The New Rules of Early-Stage Fundraising with Charles Hudson

Speaker A: Uh, what is going on in the VC landscape?

Speaker B: Growth is hard. And so I think there's a lot of founders who are growing at growth rates that historically would have been amazing. They're doubling, they're tripling, they're quadrupling. And the message they're hearing from the market is that's good, but not great. So if you had a great non AI business, you could have done everything right. And I told a few founders in our portfolio, the only thing wrong with your business is that nobody cares for lots of seed stage companies. There's no down round, there's just a no round. The real risk with these big rounds is you end up being a prisoner of your own company.

Speaker C: That was Charles Hudson, the founder and managing partner of Precursor Ventures. Charles has spent more than a decade investing at the earliest stages, backing hundreds of founders with their first institutional check before they've even found product market fit. That gives him a front row seat to the rapidly changing venture landscape and what founders should do to keep up. In this conversation, we unpack the new rules of fundraising and why chasing the highest valuation can backfire and what it really takes to build momentum in today's market. Especially if you're not a well established serial founder or a young, eager Stanford dropout. I'm Isabel Johannesson and you're listening to Build Mode. And this season we're taking a look inside the fundraise. The old playbook doesn't work the way it used to, and founders are navigating a landscape shaped by AI, shifting investor expectations, and more competition than ever before. So we, we're talking to the investors backing some of the hottest startups in the game right now, and the founders building from the ground up and those who have successfully exited their companies. We're getting into bootstrapping and crowdfunding. We're breaking down term sheets and giving hands on pitch advice. This is a no skip kind of season, so let's get into it.

Speaker A: Hi, Charles.

Speaker B: Hey, how are you?

Speaker A: Good. So good to see you. Last time I saw you was at the Startup Battlefield as a judge.

Speaker B: That's right. Right as the podcast was getting launched.

Speaker A: Yes, yes. And now we're kicking off season three. Very good to see you and we're very happy to have you here.

Speaker B: Thank you. It's a huge honor.

Speaker A: All right, thank you. And so let's jump right into it. So the episode we're talking about today is how founders should set themselves up for success when they're raising their very first institutional round. And at Precursor, that's exactly what you do invest your first institutional check. And so I would love to just hear how you got here. What does Precursor do and how did you end up raising your first fund?

Speaker B: Wow. It's uh, it's crazy to think I've been at this for almost 12 years at this point. So I started my venture career working for In Q Tel, the CIA's venture capital fund. It was really great experience. Took some time off after that, went back to business school, then was a partner at a firm called Uncork and spent a few years there and really learned in my time at Uncork that I loved zero to one investing. I loved finding people who were post idea but pre traction and I really wanted to make that what I did for the rest of m my venture career. And so about 12 years ago left and in 2014 started Precursor with this kind of simple idea. It felt that many of the first generation of seed VC firms had gotten successful and had grown in size and were doing everything from zero to one to people who had traction and scale. And I uh, really wanted to focus on that 0 to 1. So we'll make believe it or not, 40 to 50 new investments every year. Wow. 250 to 500k check size. We are generalists so we'll do everything from uh, AI to consumer and we do everything from first time founders to repeat founders. So I think it gives us a pretty interesting lens on what the fundraising market looks like. Based on the market you're in, your background as a founder and your connectivity to capital.

Speaker A: Yeah, and it's I think really interesting when you invest pre traction post idea. But you're at this point you have to really base a lot on the founder and the people themselves. And so I'm curious, you know, as uh, the fundraising landscape has shifted a lot in the last few years, what are you looking for in the founders and the ideas today that it's different from a few years ago?

Speaker B: I. That's a great question. I think there's some things that are evergreen that are still the same which is like you need tenacious people with a uh, really good idea and really an insight that's going to endure for multiple years. I think a couple things that seem harder. I think in the pre AI world the half life of a good idea felt longer because it took longer to build and if you had a head start it was hard for people to catch up. But we don't live in that world anymore. So I think trying to figure out um, is the idea that someone's in Coming, uh, to you with is it a good enough idea to build a company around? Is a lot harder to do in the AI era. I would also say the level of competition for every category and every product is so much higher in the AI world. And many of the companies feel the same, they have the same core insight, they're using the same tools, um, but they're all a little different. And the more time you spend with the founders, you start to get these like little nuanced views and trying to figure out which of the 10 companies in this category is going to win, it's just so much harder. And I think the other big thing that founders maybe don't see, but investors see is I think there's always this balance in the market between people's appetite for first time founders and people's appetite for repeat founders. And right now I think there's two founder archetypes that feel dominant. One is the repeat founder. I think there's a lot of VCs who want to find people who've done it before. And after 20 years of seed investing, there's tens of thousands of people out there who can call themselves repeat founders. I think the other archetype that's that comes back in fashion every 10 years or so is the college dropout cracked engineer. That archetype is definitely back with a vengeance. So I think it's a little harder if you're just a mid career person in tech who's got a really good insight. That profile is not as in demand as the other two right now.

