Everything you need to know about Pre-Seed (with Charles Hudson of Precursor Ventures)
01:14:04 Share

All right, LPs, welcome to the LP show. I am here up in Seattle in, well, not traveling. I'm fine, but adhering to regulations to not travel when necessary. David is down in San Francisco right now with our guest, Charles Hudson of Precursor VC. Welcome, Charles. Hi, thanks so much for having me. I'm the lucky one. I get to be here in person. Yeah.

Yeah, listeners, if you don't know Charles already, and I'm sure many of you do, he is the managing partner and the founder of Precursor Ventures, an early-stage venture capital firm focused on investing in the first institutional round of investment for the most promising software and hardware companies. Prior to founding Precursor, Charles was a partner at Uncork, formerly known as SoftTechVC, and he was also the founder of Uncork Ventures.

and he is a lecturer at Stanford University's Graduate School of Business and was formerly the founder and CEO of Bionic Panda Games. Charles, I didn't really know that about you until I made sure to sort of keep hitting view more, view more, view more on your LinkedIn. That's awesome. I didn't know you ran a gaming company. It was really fun. I really enjoyed it. I had a long run in games.

You want to talk about market timing? I had the misfortune of deciding to build an Android-only games company with a good friend of mine in 2010, thinking that Android iOS parity was just around the corner. Suffice it to say, we got the timing a little bit off.

It was probably three or four more years before Global East really caught fire, but still not domestically, right? Still not. And it was still such a great... I mean, I could talk about that forever. It was such a great learning experience as an entrepreneur. And I carried a lot of lessons from running that company with me as an investor. You went to GSB as well, right? I did, yeah. Did you start that right after GSB? No. So I started that company. It's interesting. I worked for a startup called Serious Business that was started by Siki Chen and Alex Lay.

And Siki's now running Sandbox VR. And at that company, we ended up selling it to Zynga. And there were a handful of the management team that did not go work at Zynga. I was one of those folks. And so was our VP of engineering. And he and I had become friends at that company.

And we were hanging out one day just talking about ideas. And we tried to build this product that I rarely talk about, but I'll tell you here. We tried to build a professional social network for job sharing on top of Facebook as our first product. Branch Out. Like Branch Out. It was called Job Circles. And we got unanimous feedback from our friends that we do not want this content on this network.

And so we said, "Alright, well, our target customers told us that they do not want to..." And this is back in 2010. That was the same time as Branch Out though, right? Yeah. And Rick is amazing at distribution and is a really talented entrepreneur. So he was able to scale that thing way faster than we were. We ran a little side experience. And for us and for our audience, it just didn't work. And the people were just telling us, "We don't want to co-mingle personal and professional."

And we had tried really hard to run away from games. And we said, well, is there a games platform that'd be interesting to build on? And like Android just felt really attractive and interesting. And so we stopped working on that job circles company. And that's sort of how Bionic Panda got started. It's a great name. Like, I don't know. You got to reuse that for something again in the future.

I can take no credit for it. My co-founder came up with it. And it also has, I think personally, one of the coolest startup logos ever, which was also designed by our team. So my old co-founder, Mike Jimenez, is a super talented guy. That's awesome.

Well, one of the main focuses, or I'd say the main focus of the episode today is the work that you do in sort of pre-seed and seed investing. David and I, LPs, as you know, pontificate as often and as lengthily as we possibly can about seed investing. But Charles, you

You run a fund that has a specific focus around pre-seed. And so we thought it'd be really interesting to talk about how you think about that. We'll get into some fun strategy stuff later, types of companies you like to invest in. But my first question to you, sort of to set the stage here, is how do you define pre-seed?

It's a really good question. And I feel like every quarter internally, we have to revisit this and say, is it still accurate? The way I think about it is right now, a pre-seed round is a round of a million dollars or less for a company that we say is kind of pre-everything, which is a little tongue in cheek. But we really mean usually pre-revenue, pre-traction, oftentimes pre-launch, where the goal is really to give the team enough time and space to build and launch a product.

It's interesting that if you think about probably 25 years ago, maybe 20 years ago, we didn't really even have seed. You sort of had Series A and that was the first institutional round and you'd get the friends, family and fools before that. And then, you know, we started to see some institutions doing that,

participating in that angel round and the professionalism or the professionalization of angel uh i think angel funds was sort of the the canonical name for a while you know yeah yep and of course then institutionalized seed so seed now is is sort of a a post-traction but pre-product market fit round for most people or at least that's sort of my mental model of it yeah like it's launched

there's evidence that something's happening, but like it's not gangbusters. And so you're not ready for your series A yet. And so Pre-Seed is sort of this like, when do you think that it sort of emerged and how do you think about the professionalization of the class? So I think Pre-Seed is still really small as an industry in terms of people that are really, I would say, practitioners of primarily Pre-Seed. I think in a lot of ways what happened

with pre-seed is sort of a rerun of what happened with institutional seed. And so when I think about when I first started working with Jeff at Uncork at the end of 2010, this sounds probably crazy to the audience. A million dollars was considered a large seed round. And if you were raising one and a half in the seed round in 2011, there'd be a lot of conversations like, hey, that's kind of a lot of money. Are you sure you need that much? Can you do it for less? With one big caveat is

If you are a successful repeat entrepreneur, that conversation didn't happen. You were probably going to raise $2 or $3 million, which at that time was an exceptionally large amount of money. Today, when people talk about skipping the seed and going right to A, I think it's sort of the same phenomenon, but with just one sort of notch less capital. One more zero. Yeah. Yeah. And I think what happened is I remember being in those meetings with that sort of generation of

seed managers that are now on fund four or five and six that are kind of the established leaders, those funds were all small. They were sub $50 million. It was unclear that you could even raise more than $50 million for that strategy. And I think what happened is those folks all, whether it was Floodgate or Felicis or Uncork or Freestyle or Cowboy or Forerunner,

TVPI started turning into DPI and the funds started to work. And I think LPs said, wow, this is an asset class. And I don't think anybody knew how big seed funds could get before they lost their essential nature. So people started... I'm real quick for our audience. TVPI beating total value to paid-in capital. Yeah.

include like paper markups, but then DPI, that's what you want the DPI. That's like the liquid distributions. That's the real money. Yeah. And what ended up happening is I think a lot of people said, well, how elastic is this seed model? Can it go from 25 to 50? And a lot of people did that and said, well, that seems to work pretty well. Can it go from 50 to 75? A lot of people ran that experiment and said, it seems to still work. And then the big experiment, I think, was going from 75 to 100. And I think what ended up happening is

If you think about how do you model out the returns for a $100 million seed fund, I think the answer is you have to be relatively concentrated and you have to be in really big companies. And you also have to write very large checks. And so I think what ended up happening is a lot of the seed funds said, hmm, for the entrepreneur who's raising $750,000 pre-launch, pre-product,

I met them in the morning and in the afternoon, I met a team of six people that have been working on their product for a year and a half, have 10,000 in monthly recurring revenue and some things I can analyze and they want to raise $3 million. So in that morning case of 750K, you'd have to be the whole round. And even then, it probably wasn't enough.

