When Charles was starting Precursor Ventures half a decade ago, pre-seed rounds were virtually unheard of. These days, a company looking for $1 million or less to get things rolling has more options.
Though Precursor Ventures was early to the trend of smaller and earlier fundraising rounds, Charles had to work relentlessly to raise his first fund. It took a ton of work to convince larger funds that his idea — a generalist pre-seed fund writing checks for hundreds of thousands dollars instead of a few million — would actually pay off.
Charles spent two years and approached 300 potential investors to raise his first fund of $15 million. By the time he went back to raise a second fund, Charles could point to enough successes to raise more than twice as much as the first round over 18 months.
In this episode, Charles discusses the nitty-gritty of what it took to raise each fund and what he looks for when deciding how to invest in founders.
Also in this episode: why location matters; how to build an exciting deck; when to grind and how long to rest (hint: not for too long).
How He Raised It
💰 Who: Charles Hudson
💰 Company: Precursor Ventures
💰 Where to find him: LinkedIn | Twitter
💰 Money quote: “There are some things I think you can tweak and massage about your story to make it easier for people to understand. But don't lose the thread.”
💰 Noteworthy: Are you in Toronto or Mexico City? Just FYI, those are a couple of Charles’ favorite places for founders.
[00:54] Too small to overlook 👉 Charles was working at larger funds when he noticed a hole in the VC framework: not all founders wanted to start their companies with $3 million.
[4:59] Dollar-capped growth 👉 A smaller fund works on the idea that a smaller check could win them back the whole fund. Charles is cognizant that he probably won’t be able to grow the fund too much.
[12:42] Having a “scary” deck 👉 A few friends helped Charles see how unstable his pitch really was. He had a great idea, but they helped him fill in the foundational holes he didn’t see. Charles was leading with more of the innovation than the security his plan offered, and some friends pointed out that investors probably wouldn’t love that.
[18:51] Perception = Everything 👉 The tipping point for Charles’ fund was when a large institutional LP signed on. Their buy-in built immediate credibility for Precursor and helped Charles finish out that first fund.
[26:12] Non-physical proximity 👉 It doesn’t matter where you live. When Charles looks at companies now, he pays attention to founders’ proximity to capital. Who do they know that will help them grow in the next few rounds?
[27:35] To chase lists 👉 “Who should I talk to?” and “Who can you introduce me to?” are extremely different questions. Many VCs would rather give a founder with a risky idea a list of leads to go chase down than spending their social capital on an introduction.
[39:14] Physical proximity 👉 Charles is open to companies based absolutely anywhere (Mexico City and Toronto are a couple of his favorite areas for founders right now). But there are very real challenges to starting a company that’s not in a startup hot spot.
Top quotes from the episode:
“I think right now there's this persistent gap at the bottom of the sort of fundraising pyramid for people who want to raise less or are only able to raise less to get started. And I think only small funds can really help those people.”
“Venture fund fundraising is a lot like portfolio company fundraising. There are some things I think you can tweak and massage about your story, to make it easier for people to understand. But don't lose the thread.”
“There are great founders in every city that we’ve been to. That doesn’t mean that starting a company in every one of these cities is equally easy.”