08: From the CIA to Google to 400+ pre-seed investments, first and early to define pre-seed - Charles Hudson, Precursor

Foreign.

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

It has to be earlier than that.

I remember you had just left Google, you were at Gaia hosting gaming summits, and I saw some emails between us promoting each other's conferences and communities. And you hadn't joined SofTech.

No.

Yeah, those were the early days when we really were building community in the ecosystem. You were focused on gaming, I was focused on women in tech. But then as you stepped into softech, now called Uncorked, I brought you on along my journey and I said, please share your experiences as, as an investor. You were a speaker, you were a mentor in our Founder Labs incubator. My memories of you even to this day is that every time you showed up, I learned something new. Whether it was about an insight into an industry, opportunities you were seeing, you always had like an independent thought or a thesis about what was going on and even what to look for in early stage founders, which I know is a certain formula that we all talk about, but you have evolved that over the years and every time you shared something, whether it was one on one over a drink or many drinks, which we. I know we did that. And that was always fun, that is for sure. I mean, we brainstormed a lot of cool ideas. And some of which you ended up investing in over time.

That's right.

Anyway, there was just so many fun moments as talking about the future, and then you would also show up on stage and share those very thoughtfully and articulately. And so you're someone who's always lived in the future, even just things like the athletic. When you made that first investment, I remember that everyone was like, why would you do a subscription business and media? Or carrot. You did carrot more than 10 years ago and the fertility space is like on fire now. Right.

It was not a thing back then.

Yeah. So you are someone who I really admire and look up to in terms of both a friend and a mentor to me as I've gone through my journey, but really just someone who has some thoughtful perspectives on where the future is. And that's someone who thinks in the long term, right? Like, for you to think about carrot fertility or even the athletic or many other spaces you've looked into, it takes a lot of patience for pivots. It takes a lot of your own independent thinking and not following the herd to really hone those thoughts and put money behind them. So with that intro, I want to say, you're amazing. I'd love for you now to introduce yourself. What really led you to becoming an investor and how maybe you ended up launching your own firm.

Boy. Well, thank you for having me. This is like, really an honor and a treat. I don't know. I mean, I'm from Michigan, like, you know, home of venture capital.

So I moved to California for school, not knowing anything at all about the venture capital business when I moved out here. But if I go back in time, there are probably some clues that I would do something like this. In high school, I worked for, like, a local, basically, like, stock brokerage for this amazing guy named Mark Willis. And I did all of the really high value ad tasks, like ordering sandwiches for the brokers and like, other media office tasks, because once the market closed and things calmed down, they let me use the Smith Barney tools to research my own stocks. So I was like, well, I'm willing to, like, order sandwiches and do errands for the guy who runs the office if it means I can get access to better tools for my own personal portfolio. And that it all started because the summer before my senior year, I did a program called Lead in New York City, where I went and stayed at Columbia and learned about business. And if you'd asked me what I wanted to do before that program, I would have said chemistry. I really liked science or writing. I would have been a writer. And I went. I was like, this business thing is pretty cool. Like, maybe this is a thing I got really into, like, investing and like, learning about companies. And I was like, companies are these little puzzles that you get to figure out. And so the Smith Barney thing got me interested in stocks. Then I was in college. I did more investing, student investment clubs, Denver, student enterprises, a bunch of things. And then I think, like, is always the case in venture capital if it's not a family business for you, like, the way you get in is weird. And so I was an intern at a tech company my junior year. I really liked it. I stayed on my senior year of college, and I met a woman, Amy Chan, who kind of took me under her wing. And she was just like, hey, I see you here at this company called Excitement. What are you going to do after you graduate? And I was like, I'm going to do what most Stanford students at the time did, investment banking or consulting, one of those two things. And she said, you know, my husband is starting this venture capital fund. He's already started it. He has money from the CIA. I think he could use some help. You should go meet him. So I went and had breakfast with her husband in San Francisco, which from Palo Alto was a long drive at the time, still a long drive still.