And so I think what ended up happening is the kind of investments that seed firms had sort of made their living on just didn't fit the fund size. And when you say, even if you have the whole round, it may not be enough, is that because they're selling less of the company when they're raising, a company's raising $750K than somebody would be selling when they're raising $3 million? That's right. That's right.

And also the other thing, you know, the two things I think about, you know, the old, I think it was the Mike Maples trope. Like if you tell me your fund size, I can tell you your strategy. It's really true. And if you think about one of the challenges you have at a hundred million dollar fund size,

It's not just ownership. It's also you have to get enough dollars to work. So if you could buy 15% of a company for $300,000, you would check the ownership box, but you would be nowhere near the dollars deployed box that you need in order to make that model work. And I think what ended up happening is seed has just become a different thing. And to your point, it is this larger round for companies that are more mature. And I think for me, the light bulb went on

is that the VC industry, I think at Seed, figured out that their model had changed before entrepreneurs figured it out. Yeah. So when I was at Uncork, as our fund sizes got larger, the same type of entrepreneur kept coming in to present to us. And I would tell them, hey, you know, three years ago, you would have been perfect for us. And now I can't write a check as part of your round. It's just too small. Yeah.

And they would say, well, where do you want to send us? Do you have ideas? I'm like, well, no, because all of the people that I co-invest with have been equally successful and are doing the same thing, which is like raising more money and becoming more concentrated over time. And it just felt like there was this hole in the bottom of the market that if you weren't a repeat entrepreneur or a YZ grad...

or someone with a really high signal resume, and you wanted or needed less money, there just weren't great places for me to send them. This was in the days when AngelList was still relatively new. And I remember telling founders in 2011 and 2012,

go put up a profile on AngelList. Maybe you'll catch the eye of some really smart angel, and maybe that'll help you get unblocked for these little rounds because I don't know great institutions that are doing them. I think one thing to give the non-VCs in the audience a little bit of VC empathy and sort of how hard it is to return that $100 million fund. Can you walk us through the math a little bit of like the opportunities you're looking for, the ownership, and then what has to happen in the outcomes for you to get a good return for your investors on that fund?

Oh boy, it's scary. And you all should definitely jump in if you want to modify this. I would say if you're going to go try to raise a $100 million fund, your story to your LPs is that you're going to do a Forex gross 3x net fund, which means that $100 million that you raise is going to give them back $400 million, which will be $300 net of the original $100 million.

And if you want to get super technical, depending on the recycling policy, you're probably only going to invest that 80, 80 of that 100. So that 80 has to turn into 400. That's pretty scary. And let's say a typical seed fund, let's say you do your job right.

And you end up with a terminal ownership, i.e. the ownership at the time of exit of 10%, which is possible at seed. You know, you start off at 15, you could end up at 10. Even that's hard. Even that's hard. It's not a given. I'm going to make this easy. I think you probably won't end up at 10, but let's assume you end up at 10. That means you need $4 billion in exits.

to get to a 3x in that fund, which is a very good but not out of this world exceptional fund. And if you think about it, that means you would need four unicorns in your portfolio. And my guess is if you're a $100 million seed fund, you probably have 45 or 50 companies in that portfolio at most, which means basically one in 10 companies you back has to become a unicorn at a minimum.

for you to meet your returns hurdles. That's really hard. Yeah. And Charles, the only thing I'll add to that is that that 45 is with great portfolio diversification and with the amount of money that most funds are saving now for follow-ons to be able to sort of protect their investment if they have pro rata rights or something like that. You're probably looking at 20 to 25 investments that you're making out of a fund like that. The hit rate has to be quite high.

And I think that totally influences people's behavior as it should, which means that you're looking for companies that even at the seed stage look like they have the potential to be huge home runs. Yeah. I'm curious if you started to see this even back when you were at Uncork of...

the traditional big Sandhill venture capital firms didn't ignore everything that was happening either. They start doing seed as well. And they would argue they've always done seed. That would be accurate. But for a while, they kind of ignored this part of the market. And then they came back in in a big way. I think that's been the single biggest disruption I've seen in the last six months. If I go back to sort of the early... It seems to me that every three years, big Series A funds rediscover seed. And I don't know whether that's because...

some of the newer investment professionals on their team, like seed is a good way to learn the business and it doesn't cost you as much. Or whether it's just because they look at the markups and say, you know, we could do this too. I think the big difference is in the early 2010s,

This argument that you didn't want a big Series A firm on your cap table at seed for signaling, it was a very powerful argument. And I think it's partially because two things were happening. One, some of these big funds had these almost spray and pray like seed programs and people didn't know how to interpret what it meant when a big Series A fund that had spent no time with your company declined to lead your Series A. So people just said, well, it's probably not good. So we won't touch those companies. Yeah.

And I think those big Series A funds realized, like, hey, this probably isn't good for our brand. If we're writing 100 seed checks and we only do one or two. I think it was someone, I want to say, maybe it was Nabil at Spark who published a chart a while back that showed kind of sort of seed to Series A conversion by firm. And there are actually relatively few firms where that conversion was really, really high. Yeah, interesting. And I think the biggest difference now is the entrepreneurs that I meet

have zero concern about signaling risk of having these people on their cap table. And I have examples even in our portfolio where a very large, you know, tier one firm did 75% of a given company's seed round, did not lead the A and an equivalent tier fund came in and led the A and there was no conversation at all about signaling. Hmm. Interesting.

Yeah. It's new. And it's changed the pricing dynamic because a lot of those big Series A firms are... They can afford to... I won't say they're not price sensitive. That wouldn't be fair. They can afford to pay a higher price because they have more ways to get to their ownership target between seed and Series A than your typical seed fund does. My hypothesis would be, and kind of what I've seen, but I'm curious if you've seen the same, is that a big part of this shift is that entrepreneurs have just gotten smarter too, right? Which is like, okay, if you have...

a big Series A fund in your seed. Well, A, probably good to get a couple of them in there. And B, you keep building relationships with other Series A funds. You don't stop talking to them. And then you say, well, hey, you know...

Yeah. XYZ firm has been great to work with, but you know, we're going to raise them. Like, do you want to, you know, if you want to preempt, like you can go right ahead. And so like, that's how you can get dynamics like you described happening. I also think that for the most part, this, and this is not exclusive, but for the most part, I feel like most of these series A firms coming down to do seed, it's with high signal people and

And to your point, it's with people who have access to relationships where they say, hey, even if I take your money, my professional slash social network is going to expose me to lots of other equivalent VCs. And so I don't feel bound or captive to you just because you did my seed. And those people are more sophisticated. I also think some of those entrepreneurs...

they're just capable of handling more money more pressure and and more i would say larger teams earlier in their lives because of their previous experience yeah so i tell people this whole pre-seed thing it's kind of a weird moniker i just think there's two seed markets right now there's a seed market for high signal experienced people so if you're employee number five at stripe your

You're probably not going to come to Precursor, to be honest. You're probably going to come. You should. You should. I would love to meet with you. You're probably going to go to General Catalyst. You're going to go to a big brand name. You might even be friends with the Colossus. You're going to have a really different journey. If you're employee 500 at Stripe, my hunch is you probably will end up in my office because the odds that...

The benefit of that low employee number count and access to the founders and access to the early employees and investors, like in general, most people, even in the Bay Area, don't have that in their back pocket. And I think that's really the role that Pre-Seed can play, even in, I'd say, functional venture markets like San Francisco and New York.

