of like, Writers needing a new home, social media growing and giving writers the ability to bring the audience with them. And also there were essentially no competitors. Player Tribune was probably the only competitor because [00:42:00] most people thought a subscription sports media site was a bad idea.

And so as my friend says, like part of your job as a venture capitalist is to find good ideas that sound like bad ideas. And, , I think Adam and Alex and the team took what sounded like A bad idea. And honestly, if not for COVID, if we hadn't lost the year of sports, not that sports is more important than human safety, let's be very clear.

, had we not lost that year of sports, I think the company would have had a significantly larger outcome.

Shaherose: What multiple did you realize over what period of time?

Charles Hudson: Uh, there's two checks. on a blended basis, not including the SPV, like 25x.

Shaherose: And that took how many years? Seven

Charles Hudson: which is funny because like a bunch of my LPs, when I asked them, Hey, when do you think you will start to get meaningful cash [00:43:00] back from Precursor? They're like in year seven through nine is when it should start. And it was like almost literally to the day, seven years. It turns out they know what they're doing.

Shaherose: Yeah. Yeah.

Charles Hudson: seen this one before.

Shaherose: Congrats, love that as an outcome for you because there were so many naysayers on both the investment side , and even like the customer side, the customers were not necessarily ready for it either. But here you are. So would you say in this one too, your template of person and idea, was what you assessed right at the beginning or was there any doubt when you first brought that check in?

that check in?

Charles Hudson: Um, I think also like I hadn't lost money at a precursor, at least investing in media, I hadn't done anything. So I'm like, I don't have a lot of scar tissue. And I think something you bring up is something I try to explain to my LPs, and I don't think I do a good job of it.

So I'm going to try it out on you. Part of when I said, like, what are we doing differently? Nothing. Like, nothing is a big [00:44:00] deal because they're always asking me, well, what have you learned? You've made 400 investments. Like, what have you learned? I'm like, what I've learned is that all of our special companies are special in their own way.

And I tell them that like, I never want to take the things we learned and turn them into rules. Because I don't want to say, Oh, we've lost money doing X, so let's not do X again. Or we've made money doing Y, so we should always do Y. And I'm like, I think there's this temptation to say, we've seen enough of these things.

We now know the answer. And if I look at our best companies, like I look at Bobby, like Laura had never manufactured a product and she'd never dealt with the FDA, but she like understood feeding babies. She had three of her own. And I just like, you know, what are you supposed to do as a VC?

Invest in people who have domain expertise and experience. That all works. Like want people to understand is like, I don't think that everything that's like a VC trope about what to do, it shouldn't be all thrown out. Investing in the [00:45:00] top 5 percent of the YC batch, if you can, is a pretty good strategy on average. But I'm also just like, instead of bashing all the things that people do that work, but maybe not as well as people think, what about all the things that we don't even try? There's just so much richness in the things we don't even try that I'd rather run new experiments.

Shaherose: hmm.

Charles Hudson: So, , in our annual meeting, I showed her LPs. I was like, female founders are as well represented in the top 10 percent of our portfolio as they are, . In the portfolio at large. They're like here. Cause they're supposed to be here because they're driving more than half of our performance and they all have like some common attributes. The big ones being, I just think people didn't take them seriously.

Or people underestimated their capacity for leadership because they hadn't done it before.

How he Decides: Evaluating Founders and Their Potential, Weird Patterns, Product Velocity, Remote Teams
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Charles Hudson: I think one of the things that's like a core tenant to me is like, we're supposed to [00:46:00] bet on weird patterns or different things.

That's our edge. Our edge is actually like the willingness and ability to bet on people, profiles, backgrounds that quote unquote, like Pair Eyewear will end up being one of our best investments. Nathan and Sophia are first time co-CEOs,

Shaherose: Ooh

Charles Hudson: essentially right out of college.

And they are fantastic leaders. And I hope they never start another company and they take Pair public and work there forever. That's like my hope for them. They probably won't happen. They're too young, but like betting on two recent grads running a manufacturing business.

So like my biggest fear, Shaherose, is that like, we learn so much that we forget what made us successful in the first place. And I fight this all the time with our team and with myself. That all you can learn from one investment is what you can learn from one investment. Wow. . That's it. [00:47:00] Yeah. And whenever I talk about LPs, they're like, I don't get it. Like, why don't you take advantage of it? I'm like, we do, but like, you just can't assume that, you know, more. I'll give you a really perfect example. Post pandemic, I started looking at our data and I was like, wow, there's a very clear failure pattern here.

People who are pre-product market fit, who are distributed and don't know each other from before have a very low probability of success. But it's not zero. So maybe the lesson is it's really important to get a sense for why these people are not together and what they're going to do to overcome that than to say, as a blanket rule, you have to be in San Francisco or New York together.