And we had breakfast and he's like, do you want to join my venture capital firm? And I'm thinking in my head, sir, I don't even know what a venture capital firm is. But he sort of explained it to me. I was like, oh, this is like the work I like doing with public companies. It's just like they're not public. And honestly, I took that job because I was like, I think investment banking consulting will be there for me in a year or two. If at some point I conclude this CIA thing is either a total scam, which my parents were convinced, like, this is a scam, they watch too many James Bond movies, or I just didn't like it. And I was like, this is an adventure. This is going to be kind of fun. Let's try it. I ended up staying for four years. I learned I really, really liked early stage venture capital, mostly because, as you said, you get to see the future but early. And one of my friends, like, man, VCs are so smart. I'm like, well, you would be smart too if people told you, this is what the world's gonna look like three to five years from now. And I'm just showing it to you now. And I was like, I really like this. And I also just liked meeting entrepreneurs. Like, growing up in Michigan, a lot of my family worked in the auto industry or worked in, like, more traditional businesses. And the entrepreneurs I knew were people who own like their own barber shop or their own law firm or their own accountancy. They were like small business entrepreneurs. But I'd never really met people whose ambition it was to build something really big that wasn't already a family business. And I was like, oh, boy, am I lucky to have come to Stanford at the very time that I was here. I've had the opportunity to be around all of this really interesting innovation. And sometimes you just happen to be born in an era and find yourself in a place where the things that are interesting to you are just like literally shoved in front of your face.

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

And I think a lot about, like, would I be where I am today if I hadn't gone to the school I went to at the time I went? And I can say almost unequivocally, no, I don't think I would have. If you'd asked me, like, freshman year, what are you going to do? I'm like, I'm absolutely going to go into a finance job. And I think if I'd gone to another school, I would have happily gone and taken an IB or portfolio manager in trading. I would have gone into a traditional public equities investing role or I would have gone into. And who knows?

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

Yeah.

And you're someone who, as you said, sort of embrace adventure and fun, also known as risk. Right. You're someone who embraces risk in a very sort of natural way. And you pair that with a purpose, which is investing in the future.

It's really funny because, like, I don't think of myself as a risk taker. And it's so funny because people like, oh, God, it must be so scary to do what you do, betting on these people with no traction and like, like, it causes me no stress or anxiety. I pick the people who I think are going to be successful and they're like, well, how do you evaluate these companies with no data? I'm like, I don't know. I turn around and then I go, well, your job is hard too. You're a series C investor. By definition, every company you see is probably pretty good. But your job is to find the very excellent companies out of the pretty good. And that's a much more quantitative process that I joke with my LPs. I don't think they like it when I say this. Some days my goal is to never open Excel. I'm like, if I can get through a whole day without opening Excel, I'm like, I'm probably spending my day in my zone of genius. If I'M spending a lot of time in Excel or Google Sheets. I'm probably not doing my highest and best work as an investor. But it's so funny. My friend's like, wow, you turned down Goldman Sachs and a consulting job to go work at In Q Tel? That must have been risky. I was like, it just didn't feel risky. Yeah, it felt like the thing that made sense to do. And I've always kind of followed my sense of like, well, this is the thing I think is a good idea. And I kind of like trust my own judgment. My friend's like, well, of course you're a solo GP because you're wired to be an independent thinker who follows their own judgment. He's like, you're exactly where you're supposed to be. You're a solo GP doing pre seed because you kind of just like, are comfortable doing your own thing for long periods of time with like very little feedback. And like, that is the definition of being a solo GP. Pre seed investor.

100%. You nailed it. And so you took this first VC job, but then you went into operating and then you returned back. Tell us a bit about that journey.

So I worked at In Q Tel for four years, and in QTEL wasn't really designed to take an analyst to a partner, just like most VC firms. So I kind of had reached a point where I was like, this is probably as far as I can go at In Q Tel and whatever comes next is probably out there. So I said, well, why don't I go do two things. I like venture. Maybe I should just go to another venture fund. So I interviewed with a few other VC funds and I was like, the thing I have at In Q Tel cannot be replicated. I have so much autonomy, so much freedom. I have so much access to the people who run this firm. Anywhere else I would go is like an inferior experience in terms of what I have. So I went to business school, really, because I thought it would be the most efficient way to learn a bunch of different functions and like, figure out, well, what am I supposed to be when I grow up? And I knew I wanted to start a business. Having been around entrepreneurs, I'm like, oh, I want what they have. And I asked all these people, like, what's the best path to being an entrepreneur if you're non technical? Because I studied languages and econ and everyone was like, oh, you should go become a product manager. That's the thing. I was like, okay, well, I'm gonna go become a product manager. So I went to a startup and was a product manager for six months and very quickly concluded, I didn't think I was ever going to be an amazing product manager. I was like, this job does not come naturally to me. Sometimes the point of a job is to help you close a door. And like, I was like, wow, in six months, I learned this is not a job that I think I would be great at. I don't ever have to, like, wonder, could I have been a PM Again? I can just like, close that door. And then in true Silicon Valley circularity, where you eventually end up working for somebody who worked for you. I had an intern in college who worked for me who was like, clearly going places. And he was at Google and he and I were chatting. He's like, I have this job. You should probably come interview for this job at Google. I think you'd really like it. It's not in my group, it's in an adjacent group. And that got me into Google. And that's where I realized, oh, I like this business development, like, deal making, dealing with people, partnerships thing. This is my thing. So I did that for a while at Google and then I was like, wow, Google went from 4,500 to 25,000 people in the relatively short time I was there. This is not the right environment for me anymore, and that's okay. And I met a guy, Craig Sherman, who was running a company called Gaia Interactive. And I was doing this conference on the future of games. And of all the people I invited to speak, Craig was the one person who's like, I'd like to get to know you better. And like, we hung out and had coffee at old project this at Red Rock down in downtown Mountain View. He was just like, would you ever want to join a startup? I'm like, it's funny you should ask, thinking about life after Google. And he brought me to Gaia and that was the first time I'd really worked in a startup where there was like, no Playbook. And like, the big aha I had was, you know, at Google, there were all of these systems designed to make sure I didn't get Google in trouble, which is probably a good thing when you're a public company, but it kind of inhibits your learning when people put all these guardrails on you. I went to Gaia. Our BD team was me and my boss. That was it. And we would work on projects. He's like, what do you think we should do here? I was like, I don't know. He's like, try again. Like, we need an answer. Like, what are we going to do? And I was like, oh, there is no one to go at. Like, he and I have to figure this out. And more importantly, I have to figure this out for him.