We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple.

Yep, Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. If you're a

It plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product. Vanta takes care of all of it for you. No more spreadsheets, no fragmented tools, no manual reviews to cobble together your security and compliance requirements. It is one single software pane of glass that connects to all of your services via APIs and eliminates countless hours of work.

for your organization. There are now AI capabilities to make this even more powerful, and they even integrate with over 300 external tools. Plus, they let customers build private integrations with their internal systems. And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise, and your company is ready to automate compliance and streamline security reviews,

like Vanta's 7,000 customers around the globe and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired.

All right. So talk to me then about around your philosophy there. So this is a founder that doesn't have this sort of super high signal, you know, in the club of the people who are friends with the, you know, the GPs at these brand name venture funds. To be clear too, we talk about this on the show all the time.

That signal may or may not be worth the paper. I'm trying to leave a hold of it. Totally. Yeah, I'm glad you said that and I didn't have to. I think that's true and I think there's a safety in buying signal.

And that it's very... In a world where most investments don't work out and people will say, well, why did you back this company? The ability to point to whether it's educational or professional credentials is a very... It's a very nice crutch and it's a nice safety blanket. It's reassuring. That's right. Yeah. That's right. All right. So then how do you, absent that sort of like easy snap decision making, oh my gosh, I can totally... No one will ever fire me for buying IBM here. Absent having that safety...

What's your decision-making process? How do you evaluate founders? I'm so curious. It's an evolving process. I will say one thing. We're very volume-oriented at Precursor. And I think one of the things that helps us is we see and meet a lot of companies and we have a large portfolio. So we've made about 175 investments across our first two funds.

And that has given us an interesting perspective, which is we have every type of successful founder that you could imagine. We have solo, non-technical female founder. We have male-female co-founding team. We have all-female co-founding. We have like every permutation. You have a large data set. We have a large data set. So I feel like we have every permutation, which has convinced me that just about anything can work.

And I would say when you meet a couple thousand teams a year, the ones that really stand out to you tend to really stand out to you because most of them are good. And then you meet ones where you go, wow. And I'd say the big thing for me is

My fear is always that whatever the hypothesis the company has about why they're going to be successful, it's just not durable. And for me, durability matters because most of the companies we meet, it's funny, the number of times people tell me, well, Instagram can't do A, B, and C thing. I'm like, well, no offense, you haven't done it either. You're starting from zero. And your product won't be done for some period of time. And who says that the competition is going to stand still?

So when I look at a lot of the companies that we've backed, a lot of them have, and I'm not a technical person by any means. So we end up finding a lot of companies where I think the innovation or the insight tends to be around the business model or the market segmentation. Like we were very early investors in the athletic and they had a really strong thesis that building a subscription powered sports service was going to be a fundamentally different endeavor than what you would focus on if you're building something that was ad supported. Yeah.

And that like that difference was not cosmetic. It was actually fundamental to the business. It was fundamental to like,

It had all these interesting ripple effects about how much you could afford to pay talent and sort of what you do with the proceeds. There was just a really different ripple effects. And I find it took me probably three or four years to realize that for us, these sort of business model innovations have all of these ripple effects that are hard to quantify up front. But it means you end up building a different product because your business model dictates that you do things differently. Yeah.

And so that ends up being a big chunk of what we look for. And then I guess I'm an optimist. So my view is you really don't know how good of a founder someone's going to be until they do the job. Yeah, that is so true, by the way. Yeah. So true. Even being a senior executive at a company is really not the same. So I'm an optimist and I'm like, okay.

I think most people, the experience of being a founder, it brings things out of you that maybe you didn't even know that you possess the skills. And if you give yourself the chance to make 25-ish investments a year, you can have a spectrum of people where you say, look, I have really high confidence that this person's going to be successful. They're a repeat entrepreneur. They're in the same domain. This person ought to be able to figure it out. And some people are like, hey, they've never done this before. And by this, I mean a venture-backed startup, period.

And again, when you have a portfolio of 175 companies, a lot of the stuff you can learn from your peers. I lean heavily on our existing portfolio companies to help each other. And they've really cultivated sort of on their own the spirit of helpfulness.

And so what I always ask myself is, do I think with $500K and $1 million that this founder can solve, $500K to $1 million and 12 months of work, do I think this founder can tackle the number one problem facing their business? And oftentimes the number one problem is the product simply doesn't exist. And we're very much in hypothesis land. And so then I ask myself, okay, well, if they can get the product out or they can take the alpha or beta version and ship something and we can learn, there's a good chance we'll know whether the hypothesis is right.

In a year. And, you know, historically about 60% of our companies at pre-seed, I don't know if I've ever shared these stats, but I'm happy to tell you guys. Great. About 60% of our portfolio companies get from pre-seed to seed. And that's been really consistent over both of our funds. And roughly an equivalent percentage, slightly more, go from seed to Series A.

Does anybody ever skip the seed and go pre-seed day? Yes. And this is becoming more popular. I mean, I think it's the aspiration of all of our pre-seed vendors. I mean, anytime you can skip a round, it's simple math. Like, it's good. It is so good. And it's becoming more possible. And weirdly, it's easier for our consumer companies to do it than for our B2B ones.

Just because if you have a really breakout consumer product and a small team, a $750K to a million dollar seed run can actually take you to the place where a Maveron or a consumer-focused VC could say, I know how to interpret your traction and this is sufficient. Harder to do in B2B and enterprise. Wow. Okay, so a couple of following questions. One, going back for a minute to your decision-making process, I would imagine, as opposed to a lot of firms that have more concentrated...

approaches or like fewer, you know, what we were talking about with how a seed firm goes, you start running into this issue that, um, like I interned at Meritech Capital, growth stage investor. They're fantastic. I love those guys. I love them. They're the best at the stage they invest in. One of their core tenants is don't lose money. And that makes sense at that stage. That mindset can start creeping in at seed. And then you're in a like, don't lose money at seed. And that's kind of the wrong approach. So I'm curious your approach to being wrong, losing money.

I worry more about our conversion rate being too high than too low. And I sometimes wonder, and I've talked to a few people that I consider mentors in the business. I've talked to them. I was like, hey, given our risk profile, is 60% graduation too high? Is that evidence that maybe we're not taking enough risk either on people or markets or both?

Mostly because the way I've modeled out our, we haven't really dove deep in portfolio construction, but I can just sort of tell you all what I've pitched our LPs is we're going to make 75 or so investments per fund. And my expectation is the top four companies will do at least two X's a group.

And that means... Two eggs on the whole fund. Two eggs on the whole fund. And without getting too deep in the math, that basically means I need those companies for our first fund to be in the sort of 1% or 2% ownership in companies that are $500 million to a billion dollars in valuation. So we don't need deca-corns or multi-corns. We can do just fine. For our second fund, you need companies to creep a little bit closer to a billion for that math to work.