Whenever it feels like, we should never do X. And like, , that to me is always a signal that like we have more work to do

Shaherose: Wow. Wow. Wow. Wow just to remain disciplined and continuously learning and not generalizing and pattern matching which , is very much , the rhetoric [00:48:00] around how VCs invest. , it's a really strong position to focus on and it requires a lot of strength to stay in it. So do you think that what you're doing is certainly learning , and integrating insights

Charles Hudson: from these past investments, but then every time someone shows up, you're kind of coming with the beginner's mind, but the foundation built on past insights. Integrating is the word that I use a lot. It's like, we've learned a lot about, for example, product velocity in the first six months, is probably the single greatest predictor of success for pre seed companies that we've invested in, but observation begs a bunch of other questions. Can we as Precursor actually influence someone's product velocity, or is that a given? It turns out the answer is yes, in both cases, it's yes. Sometimes you are able to help people see that they are not moving fast enough and get them to move faster, and sometimes you cannot. It turns out [00:49:00] it is much better to simply find people who you think have high motor, high velocity. Then it is to try to coach people into it or help them see

it.

Shaherose: I agree.

Charles Hudson: And so, it's this really hard practice of learning these things. The goal is to figure out what are the things that matter and try to figure out like, well, how does this person rank on the things that matter?

Like, it turns out one of the big predictors of CEO, , success in our portfolio is comfort making decisions under high degrees of ambiguity. And not being afraid to pull the trigger on things. Cause most startup decisions can be reversed. Which is why I do these monthly check ins with people.

Part of how to get out of it is like, what were you stuck on last month? And what are you stuck on today? As you know, as a startup founder, a month is an eternity in startup land. And if you're still stuck on the same thing a month later, not a good sign.

Shaherose: How are you assessing these things like velocity and ability to make decisions in [00:50:00] ambiguous environments when you've just met a founder? Because you're getting to know this information with these monthly check ins over time. How do you decide?

Charles Hudson: so I guess up front, and when I say I guess up front before we invest, I do a lot of writing about what have I learned about this person? And it's structured. It's like a bunch of forms I fill out. What is my intuition about their problem solving ability? Also, like part of what I get is like the way that they frame and present the problem and the solution tells me a lot about the way they think and how much of it they figured out.

And I'll ask people, I'm like, what are some things about this business that you haven't figured out yet? The answer shouldn't be nothing. And the people who I think are like, these are the things we need to answer. And I was asking myself, do the things that they mentioned align with the things that I think are important?

And it's not about me being right. It's about us agreeing to work on the same things. And so a lot of what I ended up doing is asking myself, A, I have to make an assessment with limited data of what I think about this person. But if you do enough of [00:51:00] those and you look back, you start to get a sense for how good are you at it. predicting. And we're like pretty good. We have enough reps that like we're pretty good at scoring people. The problem is what you don't know is how much hidden upside there is in that person. And I'm working with somebody right now who's a first time CEO who's turned out to be incredibly capable.

And there's really like not much in their previous experience that would have like pointed you towards the level of success that this person's having.

Shaherose: This is amazing. I want to keep digging in here, but I'm looking at the time. And so , let's go to a few of the last questions.

Current Investment Strategies, Focus Areas and Check Sizes
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Shaherose: Let's talk about how you're investing today. Tell us about your check size, how many deals per year. , how are you finding your founders these days?

Charles Hudson: we're normally like 20 to 40 investments a year. This year will be slower. Our checks are like 500k normally. We can lead if people need us to. We cannot lead if people would prefer we not [00:52:00] lead. I find a lot of our investments actually through our co founder network.

First of all, if you look at volume of where top of funnel come from, it's the website. That's like 80 to a hundred a week.

Shaherose: Which again, speaks to the brand that you've created and synonymousness with pre seed, which is amazing.

Charles Hudson: We just tell them like apply on the website. I read the website. Everyone on my investment team reads the website. website's the biggest, I'd say if you look at like things that convert, our founder community is a big chunk and our co investor network is a big chunk.

But my view is that like, I don't want us to become so reliant on those things that we become a closed off firm that you either have to know a co investor or. A portfolio company founder, you can't get in the front door. And there's a lot of firms that operate that way and they're successful. And like, it works for them.

That's just , not what we're building here. I always have like this principle of openness, which is like anybody with a good idea should be able to present us. The less we know about you, the better the presentation of the idea and concept needs to be, but [00:53:00] that's called life. That's not a precursor, that's called life.