Speaker A: Interesting. And so I mean if you are an AI founder with traction, you dropped out of Stanford and maybe you've given it a shot before and even if it failed, uh, that still counts as a repeat founder. That's still, you know, what people are looking for. You know, it's a very founder friendly market for those, for those lucky few. Now what about the rest? What about everyone else?

Speaker B: Oh, wow. I think if you are so I would say there's everyone else in AI and then there's truly everyone else. Yeah, I think if you're building an AI, I keep reading these stats that say 30% of venture dollars are going to AI. It doesn't feel like 30%, it feels like 90% to me. It feels like most VCs. I know if your company doesn't have an obvious strong connection to the latest development in AI, there's pretty limited interest in what you're doing. So we have some companies where the problem is the thing they're doing is Very of the moment, very on, um, trend. They're able to fundraise, but they're in insanely competitive categories with lots of other well funded companies, competitors, and it's a dogfight. And then we have other companies, particularly in consumer, where there's almost no venture funded competition, but there are very few VCs who are interested in those companies. So I think if you're not building an AI, you should be prepared to have a harder time simply getting VCs to pay attention to what you're doing. Because I think there's a lot of people who feel like all of the best opportunities right now are in AI.

Speaker A: Is there anything founders can do besides, you know, slapping buzzwords on their pitch deck and just calling themselves an AI company to be able to stand out? I mean there are, you know, many great ideas out there, a lot of impactful and meaningful companies that people are trying to build that aren't the flashy, sexy AI SaaS company.

Speaker B: I think, um, we're also in an environment where I think most VCs are doing a pretty good job of telling you what they're interested in, both explicitly whether it's on X or LinkedIn, saying, this is what I'm looking for, but also if you look at the kinds of investments that are showing up in their portfolio, that'll give you a pretty good clue as to what they're interested in. So what I've told a lot of founders is there's no if someone's gone on X or LinkedIn and said, Our firm is only doing enterprise AI deals and you've got a great consumer company, don't waste your time with that person. Yeah, they're trying to tell you not to pitch them. And so I think the biggest difference now is I spend a lot more time with founders trying to curate the list up front. In the B2B SaaS era, everybody did B2B SaaS. So you could say, well, basically any VC firm that you know is a potential target for your fundraise. Now if you're not in AI, you have to be much more thoughtful about who are the firms who have strategies that don't require them to put all of their money into enterprise AI. And so you have to be much, much more targeted in your outreach.

Speaker A: And I mean, um, sending cold emails with AI is a dead art. I think people need to get a lot more creative. How do you like to be pitched?

Speaker B: Oh my. Rip my inbox. M. I'll tell you one funny aside that's uh, related to this. I Started getting emails of a very particular type from founders from a really specific country asking for advice and to pitch me. And one of my friends was like, oh, I went on ChatGPT and I was searching for founder friendly VCs if you're not based in the United States. And he's like, you're coming up in

Speaker A: the top 10, you're on the list.

Speaker B: And I was like, that would explain this massive influx of very same sounding, same feeling emails that I've been getting that all reek of ChatGPT.

Speaker A: So I mean, hey, all visibility is good visibility, isn't it? So let's shift gears a little bit and talk about when you're writing these very first checks for founders. What I mean, you have a very unique insight to see from day one. What are some of the mistakes that these founders are making that they may not even realize will hurt them three, four years down the road as they continue to raise and grow?