And so I'm always asking myself, what I don't want to end up with is an entire basket of really mediocre, uninteresting, no offense to B2B SaaS companies, but B2B SaaS companies that are doing $20 million in ARR and can't grow at a rate that gets VCs attractive and aren't big enough to sell to PE. And so I'm paranoid that by doing middle-of-the-road stuff that's too safe...

we'll end up with a portfolio that has no outliers. And I spend a lot of time asking myself, are we meeting the kind of founders that we think can produce really interesting breakout companies? And are we taking enough risk on business model market and people to give ourselves a shot

at finding four or five outlier companies. So it's funny, LP is always asking me like, oh, what's your conversion rate? I'm like, I'm worried that, like, pre-seed, it's a little too high. You know, I have had many friends pitch me on this idea in the past that why do VCs need these, and they say 10X returns. It's not 10X. It's like 50X returns on your initial invested capital to become these, you know, top four that you're thinking about in your fund that are going to 2X the fund on a gross basis.

And everyone's kind of got this idea that everyone goes through the cycle where they're like, why don't you just make a bunch of investments in companies that'll all be like three, four, maybe the potential for 5X and have a more distributed return profile. And the way I've always thought about that is like, no matter how much you bring down the ceiling on how breakout these companies could be, it doesn't track with that startup getting easier. Right.

to execute so it's like for a pretty similar amount of risking the whole thing going to zero you kind of have to be able to to have a huge return versus being able to have a ceiling of a 5x on it

And to your earlier point, though, if we had fewer companies... This is sort of one of my core arguments when I pitch LPs. If we had a more concentrated portfolio, I think it would squeeze out companies on the high risk, high return. I would naturally gravitate towards companies where the founders are... Oh, employee number five. That's right. Great. All day long. Sure thing. And I think we spend a lot of time thinking about what's the right number. And what I've decided is...

25 is this good balance. We've done a ton of internal analytics on this. 13 to 18 months after pre-seed, you sort of know what you have on your hands with a company. It's either raised money, sold, shut down, or it's in a stage where they're figuring stuff out and it's ambiguous. Very few companies are in that ambiguous bucket at 18 months. So I'm like, okay, well, if we do 25 a year, most of them are going to turn over in time to sort of onboard the next wave.

Also, 25 is enough that you can get to know people sort of through monthly or slightly more than monthly check-ins and build a relationship and get to know them as people. More than that, and it's passive. It ends up being more. And at that point, you might as well just do as many good companies as you can. But I think if you model that out, you start diluting your returns too much if you do

you know, 120. I haven't seen a model that I believe in where you can do 120 companies. Well, Y Combinator is the only way you can make it work, which is you, your valuations are just so low because of, you know, your whole program, what you do. That's the way you make it work. If you're paying market valuations for 120 companies, it's not going to work.

And you have the forcing function with YC that you have cohorts that graduate. Yeah. And you're like, hey, you have graduated. Get out of the nest. That's right. Charles, give listeners a sense. What was the size of fund one and fund two for Precursor? Oh, man. This is taking me back. So our first fund was $15.3 million. It took almost two years to raise. And it was so...

Two years. Man, I was raising for a little over one year and that was, I can't imagine going for another year. Yeah. How'd you keep going through that? Oh man, I had a lot of really rough, rough moments where I wasn't, I mean, part of it was I didn't have a plan B. Like I, I sort of felt like the only way LPs would take me seriously was if I had already sort of made the decision to move on from Uncork. I think if I'd had one foot in and one foot out, um,

I don't know that I, if I were an LP, I don't know that I would fund somebody in that position. And I felt like having to make it work would push me through the hardest times. I also just had a lot of other experienced GPs. I don't even think they know, like just tell me really important things along the way that sort of helped pick me up. And then every time I got to the point where I couldn't do it anymore, somebody said yes. And that was just enough.

But if you zoom out, like when I raised our first fund, it was 2015. I think there was, you know, Manu at K9 had been doing Pre-Seed for a while. Tim Connors was doing kind of concentrated Pre-Seed, but I don't think he really talked about it that way. And I'd say Notation was probably the one person who was out there talking about... They were starting right at the same time. They were starting at the same time. They were a little ahead of us. And I think they had just a different model. So there just wasn't a lot of LP vocabulary around Pre-Seed.

definitely there weren't LPs who said, oh, we have an allocation for pre-seed. Right. And keep in mind, listeners, we're talking about the LPs. It's natural to Charles and Ben and me to talk about LPs. We know the LP animal. There are a lot who listen to this show. They're great. They're wonderful. But these are folks who allocate capital across public equities, real estate, fixed income,

Venture is a tiny piece of what they do. And when they think venture, they think Sequoia. That's right. They don't think pre-seed. And the irony is that most of the LPs I met who were sophisticated enough to have a seed program, when they showed me their roster of managers, I was like, wow, you're in the best. And it's probably in the best because you were there early, but you're in the best. I can't really sit here and argue that you should fire one of those people to hire me if I'm honest. Yeah.

Then a lot of people had issues with single GP and that was a whole, but that's kind of a binary fork in the road. I don't think I convinced anybody that single GP was a good idea. If they didn't think it was, I think I found a tribe of people who did by far the hardest thing for us was our portfolio construction because our portfolio construction of 75 companies per fund, relatively low ownership is unorthodox at best.

compared to the current viewpoint, I would say, of most institutional LPs, which is the way you return a seed fund is high concentrated ownership and a relatively small number of breakout companies. And that works great. I mean, Roger Ehrenberg does that super well. Tim Connors does that super well. There's a lot of people who are successful at that strategy. And candidly, there aren't as many proof points outside of YC and Accelerator's

for the kind of model that we have. So I totally don't blame them for being skeptical. One thing we haven't talked about is this is, quote unquote, one stage earlier than seed. So when you were out pitching those LPs, did you get this question of, so am I going to have to be another year or two more patient with my capital than I would be with seed managers? How do you address that issue? And what's the fund lifetime? Yeah.

Fun lifetime is 10 years plus two one-year fee-free extensions. So think about it as 12 years. The sophisticated LPs said, well, my seed managers are telling me 8 to 10 years. So should I assume to add 12 to 18 months on top? I said, that's a safe assumption. With one caveat, one of the nice things about being a relatively small owner in these businesses is

nobody really gets bent out of shape if we decide to do a secondary in a late stage company. This was a hypothesis when I started the fund.

that that would not be an issue with either the entrepreneurs or the other investors. And it's proven to not be an issue. We get presented with those opportunities routinely at the BNC. And also what I told our LPs is because we're probably going to have the lowest dollar cost entry point relative to anybody else in the cap table, some of those Series B and Series C secondaries could be substantial opportunities.

It could be, you know, 10, 15, 20 percent of the fund, which I will have the ability to provide you early distributions if we choose to do so. But I will not do so at the expense of long term returns. So we're not going to sell out of our winners at low prices just to generate distributions. And so that was a hypothesis there.

It's turned out to be true, but it was speculation when we started the fund. And I told LPs like, yes. And it's even worse than that because by the time I come back to you for the next fund, the set of facts that we're going to have about the previous fund are going to be limited. You really take a page from the Bezos playbook of like, I'm going to tell you exactly what's going to happen here. I'm going to tell you all of the bad news up front. And I was like, so this is going to be a long hold. But I think a lot of the sophisticated LPs I talked to

I said, go back and think about some of the best returning funds you've had in your portfolio. What do they look like? And they said, well, they were relatively small fund ones. And I'm like, I think it's just easier to generate high cash on cash multiples when the total capital base is lower and your entry point is lower.