, I never want to have one channel be so dominant that if it were to go away, I'm so we should be good at everything. Like, that's my goal. We should be able to source great companies. The website is getting better. I think in probably one of our next two funds, we'll get a meaningful number of our best opportunities will come to the website.

, it's already trending that way.

Shaherose: That's amazing..

Following High-Potential Talent vs. Investing Theses: People vs. Market vs. Product Evaluations
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Shaherose: You touched on some of the areas that you're excited about, or you have been invested in, in the past right now, as you get these pitches coming in, whether it's from the website, from your founders, from your co investors, what are you excited about investing in today?

Charles Hudson: I just try to follow talent. So I don't have any like grand theses like the last couple of investments I made, one was in a category where I made another investment where we lost some money, but I learned a lot about what the right answer looks like. And I found someone who has, I think the right answer.

That was in health insurance, , small employer health insurance. [00:54:00] I learned a lot from that investment and I'm like pretty psyched about what this new company is building. , I just yesterday wired for my first longevity investment, which is a repeat founder. Who we backed before at Precursor. So that's the fun thing now is I'm seeing people on their second and third. I just wrote a small, kind of like an incubation check for a founder that I worked with before whose company didn't work out, but I really liked him. And I started doing more of this. I was like, here's 250 to go figure out the contours of the idea.

The thing you described to me, I can't give you 500 for that, but I can give you 250 to go explore. And when you're done exploring, you come back to me and pitch me on the thing that you're doing. I did that with someone else on somebody that's focused on intergenerational wealth for people who don't have it.

And like, it's a really interesting quasi insurance concept. , I also just wired for a company that, is building [00:55:00] an AI powered tool for, commercial services businesses. So think like janitorial, lawn care, but for commercial, not for consumer. , there's like seriously no rhyme or reason.

It's just, I meet these people and I'm like, I think they're great. I think they're super talented. I think our money will make a difference in the thing that they want to build coming to life. So we're going to write him a check.

Shaherose: I love it.

The question now is, besides reps, how do you get better at investing?

Charles Hudson: That's a very good question. Um, something I always tell our team is that like, you will all be successful here, but probably not in the way that I am. And what I mean is like, they will discover their own zone of genius. And part of the reason I give our non GP people discretionary capital is like, I want you to learn how to find good companies in a way that's authentic [00:56:00] and, , reflects who you are.

Not to become mini me, like people who like ape my style. the only other way to get better is to figure out like, most people are good at some combination of people assessment, market assessment, and product assessment.

And like the third circle would be things you're good at, things you think are good at, and things that matter in venture. And I'm like, everyone will have like a different weighting on product people. Like for me, it's mostly people and the market. I'm not a big product person. And so I'm like, I'm investing at a stage where like people and market are actually the two most important things. I've worked with other people who I'm like, you seem really good at like market and product. Maybe pre seed isn't like the best place for you.

Yeah,

Shaherose: Totally. In a few years, you're on the Midas list. What got you there?

Charles Hudson: Uh, I hope it's three or four companies that nobody really understood at the time and where those founders feel like we made a difference in the beginning, helping them like get from zero to one.

[00:57:00]

Speed Round
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Shaherose: Okay. Speed round in 60 seconds. Who is another first funder you admire? Just anyone

Charles Hudson: Boy, that's a heavy question. there's a lot of people. Let me pick, um, you know, one person who admire and has like covers on it. It's Eric Tarzanski at Contrary. His origin story for that fund, knew him when he was first getting started, is like, pretty atypical, and I'm like, pretty impressed by , what he's been able to achieve.

Shaherose: What's a book or a piece of media that had a major impact on how you invest today?

Charles Hudson: So many of them. , one I'll pick is, , Founders at Work, by Jessica Livingston.

Shaherose: Zoom, phone, or in person meetings?

Charles Hudson: For first meetings? Zoom. Just for volume.

Shaherose: Uh, last question, social media platform of choice.

Charles Hudson: God, I feel like a man with no country lately. [00:58:00] Uh, I, yeah, I missed the old Twitter. I would probably say, I spend the most time on

LinkedIn. Mm hmm.

I get the most joy out of Instagram, and I participate in Twitter because I secretly hope it will become again what it used to be. What it once was, but it isn't.

Shaherose: Wow, that is my exact same answer. and if you aren't following Charles on Instagram, you should see what he's cooking. Oh my gosh. Charles, thank you so much for today.

Charles Hudson: This was so fun.

Shaherose: Where can people find you online?

Charles Hudson: I write a SubStack called Venture Reflections. I am on LinkedIn a lot. You can always just email me charles@precursor.vc, we read them all. So, , yeah, those are the main places I hang out online.

Shaherose: Thank you again, Charles. You are the

best.

Charles Hudson: Awesome. Thank you.

[00:59:00]