Speaker B: I would say there are. I say this with all humility that this is a very VC centric point of view, but I think it's true. I do think optimizing for valuation doesn't always get founders what they think it's going to get them. It gets them the highest price, but sometimes the people who are willing to pay the highest price are doing so because that's the only way they can get people to take their money. It's not always the case, but it is the case sometimes. So in many times I'll tell founders, listen, if we're talking about a relatively small difference in price and there's an investor that you really feel like you have a connection with, there's a founder that you really feel like you really vibe with who can help you with the business, work with that person, because you're gonna be in relationship with them for seven to 10 years if the business goes well and you're not gonna remember that somebody else paid you 10% more. And the number of times we've had people who've optimized for price over the rapport, relationship, vibes, whatever word you wanna use that they've developed with investors during the fundraising process. In many of those cases, there's buyer's remorse. They come to me six months later and say, oh, these guys aren't that helpful. Or they said they were going to do all these things for us, but they don't. And I was like, well, yeah, there's no takebacks in venture. Once you take someone's money and they're on your cap table, it's very difficult to get them off. So I think it is important, I think in related to that, I tell founders you should really pressure test people's claims. If people tell you, oh we've got this GTM team that's going to help you and we've got this recruiting team, find some founders who've actually worked with that vc, utilize those services and find out if they're actually any good. I think there's a lot of VCs who've learned that winning a deal is really important and they will say and sell as hard as they can to win knowing that because there's no take backs, once you've made that choice, you're locked in. So I think like over focus on valuations. One not doing your due diligence on whether the firm that you're working with can deliver on what they said they would. And one that's even more important now, and this is hard to judge as a founder, is the person who's writing your check likely to be still at the firm two to three years from now when you come back? The amount of turnover in our business right now is sky high. And the number of companies I've met where they've come back to me and said, well the person who led our last round left the firm and now I don't have a sponsor or an advocate inside that firm. It's a really tough place to be.

Speaker A: Even at the partner level.

Speaker B: Even at the partner level, yeah. Which I used to say, oh, don't worry, if it's a partner, you're probably safe. That's not true. Even in some cases I've said if you, if it's a founder and managing partner, you're probably safe. Even that's not as true as it used to be.

Speaker A: Wow. So I'm um, we're going to dig into valuations in a second but I, I want to hear some of these insights from your side of the table that I think founders don't often get to hear. So what is going on in the VC landscape that's making? I mean obviously there's a lot of competition for these rounds, but internally in these funds, what is creating some of this, I mean turnover and not committing or not uh, executing on some of the, the promises they might be making to founders?

Speaker B: You know, I think we talked a lot, we've talked a lot in the tech ecosystem about all the hiring that happened in 2021 on the startup company side and whether some of these AI powered layoffs are really the promise of AI or Still correcting for maybe over hiring during the pandemic, Venture also expanded pretty dramatically from 2020 through 2023 on average. And I think there's a handful of people who now have been at these firms long enough that either they've decided or the firm's decided that Venture is not the long term career option for those folks. So some of this I think is involuntary. Like people have just gotten to a place where the firm doesn't uh, want to continue working with them. In some cases we have firms that are retreating or retracting and they're not going to be able to raise as much money. So they don't have the same needs for talent. And the more interesting one is I've had some friends who've said being on the investor side of the table is not where I want to be. I want to be working in an AI company in an operating role, building something, because that feels like a more exciting, interesting place to be. So I've had friends who've left Venture to go work at Anthropic OpenAI Open Evidence. And that, that is not something that you normally see. Venture is a really great job. So I think it says a lot about the opportunities at these AI companies that people would leave these jobs to go do that.

Speaker A: Absolutely. I mean it's an opportunity to be part of building history. That's an enticing opportunity for many people. But you know, of course ventures, this trickle down ecosystem where if LPs are only investing in certain major funds and then therefore those VCs can only invest in the, you know, repeat founders drop out of Stanford, you know, the type. Of course, how are smaller funds able to compete? You mentioned that if you're willing to pay the highest price, it's often because you can't get people to take your dollars. What, what does that situation seem like from the other side of the table? What are they getting at?