Yeah.

Because that's what he's, like, asking me to do. And his name's Joe Herkin. He's, like, an amazing human and one of my favorite people. And I tell everybody I learned a lot working for Joe, and Joe and I are not, like, the same person, but I learned so much. But I also just learned. I love this freedom of being at a startup where it's you and one other person in a function, and that's the team. I tell a bunch of our founders, and it's like, you know what? Good news and bad news for you. You are the very best marketer at your startup. Mostly because you are the only person here.

Yeah.

So you need to become the marketers that your startup needs. And, like, that was one of those lessons I learned at startups. Is like, you. And it's really informed the way I invest in many cases. Like, being forced to do things is how you figure out your capacity.

Yes.

And I've always enjoyed that about startups. And I like Gaia so much. I was like, well, guy has, like, 50 or 60 people. How do I get even closer to the metal? So I went to a company that was. It was very small. It was under 10 people. When I joined, I walked in there and I was like, oh, this is like, very different even than 60 people.

Yeah.

And I was like, but this is where I want to be, like, in the room with the people, like, figuring stuff out that hasn't been, like, solved before. So much of my journey has been, like, figuring out what I like. And I like unstructured environments and, like, the freedom to create. The lack of structure and, like, freedom is invigorating, not paralyzing.

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

Yeah. Yeah.

And that took you to investing, so how did you end up where you are today?

It's a funny story. And since we go way back, I can tell you, like, more of this than I normally tell people. I had been running that conferences business, and I met this very interesting guy who had a payments business, and he was moving it From Switzerland to the United States. And part, as you know, part of the events business is you sell sponsorships. And so this guy calls me up. He's like, you've never heard of my company, but, like, we want to sponsor your event. I'm like, sure. And he sponsored it. And he's like, I got to know him. And he, like, sponsored the next event. I got to know him a little better. And finally he came to me. He goes, hey, can I make you an advisor in my company? I said, I'm a little worried that, like, that will create conflict. He's like, it has nothing to do with the events business. Like, you don't have to privilege us relative to other people. I just would like you to be an advisor in the company. I was like, I'd never done it before. I'm like, I'm honored, flattered, sure.

That company ended up getting acquired by PayPal for 300 million in cash. And it was like the first time I'd actually made money from a startup. And I was like, oh, including the ones that I'd worked on, I'd left them all. And I had left my options and everything. I was like, oh, this is cool. So you angel investor, you advised, and money shows up. I should just do more of this. It's amazing.

It's great.

And so that really opened my eyes to what was possible, because it had been a while since at that point, I'd been out of inky tail.

Seven or eight years. At that point, I made some other angel investments. I was like, oh, I'm good at this. Clearly a one for one, not even a real investment about one for one. It's great. This is so easy. And then promptly did not go 3 for 3. And I had a big epiphany. I was like, I really like doing this. I do not have the personal balance sheet to do this at scale or at the scale that I want to do it. So I'm going to have to find a structure where I can do this. And I feel like I've done enough operating stuff that I'm ready to go back to being an investor.

Wow.