Yeah. Yeah. You hear the rumors of what was Chris Saka's fund one that was in Uber and Twitter. Yeah. And obviously massive, you know, multi, I think like multi dozen multiples on the, on that fund. Charles, then fund one was, I think you said 15.1. What was fund two? 31.3. 31.3. Okay. So you doubled for fund two. Is there a fund three in the works?

So there is a Fund 3. We actually just filed the Form D for Fund 3. Hey, congratulations. Thank you. Huge. So really excited. It was a really different fundraise. This is the first time I think I met LPs that had a prepared mind about Pre-Seed who were specifically looking for people doing this work.

And, you know, we've had a handful of, you know, really strong companies that have performed well and that's helped. But it was really, it was really different. Our fund two was really the same as fund one, mostly because we didn't have any data. Like it was still really speculative. And I was asking people, existing LPs to double down and new LPs who'd not done fund one to take a bet on us. And it was really hard. Fund three, it was much easier. I mean, we had

80 some companies in fund one. We only have one company left at pre-seed. So I was like, I can tell you what happens to the majority of the portfolio because we only have one company that's still at pre-seed and they just happen to be really capital efficient and haven't had the need to raise. And so it was just a really, and I think more than anything, I have more confidence and clarity around our model, 175 companies in than I did in the beginning. And so it's much easier for me to talk about

why what we do works and why I think it's a good investment. So... I mean, it's just like a company, right? Like a fund one is a pre-seed. You have a hypothesis, but you're pre-everything. All right. So let's talk about scaling the fund then. So fund two was twice as much as fund one. How do you keep from just becoming a seed fund? And

What needs to stay consistent in your strategy? What needs to change? And then operationally, how do you scale a solo GP fund? So I have, again, something I think is probably atypical of most managers. I believe there's a very hard dollar cap on our strategy. It's probably somewhere between $40 and $50 million is the most that I could see deploying in a world where our... I'll just tell you what the tensions are in the model as we get bigger.

So one simple solution would be we'll raise more money and just increase your initial check size, which would be an easy solve. The problem is in a 500K round, when I do 250, that leaves another 250 for great angels and other people who can do awesome value add things for the company and be a support system. It's not just my voice. It also means the company has more human resources to go to when they have problems, challenges, etc.

If we were to double our check size and go to 500, I would just squeeze out all these amazing angels because I would need that ownership. The whole thing, yeah. And then doing 25 companies a year where you're basically the sole exclusive. I don't think I could manage that. I think it would be too much work for me and the team. So I'm like, okay, we can't do that. So what are the other release valves? Well, what do you do about... You say, oh, we'll just raise a bigger fund. You can live with your companies longer in pro rata and you can do the...

And theoretically, that's a good idea. So after fund two, though, we raised an opportunity fund after doing 15 SPVs. And yeah, we did 15 SPVs. You're a busy man. We're a very busy man. And we'll get to the scaling part in a second, but I just want to set the stage. And so we raised an opportunity fund to sort of have a dedicated pool to double down. And I think what I've concluded is

This is the hard thing that we're wrestling with today. And we've reached a point of view on this. And I reserve the right to change my mind. Our typical entry point, let's call it five post. Our typical seed round is mid-teens post. I can argue that those are similar assets and they should be bundled into the same fund. So we'll call that the core fund strategy. The harder question is we've had some series A's in the high 40s and low 50s.

And those are really competitive rounds. So I'm like, okay, so our best, strongest companies from a fundraising standpoint are raising at a price that's maybe six to seven X our cost basis. And I'm going to have to fight like mad to get an allocation. Why should we do that?

And is that what LPs gave you capital for? Is that what you gave me capital for? Or would I be better off taking that $300,000 or $400,000 that we're going to try really hard to squeeze into that company? Or do I think I could generate a better risk-adjusted return by adding another company to the portfolio? Or by doubling down on a company that's in between pre-seed and seed where we have unique insight or proprietary information on performance where we think this is... And I've sort of concluded...

And it also just is not consistent that we're going to get into those really large competitive Series A's because remember, we're at best, we're third in the stack. You have the Series A lead, which if it's a big billion dollar fund, has both a capital deployment and a capital allocation challenge and ownership challenge. Then you normally have an ownership conscious seed fund that's larger than us. Who likely has a pro rata, right? Yep. And we'll absolutely exercise it.

And because their ask has gone from probably 10% when I started Precursor to closer to 15%, there's just fewer points of ownership to go around. And I told their LPs, like, do you really want me to have this theoretical pool of reserves that we probably won't get to deploy? And if we do, it will probably be only in the Series A's that are more difficult, which doesn't mean they're worse companies. It's just that the facts are that's how it's probably going to work. Or could I segment the pool?

Could I say, look, the core strategy, it tops out at 40 or 45. I really can't do more than that. But in the event that we get opportunities at the A and the B, we have a different vehicle with a different fee structure and different returns expectations.

And I'd be happy to take almost a limitless amount of money into that other vehicle because it's just a function of what becomes available to us. And so that's the way we're moving as a fund. I don't think we can get bigger than SoloGP and with our strategy. I struggle to see how more than 50 plays to our advantage. In terms of valuation. In terms of valuation, in terms of model. I'm just really nervous about tinkering. I think what we do right now works great.

250K, I'm very comfortable giving that to people that I don't know that well because I feel like it's enough for them, for me to learn how they operate. It's enough for that to make a difference for them. And the bar- And lets them ship a product. Lets them ship a product. And the bar to saying yes to me is low enough that I don't agonize over it. I'm like, this is a good person. They're consistent with the other founders that we've backed. We should give them an opportunity. And when it doesn't work, it's not that painful. At 500, there's people in our portfolio that are very strong performers that

I don't know if either A, I would have been allocated 500 and B, I'm not sure I would have trusted them with that much money from scratch. Yeah.

Well, you start to get into this, you know, fear of losing money mindset. Absolutely. And the funny, I guess the trick is like we have a team of three. Yeah. We'll add a fourth. I was going to say, you keep saying we. So tell me about the crew. Good, great team of three. So I'm the one GP. We've got an associate, Sydney Thomas, who's been with me for almost, gosh, almost four years now since the very early days of Precursor.

And a year ago, we added Ayanna Karrasin as our analyst. So we have a team of three people who

Right now, I do all of the non-fund admin operations at Precursor around wiring audit. So we're going to fix that. We know how that works. You guys know how that works. We're going to fix that. That's too much for me to have on my mind. Good for you. I can only imagine with as many companies as you have, too. That work scales with the number of companies that you have. It does. Now, fortunately, IANA takes care. A lot of our portfolio companies provide us with written updates. And so I, fortunately, am not in the workflow of getting that into Airtable.

But I do primary portfolio company support, primary company selection, initiation of wires, tracking down closing. It's a lot. And we've gotten to the point now where I don't need to do that work anymore. So we'll fix that. And for listeners who aren't regularly writing checks,

There's a shocking amount of stress and time around initiation of wires where when it's closing day for a company, like your productivity shot for potentially a third of the day by making sure that you're getting that company the money on the exact day that they need it, making sure that all the boxes are checked. That it's not going to some bank account in Russia. Yep. Yeah.