Speaker B: I think it's a very tough time to be a small fund because the old architecture we had, I used to say, is breaking down. I would go so far as to say it's broken down, which it used to be. Small funds did all of the early scout discovery development work, worked with people from 0 to 1 and then would hand off those companies to the big multi stage funds either at ah, big seed rounds or series A's. And everybody had a role to play in the ecosystem and it was pretty collaborative. And now the big multi stage funds are uh, you know, they're full time tenants in seed, they have their own scout programs they have their own accelerator programs. They are looking for zero to one founders too. And because seed is not their main business, their ability to pay higher prices is much greater. And so seed used to have this structure which is, you found these things early, but you didn't have to pay these crazy prices. So when you were right, the math worked. Now that's a lot harder. So I can tell you a couple things I've seen that seem to be working for small funds. You gotta go look in places where the big funds won't naturally find people. I think the obvious, you know, worked at OpenAI, worked at Anthropic, worked at Harvey. You pick your favorite AI company, went to a good school. Those people are fully mapped by every big VC fund. And so if you want to invest in those companies, you either have to believe you can beat them head to head or, or you have to believe you can squeeze under the cap table alongside them. And whether those prices work for seed funds is a whole nother conversation. You have to have a vertical specialty where people will seek you out because you are a subject matter expert in an area that founders value expertise. I think the tricky thing is any vertical that gets big enough, then the big multi stage funds will staff a team against it and then it becomes harder to sort of be the unique person. I remember I was telling someone on the way over here seven years ago, a friend of mine had an AI focused VC firm and a lot of LPs said, uh, well, can you invest in AI as a standalone theme? Is it big enough? This is obviously pre chatgpt moment and now the problem's the opposite, which is like, well, AI is such a consensus, good theme. How do you as a specialist fund stand out in a world where all the generalists believe the same thing? So it's a challenging time. The third thing I would just say is this is funny. One of my LPs told me this. He said there's always room in Seed for the cult of personality. Just being a person that founders want to work with, that they like that they enjoy working with that references well with other founders. I think a lot of people will always find room for that person on their cap table.

Speaker A: And trust. Trust, absolutely. I want to switch gears and talk a little bit more about valuations.

Speaker C: Right.

Speaker A: So seed valuations have risen significantly in the last year or so, skewed by some of these AI mega rounds. But precede valuations have actually been dropping recently. What's going on?

Speaker B: I think we have this weird tale of two cities which is uh, there's what feels like infinite amounts of money for highly credentialed, highly networked people who have breakthrough insights on AI. So you know, you look at thinking machines and you look at Yann Leon's, a new company indeed. I'm not used to seeing seed stage companies valued at a billion or tens of billions of dollars, but we're in that world now, so there's a tremendous amount of capital there. Then everything that feels slightly non consensus, either the founder doesn't have the right background or it's not in the white hot center of what's cool in AI. People just don't have that much attention for it. So if you're in one of those buckets, it's really hard to fundraise. And so the people who are looking at things that are not in those core buckets also know that they're kind of fishing in a pond that's less crowded. And I think a lot of investors are saying, well, if I'm one of half a dozen people who are interested in this non AI company, if I'm going to take this risk, I got to get paid for it. Because ironically, the risk you're really taking in these out of favor deals isn't just execution risk, it's also will anybody else care about this company no matter how well it performs in 12 months? So if you had a great non AI business, you could have done everything right. And I've told a few founders in our portfolio, the only thing wrong with your business is that nobody cares. And it's a really hard thing to say, but it's true. They've got great metrics, they've had great growth, but they're just not in the strike zone of categories and markets where VCs think money's gonna be made. And truthfully, a lot of firms say that's a great company, but if I don't invest in it, my fund's gonna be fine. They don't feel that way about some of the hot AI companies. Cutthroat, very brutal.

Speaker A: So some of these companies that are raising, you know, hundred billion dollar valuations, you know, at the early stages, the expectation is that they'll grow into the evaluation and their next round has to be even higher. And these insane metrics that are being set right. So what does that pressure really feel like and look like for a founder?

Speaker C: Right.

Speaker A: I mean, are you seeing founders who are not able to hit those expectations and are and then having to do a down round?

Speaker B: We are. I would say the, the harder thing is for Lots of seed stage companies. There's no down round, there's just a no round. And so you raise money. And you know those companies that you mentioned, they've really fundamentally rewired investor expectations for what top of market growth looks like. One thing I would just tell founders and this is hard, I think this is hard to understand unless you're on the inside. People always say, well, what do I need to do to get my round done? Is it 1,000,000 ARR? Is it 2,000,000 ARR? Is it doubling? Is it tripling? I go, you know, most VCs meet hundreds of companies and in meeting those hundreds of companies, they develop in their mind what does best in class growth look like. And every time you see one or two companies that go from 0 to 10 million in arrangement in a quarter, it rewires your brain and your expectations for like what top of market growth. And I was, well, that revenue is not real. And you know, they're accounting for it in a funny way, I go, but it's, it's a number and it's out there and people have seen it. And yes, with all the caveats that is, the new expectation for a lot of firms is like, I just want to find the stuff that's growing vertically and if it isn't growing vertically, I'm just going to wait and find something that's growing vertically. Even if I have questions about retention and long term revenue growth is hard. And so I think there's a lot of founders who are growing at growth rates that historically would have been amazing. They're doubling, they're tripling, they're quadrupling. And the message they're hearing from the market is that's good but not great and I'm only investing in great. And that's the really scary thing for a lot of founders is that every month, every quarter, I think greatness, even, even, uh, anthropic is growing at a rate that's hard to fathom for a company at their revenue level. So it does begging to call in the question, if you're not growing at a really vertical aggressive rate, what VCs are going to be interested in that business?

Speaker A: So how do you tell the difference between a down round that's actually caused by macro conditions versus one that's caused by execution problems or even just the inability to achieve insane expectations put on the founders?

Speaker B: It's interesting. We have a lot of companies that opt for what I would say is the aggressive plan. They raise a good amount of money at a high valuation and I Think it feels good in the moment. And then we talk about, well, what needs to be true on the other side of this money for us to continue on the trajectory that we're on. And I feel like it's actually hard to do down rounds pre series A, because in many cases you're like, okay, this is a company. In order to do a down round, you have to believe this is a company that's good, where price and valuation is the principal thing that's wrong with the company. Oftentimes what I find is that valuation is one of several things that's gone wrong. The market didn't come together as quickly as we thought, the product took longer to build, the founders weren't quite as impressive as we thought they were. And so the number of times we see down rounds is actually pretty small at pre series A, because it's only worth doing those when valuation really is the sticky point. Now sometimes you have things like 20, 21 or you have these moments where valuations get really detached and businesses grow to be good. But I tell most people the real worry is that you're going to get no round, is that like, you won't achieve enough and that your insiders won't want to recapitalize the business and do, uh, a down round and that no new money is going to come in. That's the real risk.

Speaker A: And as an early stage investor, I mean, what do you have to protect yourself in the term sheets in case there is a situation where they might need to do a down round or,

Speaker B: you know, it's tough. We have, you know, we have the, it's also, uh, sometimes these things are done on safes and so that creates a whole nother level of complexity. But for the ones that are pretty vanilla, we always talk to the founders and try to figure out is, is a down round really going to accomplish anything? We've had, uh, we just for the first time in a long time have a company that in 2022 had to do a pretty big recap and they went back down to a very, very low valuation. And I sat down with the founder and said, you could also just shut down. Like we're, we're pushing the reset button in a pretty significant way. Do you want to keep going? And he said, I want to keep going. And he recently closed the $10 million round and turned the business around. It was a ton of work. That's probably the one I can think of in my mind of late where a down round or a pay to play or some kind of Punitive structure really resulted in a company that we're excited about. Unfortunately, uh, in many cases, it just prolongs the inevitable and creates a lot of, you know, going back to people and saying, I need more money. Either I'm going to give you this great deal to own more of the company, or you better put in cash or else I'm going to wipe you out. That's not a fun conversation as an investor. And so, uh, what I've seen is, in many cases, not participating is probably the, actually the optimal thing.

Speaker A: So a founder who is, you know, being enticed with a big fat valuation, I mean, that is, you know, something that I think is tempting to many, many founders. And when they come to you and are trying to have these conversations, should they take this offer, should they go to another vc? What, what is the conversation you try to have with them to level set? And do they listen?

Speaker B: I'm, um, glad you asked. The last part, my experience has been they don't listen. Yeah. And when I say they don't listen, I think in general, if someone has a really high offer from a great firm telling them that, like, hey, this is going to create these challenges for you. Think about what you have to do to grow into this. Think about the expectations you're signing up for. I think they hear it, but most founders, like, that's not going to happen to me. That's something that happens to other people. And you want founders who think they're special and exceptional. And, uh, you know, I've. I've met some people in my network who raised big rounds in 2021. And even in 2022, the businesses haven't grown sitting on a lot of cash. But the business won't grow. Their investors don't want the money back. They want them to find a way to grow. And so I tell them the real risk with these big rounds is you end up being a prisoner of your own company and that you raise all of this money and you sold people on a big vision, and they don't want the money back. They want you to find a way to build something that's worthy of what they gave you. And you might end up working 3, 4, 5, 6 years of your entrepreneurial life. And no one can be an entrepreneur forever. Maybe a few people I've met in my life can do this forever, but most people have a window of time where entrepreneurship is really on the table. And to take three to five years working on something that you don't believe in or that you can't Find a way to get out of is really hard. And I'm watching some people that I know right now, like, struggle with that.