Yeah.

It also means that with a small team, the two to two and a half percent management fee that we get, it's actually sufficient to cover most of what we need to do. And if we can sort of stabilize on a fund size of 40 on a go forward basis, it'll be sufficient. But it means we'll probably never have a team of like five or six people. It'll probably be three or four of us at all times.

When you were maybe not when you were raising the person is like not forget the LP perspective just in like practice. What's it like been being a single GP? You know, probably when you started this everybody was like solo GPs. I'm very very skeptical. Now. They're a bunch out there and like it but how's it really been like

It's such a funny question. People always go, well, tell me about your thought process. I was like, there wasn't one. It sort of never occurred to me to not start Precursor if I didn't have a partner. And I'd meet a lot of first time or new fund managers that I could never imagine starting a fund on my own. I go, it never occurred to me that starting Precursor was gated on having another person to go on the journey with me for a couple of reasons. One, I just did the math on

Our hard cap for fund one was $25 million, and we fell short of that. I was like, even in that world, how do I get another me? How do I get another person like me who's an experienced GP to come work here for this amount of money to split the carry? That person could do the exact same thing that I'm doing and basically have total control over the brand and style of the firm and all the economics.

I don't think anybody I know who would fit that bill is going to decide teaming up with me is better than doing it on their own. And sort of more from a practical standpoint, I feel like if you're going to evaluate, let's call them zero data companies. We really don't know anything about them. And you're going to write relatively small checks there.

What's the benefit of a second set of eyes? Right. Doing that by committee is probably not going to lead to good decisions. And also, it's just not going to lead from a process standpoint. I think it's really going to slow you down if I'm like, okay, you've got to go meet my two partners and the three of us. And I'm like, I don't think entrepreneurs are going to wait around and run that process for 250. The best ones won't. They have other options.

But I did recognize... One thing I learned from Uncork is if you're going to build a new firm brand, you only have, as a solo GP, so much time to incorporate others before the market perception is like the founding GP is the brand. And I think like...

If you don't do it by fund four, it gets really difficult to get. And it's nothing about the level of effort that you as the founding GP exert to uplift and like... Take Tim Connors at Pivot North. That's right. Take Steve Anderson at Baseline. Yeah, exactly. Manu Kumar. Manu, yeah. Like these are... I think Manu. I think K-9. I think K-9. I think Manu. That's right. And I think what ends up happening is that like the market just associates the firm with you and it takes a tremendous amount of effort.

to reset people's expectations that that's not how it works anymore. Yeah, I feel like it took Lyft going public for Floodgate to become Mike and Anne. Yeah, yeah. And Anne's been doing great. I mean, Zarin was like, I mean, she's been doing great work. Oh, she's an unbelievable investor. Yeah. That's right. And I'm sensitive to that. And we probably have one more fun cycle where I could make a decision on that. I think it's a little different with internal promotions. Like that's like, I think a different lane. But that's something I think about a lot. And you know, some LPs were just like, hey, we really want to know

what your strategy is here. And I can be a little tongue in cheek sometimes. I said, tell me about all the problems that you have with your multi-GP partnerships. Or let me tell you about the problems that you have that you don't know are problems. And so I just decided really early that for me, I was very comfortable. And this is a really good question. The worst part about my initial fundraise, and I give credit to, I don't even know if I've ever thanked him publicly, to Michael Deering.

who's run every permutation of solo GP with a partner, with a junior person by himself. And in his very Michael Drane way, he said, do you feel comfortable as a solo GP? I said, yeah. He's like, well, then you have to stop being defensive about it. And I realized my answers to LPs about our long-term plans were, it was a five-minute answer for what should have been a 30-second answer. And I'm sure they picked up on the fact that I wasn't clear in my own mind on that. That's such a good...

piece of advice from Michael. I mean, I'm not.

Yeah. So not shocking that Michael would be blunt like that and B, have a piece of advice like that. I have a quick Michael Deering story. So a friend, I don't know, a couple of years ago told me that they were flying down to the Bay Area to meet with Harrison Metal about an investment in their company. And I knew Michael's name, but I never knew the name of his investment entity. And I was like, oh, but you're not like a metals company. That wouldn't be a strategic...

I'll be the first to admit, I absolutely benefit from the work that Manu and Tim and when it was just Roger and not the full team. There's a bunch of people before me who've done the really hard work of Steve Anderson, Chris Saka, the really hard work of proving to LPs that this can work, which doesn't mean that every LP believes it.

But also those individuals have been extremely generous to me in terms of just helping me navigate. How do you do this as a single? When do you know that like you've done enough on apps and you should hire someone else? When do you know that you need help? How do you think about sort of junior investment professionals and developing them and giving them space? Like those, those individuals have been,

extremely helpful to me. And like, I just try to pay it forward for the next wave of people that are trying to do this. I mean, that's one thing, even you like coming on the show. It's so good. It's been such a nice thing. I think both of us have found being in the seed ecosystem is, you know, us, we both came from Madrona beforehand. Not that there wasn't camaraderie in,

in the big firm ecosystem but it's you know like the stakes are a lot higher as we were talking about elbows are a little sharper yeah and it's just like everybody you know a lot of the same people you mentioned have been you know mentors to us too and like um you know it's just so like generous that people are willing to be generous you know and it is i mean i think that's the one thing that's striking to me in a lot of ways sort of 2020 pre-seed reminds me of 2007 seed

2007 seed, you had five or six firms. You could probably put them all around one kitchen table. Super collaborative. Or a back room of like a bin 38. I love that you remembered that. I was like, is he going to go bin 38 on me? I think he probably will. But I think it was like very collegial because also like everybody's fun size and strategy meant that

You could do two-handed in some cases, three-handed deals where three firms would all get together and do a round. And Pre-Seed right now, it's funny, LPs are like, who's your competition? I'm like, my competition is the founder doesn't do a company and goes and gets a job. Like I've never been in a situation, that's a little facetious, but it's also true. Our true competition at Pre-Seed, and I think this is true for all Pre-Seed managers, is a company that you find that you think should raise Pre-Seed is

catches the eye of a bigger seed firm. And what would have otherwise been one on three or four becomes three on seven. And generally speaking, you can afford to pay that. You can't maybe afford to pay three on 12th.

And so I think our real competition is the seed funds that have an eye for talent and give themselves permission a couple times a year to dip down and do something really... It's physically novel. It's not a repeat founder. It's somebody who's really at zero but is a compelling...

giving themselves permission to do those rounds. That's the ones that we lose that I would say are regrettable losses tend to be those or ones that just run away from us. We meet them and they're raising one and they end up raising seven. And I'm like, oh. Which happens. Which has happened three times in Q4 last year.

Wow. We'd be totally remiss if we didn't switch gears to the more important side of the equation before we wrap up. Tell us about the entrepreneur side of things for Precursor. How do you meet entrepreneurs? How do you interact with them? And I should say, before you answer that question, I do want to say this last...

I don't know, close to an hour that we've been talking. I don't think we've really done this on the LP show yet, like really dissect fund strategy and kind of think about the ecosystem, at least not in the last six months since it's sort of evolved. Maybe not the last year either.