Speaker A: Yeah. I mean, it's just a pressure cooker for these founders. I mean, trickle down from so many different levels. Yeah.

Speaker B: Uh, and the worst part about it is the VC's move on. If you have a lot of firms, if they have a company that they invested in a high price and it's not a winner, mentally, they'll move on. But the founder still has to show up every day and motivate his or her team and do the work. So.

Speaker A: But it's interesting because I feel like there's this sort of, you know, seductive logic and venture where a high valuation feels like validation.

Speaker C: Right.

Speaker A: It feels good. It feels like the market is saying, you're worth it, what you're building is interesting. But at the same time, sustainable company building almost requires sort of the opposite mindset. Right. And how do you help founders reconcile these two things? That it feels good in the moment, but you're going to have to work harder than you've ever even imagined working to be able to achieve it.

Speaker B: Probably. I think the hard thing is there's always this pressure in venture between growth and then fundamental unit economics and like, is this a good business? And right now, it feels to me like we are in a growth mode. Which means if you're a founder who's aggressive and wants to grow and has a plan to grow, that's the story that VCs want to hear. If you're someone who's more like, hey, I want to run this thing more like a traditional good business. I care about margins and unit economics and cost of customer acquisition. I care about the fundamentals. There's less appetite for that right now. And I think part of that is driven by the fact that people believe, at least in the conversations I'm in, the highest growth companies are going to capture the market. They're going to be the winners. And once they've won, they can then go back and improve margins. Kind of the Uber story. Right. Like, I remember the days of very cheap Ubers in San Francisco. They are not as cheap as they used to be, but Uber largely won that market and then was able, once the habit was ingrained in people, they were able to bring prices much closer to true cost. Now, it took a lot of money to get there. And so I think it's a really hard time as a founder, if you're like, I really want to talk about unit economics, and I really want to Talk about how this business generates profit at scale. I think most people are just like, I'd rather you just grew faster right now. And it's like a, uh, it's a real. So we also have this other cohort of companies that don't need venture capital to survive, but could use more capital to grow. But they're not growing at the rates that VCs want to see. And a lot of those companies are talking to private equity. They're talking to other capital sources where the balance between profitability and growth looks different than it does for early stage venture.

Speaker A: Yeah, I mean it seems to be the red thread is that uh, VC is not for everyone, obviously. And you know, I think a lot of founders assume they need to raise venture capital because they've decided to be a startup founder. But so what would you say to those founders? What advice?

Speaker B: It's very hard to tell somebody that they shouldn't raise venture capital without it sounding like you think their business isn't real. And so I've run many experiments. It's about talking to people about how to have that conversation. I've been uh, more successful lately in telling people, this is what venture capital needs you to do. Let's abstract away from your company. This is the kind of business you need to want to build. Is that your desire? And usually I tell em, you need to wanna build minimum a $5 billion business. And they're like, oh, well, I'd like to build one of those. I'm like, well, do you think this is gonna be one of those? No, I'm like, well then don't, don't raise a lot of venture capital. You could raise a little bit. There are funds that are smaller that could be happy with a, ah, 500 million or a billion dollar outcome. But if you wanna raise serious venture capital, you need to build companies of the scale that matter to those folks. And that number starts at 5 billion. But if you think about it, if you have a $10 billion fund and you own 20% of a company and it sells for 5 billion, you get a billion dollars back. You need 10 of those just to return your fund. That's not interesting to those people.

Speaker A: For you as an early stage investor, uh, you know, the money that founders take from you from the beginning, you then have an interest in the money they take going forward. So I guess, how should founders think about choosing investors knowing that they're going to be part of this journey for the rest of the company's future?

Speaker B: I think you want to know what you're signing up for. I always ask founders when we're talking about investing their businesses. Like, what do you want? And sometimes I've had a few founders who are just like, I've done this before. I kind of want to be left alone unless I need help. And I'm like, I'm okay with that. Here's my phone number. Keep me in the loop of what you're doing. I may or may not have suggestions for you. Even if you don't ask them, ask me for them. But, like, I'm okay with founders who are more independent. Not every VC feels that way. Also, I think you have to know your role. Like, our role at Precursor is to help people from like zero to one in those first two, two and a half years. I don't take many board seats. My goal is not to be on your board in the boardroom where you're. When you're choosing the banker for your ipo. Like, that's not my goal. And so I tell people, if you want someone who's going to be with you for the full life cycle, as an active board member, I know people I can refer you to who are awesome at that work. We are a very stage specific, time and life specific fund. And I, I try to like, optimize our whole firm for being really good partners to founders for the first two years.

Speaker A: How do you do that? What kind of things are you most excited to work with founders at?

Speaker B: Oh, uh, it's really funny. So I think there's this line between operational and advisory, and I try very hard not to tiptoe into operational. So if people are like, hey, do you want to look at these wireframes with me? I'm like, uh, probably not. You're probably better at that than I am. I don't know that I have any unique insights there. There's usually three things that we try to do for founders to be helpful. One is we help them a lot with fundraising. We've built a lot of internal, uh, data. It's funny, when you make 500 investments, you've ended up co investing with just about everybody. And sometimes the most helpful thing we can do is an intro. Sometimes the most helpful thing we can do is, hey, we had three founders who've worked with that partner. You should go text them and talk to them about what their actual experience is like. So we have a lot of metadata about both individual VCs and VC firms. So fundraising is a big one. And again, a lot of the people we back come to us without deep networks on the fundraising side. So the ability to borrow our network is helpful. Second, I try to spend at least an hour with each founder that we back a month. Some of them are like 30 minutes is fine. I don't need a whole hour with you, but it's okay, really getting to know them. Because what I found part of the trick and Venture is no two founders process the same situation and piece of information in the same way. And the more you know about the individual, the better advice you can give them because you know more about how they think, how, uh, they process information, what their values are, what their pressure points are, what their weaknesses. Strengths are. So two people brought me the same problem. I might give them really different advice based on what I've gotten to know about them. And I don't know any other way to get to know them and the business other than spend time together. And the third one is we have over a thousand founders in our network who we've backed. And there's a lot of problems that come up where the uh, best thing I can do for them is to connect them with another founder. So I had somebody over the weekend who said, you know, we're really struggling with the CPG inventory issue. What do you think we should do? I said, well, I have three other founders who had the same problem in the last year. I'm going to put you in touch with them. Whatever answers you're looking for, you're more likely to get them from them than you are from me. I can give you the high level spiel. It's only gonna get you so far. You need tactical advice. Same thing. We have people who are like, I'm having conflict with my co founder. I think we might be heading towards a breakup. I'm like, oh great. Let me introduce you to these two founders that ended up parting ways with their co founder. And these two who got to the brink and managed to pull it back and fix it, you should talk to them because like, what you really need is the tactical peer to peer advice. And that's something I really admire about yc. Like, I think they've done a really good job of like getting YC founders to go to think of themselves as a community that supports and helps each other on these important things. And at a smaller scale, we're doing the same thing.

Speaker A: Yeah, no, I love that. And we had a really great co founder therapist on last season. So if anyone needs a number, call us now. Um, so I think that's a really, you know, meaningful way to support early stage founders and Especially the point on introductions and these founders who may not have Silicon Valley network because it almost feels like it's becoming more of an insider circle than it has been in the last few years. It felt like it was kind of opening up and a little bit more welcoming. But now going back to this, you know, repeat founder, Stanford dropout, blah, blah, blah, it's getting a little bit more

Speaker B: closed door, 100% getting more. And I think I'd add one more, one more lens based in San Francisco. And I think the. I've had a handful. We've been doing this thing called field Trip where I take founders who don't live in San Francisco and I say, I, I have opinions about where I think you should base the business purely on where the company will be most successful has nothing to do with your personal life, circumstances or other constraints. For a lot of our companies, I'm just like, this is the place I think you should be. And I say that because there is more money, talent, information that flows here than any other place in the world. If you're on the cutting edge of AI and if you're not here, it's hard to understand what you're missing until you see it. So we do this thing, field trip, where we have people come and work out of our office. It used to be a week, but now it's turning into two weeks at a time. And they just come work in San Francisco and I try to give them a little bit of a nudge or a boost and get them set up with some meetings. And everyone says the same thing, oh, wow. I got more done in those two weeks than I got done in a month in my home area. I'm like, yeah, because all the people who have the answers are here. They're like, I met all these new founders, I learned all these things and a few of them have ended up moving here. And uh, even the ones who haven't moved here have been like, I need to find a way to be here and get this more often. And it ends up being very eye opening for them. So we've actually like turned up the dial on, um, Field Trip.

Speaker A: I, I'm loving the idea of field trip. As a Bay Area San Francisco native. Yes, come, come to the dark side. We have money and investors and AI. Are you from the Bay Area?