For founders out there or for people who want to know more about this, I hope it's valuable. I think it's super inside baseball information. And like now I'm super excited to talk about what you're interested in and founders. But like this is, you know, this is not widely available off debated, dissected stuff in the public.

It's funny. I feel like seed has gone totally micro. Like all of the decisions you make in seed right now are about like your fund, your strategy, because the macro environment for seed is like pretty well understood and pretty well established. Like you got to have ownership. Seed deals are getting more expensive, but like solar series A's are getting... I think

Pre-seed is still very macro. We're still figuring out macro. There's not that many pre-seed funds out there. There's Asa4, Bloomberg Beta. There's a handful of people out there that do this work as a primary activity.

I think we're all still very macro, which is like, what does it mean to be a pre-seed firm in a world where seed firms are under pressure from the top? And increasingly, you know, the nice thing about Fund One is there was no sophistication on the entrepreneur side around pre-seed because it was brand new.

So like no one had sort of the like flashy pitch and the vocab. No one really came in and told me they were raising a pre-seed round. Like, hey, we were trying to raise a million dollar seed round. Everyone told us that that's too small. So here we are. Now entrepreneurs understand that like pre-seed is a thing. So the quality of the quality and the insight that they have around like what a pre-seed round looks like.

It's much more sophisticated even in five years. So I suspect at some point Pre-Seed will become more micro than macro. But the weird thing is when your bar is no traction, smart person, the universe is your oyster. You can literally meet with anyone. And when you have 300 portfolio company founders in your network...

If I were to say, like, what's the biggest learning I've had from Precursor? Everything that LPs thought, for the most part, was a bug about our model that I thought was a feature has turned out to be a feature. Like, for example, I talk to people all the time. Oh, we have a Slack channel, but nobody uses it. Tell me about your portfolio. Well, we have 45 companies. Okay, I know where this is going. We have, like, three pre-IPO, a couple of... I'm like, look, you just don't have enough people, period. Yeah.

Like Slack works well when it's liquid. And what makes liquidity? You need people asking for help and people providing help. The best way to create liquidity is if you have a bunch of people that are at roughly the same stage of company building and you have a lot of them, you will have liquidity. And when people post and see that a question gets 15 replies, they go, oh, this isn't shouting into a well. I should post my question here.

And you get liquidity and it just feeds on itself. It's really hard to do that if you have a small, I'm like, you probably better have a Google group. Like email might be a better mechanism for you because it's easier to manage. A lot of people said, oh, how can you help all these companies? I'm like, well, it turns out when I look in Slack, a lot of the questions that people are asking, I have no business answering them. For example, two weeks ago, someone's like, what's the market rate for penetration testing?

I don't know. 15 people chimed in. Oh, I use this vendor. This is what they charged us. And in an hour, that person had a pretty good set of market comps. Yeah, that's so funny. I've literally like, I remember back in Madrona, like getting that question and like,

trying to pretend like I knew and try to find the answer or questions like that. And I think that's turned out to be a feature. I think when you have a mix of... And to be clear, about 25% of the investments you make are seed as an entry point.

But when you take seed stage companies and mix them with pre-seed companies, you get people who are slightly more experienced, slightly farther along, helping people who are close enough in phase that you can actually have a real conversation with.

And like even little things like we do this thing a couple of times a year called the seed to series a dinner. I think there's so much on medium Twitter, other podcasts about what does it take to, I feel like founders are getting overwhelmed. I was like, you know what we'll do? We're going to take four or five people from our portfolio who've successfully raised series a and eight or nine people who I think are on track and we're going to have dinner and we're going to have the people who actually did it tell what actually happened and how it actually worked and

in an off-the-record private dinner where the founders who are thinking about raising can ask every single question, including like, hey, how'd you use Charles in your process? And like, was he helpful? And, you know, like I want them to have that forum because I think there's so much content out there about what works, it can be overwhelming. And when you have a big portfolio, like anything, any theme, anything you want to do, you're going to get 10 or 15 people to show up.

Which is a long-winded way of me saying that the way that we meet entrepreneurs is we try to keep the bar for a first meeting really low and the bar for a second meeting really high, which enables us to meet a lot of people. We've got 300 great founders out there who I'd say, by and large, are happy with the experience they've had working with us.

My basic view is we're not the most central character in their story like they are. And so I'm like, look, I'm probably not going to come to your office and sit down on the whiteboard with you for five hours on Friday and fix your product. I don't have that skill. I can totally help you fundraise. And if you think about our founder profile, most of them are fundraising for the first time. Yeah.

And, you know, fundraising is a skill that we think we can teach, but also because we get so many reps across the portfolio. I think we have a pretty good sense of like market. I can tell someone based on your deck and your attraction on a scale of one to 10, 10 being slam dunk, one being a possible year fundraiser is going to be a four. It's going to be really hard.

And oh, by the way, because we have 175 companies, there's very few good seed or series A firms out there with whom we do not have at least one co-investment. And I think it's not glamorous to help people with a deck behind the scene and send a bunch of email intros. Oh, that's the job though. It is. It's less sort of, I'd say, sexy and glamorous than like,

whiteboarding on product and like but I'm just like this is what the companies we back these are the areas where they need help and this is the unique place where you can really add value that like they can get another smart founder or another product manager at their company to do that whiteboarding stuff as fun as it is for us

That's right. I mean, the other weird thing is when you have 175 companies, there's basically a 100% chance that somebody's having a dire emergency every day. So you just book time in your calendar. Do you have like an emergency block time? I have a couple of blocks a day that my admin knows that if this comes in, stick it in this block.

And honestly, part of this job, I think, is just availability. That's something I learned from Jeff really early on when I worked with him at Encore, because availability is a superpower in venture. And I wish I could say we're always available for every founder. That is an untrue statement. What I can say is I'd like to think that when founders really have time-sensitive or pressing issues, whether it's a one-day thing or a two-week thing, we're able to

to make time for them because I know at any point in time, a kind of predictable number of our portfolio companies are going to need an extraordinary, by our standards, an extraordinary amount of support and help. As long as we stay within a band and we, we, we've studied this, we just finished the study, which shows we're actually pretty good ex ante at predicting how much help a company is going to need. We get it, we get it right most of the time. And we have some far outliers and we have some, what I call temporal outliers where a company, especially if it's, you know,

Co-founder separation, major pivot, M&A, difficult fundraising. Those are like temporal spikes. But we can absorb those as long as everybody doesn't have one at the exact same time. As long as there's not a run on the bank. Yeah.

That's my biggest, that will overwhelm. There is no answer to that. LPs go, well, what happened? I go, there's no answer. Will we just be overwhelmed? Yeah, you need uncorrelated crises. Yes. I just want to highlight before we, I think there's a lot of insight in what you said, your lesson about availability and that you learned that from Jeff. It's so true. I think about the very best investors I've ever interacted with.

Paradoxically, they are the easiest to get a hold of. The most you send them anything, they will take any meeting and they will take it within three days. It's the ones who are like, oh yeah, let's schedule this for next month. And truthfully, the biggest tension we had in last year was we had a very prolific 2018. I think by my count, we sort of went at 150% of our normal investing pace. And that just...