Speaker B: No, but I've been here for 30 years.

Speaker C: 30 years.

Speaker B: My gosh, feels like I'm from here.

Speaker A: Yeah, I used to run these acceleration programs helping international founders come in soft land in the US and always the same story one week in Silicon Valley, we accelerated the business 10x what we did in a year back home kind of thing. Just so many people and so much energy and um, you really, you know, having 10 meetings a day can change the game for you in 24 hours.

Speaker B: And also just like going to lunch with. It's funny, I have a founder from Canada who become a very close friend and we were hanging out and I was like, he get the most magical thing just happened. I said what happened? When he first came to San Francisco, he goes, I went to lunch with this guy and I was telling him about my problem and he said my roommate works at that company. And he goes, gimme a second. So he like texted his roommate, he's like, hey, I'm having lunch with this guy, he's moving to San Francisco, he's having a problem, he filed the ticket but no one's gotten back to him. And he's like, by the end of lunch like there was someone in the company who had like picked up my ticket and like fixed my issue. And I was like yeah, you would have been sitting in the ticket queue for another week before somebody got around to it. And those are the things that it's hard to explain to people that those things can happen here.

Speaker A: Beauty mhm. Of the Bay Area, one lunch can solve all your problems. So what is the biggest challenge that you are seeing your early stage portfolio companies facing these days?

Speaker B: I think that actually the hardest thing about raising a pre seed right now is momentum is how do you. This is the thing, I work with the founders a lot like how do I get momentum for my round? And the only way I know to get momentum free round is to find somebody who's really excited about your company. And pre AI. It used to be that I would tell people it's going to take us 40 intros to get this round done. I'm happy to make all 40. I'm happy to share the workload with the rest of your investors. And usually if you got to 40 or 50 intros and you didn't have a term sheet, we had probably uncovered the core issue with the business and it was either storytelling, product, market and then the question, is this a fixable issue or is this an unfixable issue and you could kind of diagnose. Now I think it's 60 to 80 meetings, partially because there are more funds, partially. I think also it used to be people would say no to a meeting if they didn't think it was interesting. But right now I think a lot of people are like, well, I'm all in on AI, so I kind of want to know what every single AI startup is working on. So people are more inclined to take a meeting. And so taking a meeting I found as a signal and a sign is less valuable than it used to be. And we have companies where it's taking them 40, 50, 60 meetings. And they're finding great firms, but they're finding these great firms later in their process. I'm like, look, if you found that firm a month ago, we might have been done a month ago. It's just the nature of like when you get in front of people. But it takes a lot more outreach to get the momentum to get the rounds done these days.

Speaker A: That's the storytelling piece is also a really interesting part of this because, I mean, I also work with founders deeply on telling their stories. And you'd be, I mean, you wouldn't be shocked, but some people would be shocked at how many founders don't really have their elevator pitch ready or don't have their five minute pitch ready or, you know, just that story. They should be dreaming about it at night and have it locked in their brain. And I, I wish more founders would, would realize how important that is. Right.

Speaker B: And it even goes down to things like the blurb. I used to not spend as much time on blurbs people would send them. Me, I'm like, this one's fine. Now I spend a lot more time like, hey, this blurb is going to go a lot further than it used to in determining whether you're going to get a meeting. And so this is an okay blurb. We need to make this one great. Great. Will maybe get you a meeting. Okay, probably won't. So every little investor touch point, I think is being scrutinized so much more. And in some cases it's being scrutinized by AI. Yeah, it's not being scrutinized by the person I, uh, email it to it. It's being scrutinized by an agent or a project or a skill or some AI enabled tool that's looking at whatever those materials are and making a decision about whether or not that person should take a meeting.

Speaker A: Right. And the AI probably wrote the blurb to begin with. And so really this is just cannibalism of AI not selecting the founders that they were pitching to us. So anyways, on that note, thank you so much, Charles, for joining us. Um, founders should have a good blurb. And the blurb is the word. And I'm sure we will have a lot of good blurbs coming in our inbo after this, but really appreciate you coming on and sharing your insights.

Speaker B: Thank you.

Speaker C: Build Mode is a TechCrunch podcast. Each episode is produced and edited by Maggie Nye and hosted by me, Isabel Johanneson. Our art and design is also by Maggie Nye. A uh, big thanks to Morgan Little, who leads our audience development, the Foundry and Cheddar video teams, and most of all to you, the builders, and everyone else in the wider startup community. We'll see you back here next time.