I think also like any good founder, sometimes you only learn certain lessons by doing them. We made too many investments in 2018. And the ripple effect is that portfolio company support in 2019 started to crowd out availability for people who are not already in the portfolio. Yeah.

And I think when you live through something like that, you're just like, hey, I don't ever want my fund to run that way again. Yeah. So the pacing and cadence of making new investments, we have to be mindful of it if the goal is to continue to provide people with high level of access and support. And so that was one of those things to your point where I was like, hey, I can feel that our accessibility is under pressure. Yeah.

And it's just because we sort of bit off too much and it takes us 12 months to reset and work through all that. All right. Well, we've got some grab bag questions here at the end. All right. Do you have any particular spaces or trends that you're excited about right now?

I'm terrible at answering this question because we're a generalist intake-oriented venture fund. I can tell you we're probably doing more consumer investing than just about anybody who's not a pure consumer fund right now. I just have been meeting great people who have really interesting consumer focus. And that's everything from transactional and subscription services to just pure attention-oriented apps. Cool. What are people not talking about right now, but they should be?

I'll tell you what I think people are not talking about right now, but they should be. We're seeing some cracks in some late stage portfolio companies, like write-downs, shutdowns, unexpected. I don't think anybody, at least I know, is talking about what's the scale of this? Like how many companies in sort of this post-WeWork era

fundraising environment where things are more difficult and expectations around Unique. And I was like, what's the real exposure? I don't really hear people talking about like at the industry level, like what does the exposure look like there? And that's going to have real, I think profound impacts even on seed firms. Cause I think a lot of seed firms are carrying some of these positions at very probably appropriate, but important marks. Well, to your point about TVPI versus DPI, if you're going out to fundraise as a seed fund on a,

TVPI that looks really nice and then all of a sudden it doesn't look really nice. Yeah. Totally. Yeah. It underscores the fact that these are multifund relationships between a GP and an LP and you need to preserve those. That's totally true. You can not answer this if you prefer not to, but what is the craziest pitch you have heard in the last year? Oh, wow. Mind control.

A mind control startup. Whoa. Like control other people's minds. Wow. Yeah. So not even like Elon's like do stuff with your thoughts. This is like other people's. Yes. Wow. And it was a serious pitch. Did you do it? Nope. It's good for the world that you didn't. Yep. What were you most wrong about in your investing career?

Oh, so when I started Precursor, I had this thesis that there's this balance between founder and market. And I was like, you know, it's not 50-50 because you'll never make a decision. I was like, I think it should be 60-40. I think we should be 60% focused on the founders and 40% focused on the market, which caused me to pass on some really good companies where I had misinformed but slightly strong views on the market they're in.

And so we've revised that now to 70-30 in favor of the founders. And the 30% means I have to not hate your market. I can be neutral. I can be skeptical. I have to just not hate it. And it's very liberating. And it's actually gotten me to invest in a handful of categories and companies that I would not have otherwise done.

And we were just wrong about our ability to look. There's some markets where I have very strong feelings because I've done a bunch of, but there's others where I'm just like, I don't. And like, we should give ourselves permission to almost always when I have a very strong negative visceral reaction, I'm wrong. I have a very strong positive visceral reaction. Like I may be right. I may be wrong. But if I'm like, there is no way this is going to work at almost always. Like I look like an idiot. Yeah.

I just remember the first time I heard about Airbnb, I'm like, that's dumb. No one's ever going to let people stay there. And I can name a hundred other companies that I've met where I was like, that just seems like there's no way. I even think about...

When I heard the pitch for Firefly, the guys that have the... Oh, the ads on top of it. I was like, ah, that seems to be working a lot better than I would have suspected. So I've just concluded that whether or not it makes sense to me or not is not necessarily a predictor of success. You may have just answered this, but what's something that you wish you had learned earlier? I think when I was a younger investor, I think I was more focused on trying to have...

impact on companies than sort of being a good listener and figuring out what does this company need and I think I was sort of like how do I add value how do I show impact and now I'm much more focused on like listening more and maybe like practically like doing less and like listening to like people like my LPs always ask me why do you need to talk to these companies once a month I'm like because

Companies are a collection of peoples and founders have founder psychology, founder outlook on the world has an outsized impact on how the companies run. And I'm like, I don't know how to advise a company well if I don't know how that founder processes and absorbs information about their business in the world. And the only way I know to learn that is to actually spend time with them.

And I wish I had learned earlier that volume of contribution and impact are not the same. And we have some companies where I'd argue I probably did two things for them over the course of all of the year. And one of them told me like, hey, you did two things for me this year. Those two things were incredibly important for the business. You helped us close a really important candidate. And you sort of talked us out of doing something that was really dumb.

And I think the younger me would have said, well, why didn't you do 10 things? But those two were the ones where I think we had unique insight and the ability to help. And so we capitalized on them. All right. Last question is, what's something that we haven't talked about that you'd like to share or use this opportunity to say? This is a weird one. We're also running kind of a human capital experiment here at Precursor, which is I think historically there's been...

pretty well-defined paths for how you get into venture. Product manager at Dropbox, probably went to HBS or GSB statistically. That's like, I mean, both the people on my team, I think are incredibly high intellectual horsepower people, neither of whom came from startup land or venture land. And I have this hypothesis that like, because Precursor is a little bit of a weird firm in terms of our portfolio construction, what we look for,

I think I'm happier with people who come to the table with maybe less traditional venture experience. I think what I found is if you enjoy management and you're willing to engage with people, you can take people who are smart with a lot of horsepower, curiosity, and drive, and you can actually teach them most of the mechanical basics of this job in a fairly short period of time. And it's really changed my philosophy on like over time as we add people, like where are we going to look? And I just really wish

more venture firms would entertain the idea that the funnel of people who could be really exceptional at this job is a lot wider than we often admit. And I think it's not just race and gender. It's also where did they go to school? Like what personal and professional social networks do they bring to like we for our analysts hire, we did sort of an intentionally very broad open call. We got 400 candidates and,

A lot of my friends were like, that sounds like a lot of work. Why wouldn't you just go pluck? And I was like, because I really want something different. And our analyst, Diana, worked in finance in New York and is a lifelong New Yorker. It just brings a really different perspective to the table. And Sydney comes from a really different background too. And so I get so much

energy and I learned and they pushed me because they're not mini-me's they pushed me and they push our firm in ways that wouldn't happen if I had like two of my buddies from the GSB working here it would yeah it'd feel like a very homogenous firm and I just really would encourage some of my peers to think about expanding the spectrum of people that you think can be really good at this job and I think you'll be kind of pleasantly surprised by what they can contribute

That's awesome. I think that applies to founders too. Same. Maybe that's why it's a big part of our cultural values in terms of who we hire. It also broadly reflects who we fund. Yeah. Awesome. Thank you, Charles. Thank you so much, guys. I really appreciate the opportunity. Yeah. If listeners want to either read stuff that you've written or engage with you, where do you want to direct them on the internet?

Twitter is probably the best at C Hudson. I used to write a lot and now I feel like there's so much VC content being produced that's written. I've basically shifted to basically using podcasts as my outlet for sharing my thoughts. I find that I enjoy it more than writing these days. Awesome. Well, you are welcome anytime. Thank you so much, guys. I really appreciate it. Awesome. Thanks, listeners.