And I started talking to a venture firm that you and I know very well. And I could not wrap my head around the operating model for this firm. I was like, clearly has great access, clearly picks good companies. It's the operating model for this firm. So I called Jeff Clavier at Emcor, because I had known Jeff when he was at Reuters Greenhouse Fund, because turns out Reuters in the CIA have a lot of Shared technology interests for reasons I understand, like Reuters processes goo gobs of information, but for the financial markets and the CIA processes goo gobs of information for intelligence purposes. Very similar problem sets.

No kidding.

I talked to Jeff and I was like, hey, man, I'm like, trying to figure out. I've never been in a fund. I'm trying to do fund math. Like, what am I missing? He's like, you're not missing any same line. It's a complicated model. It's probably going to work, but it's more complicated. Hey, if you want to give back adventure and you decide not to go in that direction, we should talk. And we started just sharing angel deals back and forth. And he'd send me stuff. And I'm like, this doesn't really do it for me. I'd send him stuff. He'd be like, I don't think you want to do that one. At one point, he's like, I think I'm going to hire a partner. Are you interested in coming to work at Uncork or Soft Tech? And I remember telling my friend, I was like, we disagree enough on companies that, like, both of our opinions are needed and we agree enough on companies that will get to consensus. And there'd be no precursor without the time I spent on cork. For a bunch of reasons and not the reasons I think most people. One of the big ones is like, I got to see firsthand how much work it takes to be a fund manager, because Jeff Clave is one of the single hardest working people I've ever met in my entire life. And he gave me the greatest gift that a managing partner can give, which is to abstract away all of the hard stuff for you and if you're not the managing partner, allow you to just focus on the job of meeting companies and investing. But I was, like, aware that there's all of this stuff happening behind the scenes that he's doing that keeps the lights on here. And one day I just realized Uncork had gotten to a place where we were going to be able to raise a lot more money. And in doing so, we were going to go from a firm that primarily invested, I would say, kind of more like an angel.

Yeah.

For those of us who haven't been around as long, like the original origin of these micro VC funds, these people were called super angels. They were like angels who just had bigger checkbooks and could write bigger checks. And Seed was not that institutional. It was much more like a cottage angel industry. And I could just tell that Seed was growing up And Seed was going to feel a lot more institutional and that my heart was in something that felt a lot more angel, a lot more scrappy. It's scrappy. Yeah. I just felt like if I stayed, I was going to be the problem.

Because I was like, I want to do something that is not what we do anymore. I miss meeting people who don't have anything figured out and writing them small checks and knowing that, like, some of them will figure it out and the ones that figure out will more than cover the ones who don't. And I'm like, I don't really want to sit on boards and like, I just want something different. And I don't want to hold my partner's back. And I just also looked around and I was like, but wait a minute. All of the venture firms that used to bet on the underdog and new person or person with limited access, all of those firms are leveling up. I'm like, so there's this giant sucking sound because everybody who's earned the right to move up market, they're all doing it. And I totally understand why, but maybe that's the conditions I need to start a new fund. Because venture sure is easier when you launch a new fund into a category that's not super crowded.

And that's the leap you took. And so here you are now fund. What number are we at?

We have closed four funds.

Oh my gosh. Yeah, you've closed four funds. And I would say you've become synonymous with the word, the definition and the meaning of what it means to invest in pre seed. Right? You really, within 10 years, by the way, which is a long and not a long time to really own a category. When anyone thinks of their first institutional true check, right? Their first institutional check, they 100% think of you and they think of precursor. And I think that's an incredible feat, by the way, to have again seen the future and seen the sucking sound and moved yourself into that space first and early. So let's maybe talk about that first investment that you made as precursor, or the sort of an early investment that really sort of stuck with you as something that was memorable and you learned a lot from it because you really were stepping into a space as an institutional investor that to your point, was really focused on individuals making investments at this pre seed angel stage. So can you share a bit about sort of that first investment that you made as the GP of precursor?

Yeah, I remember our first investment.

Sadly, it didn't work out. But it's really interesting because when I Was pitching precursor to LPs. The most common question I got was like, well, these companies don't exist. Like they're seed investors. The seed investors are good at finding early stage companies. I think it's also worth remembering when I started working on precursor in 2014, LPs were just starting to get their head around seed. They were like, I finally understand and believe in seed and now you want me to go learn this whole new thing called pre seed? No, thank you. And the other person who like really helped me see the opportunity here was like Manu Kuar at Canine, who I consider the godfather of Precede because he was doing it even before I was, albeit in like a different fashion. And the first investment I made was with Manu and it was in a hardware company that I thought was incredibly interesting. And I thought the founder was great. And the founder was a friend of somebody else who I'd backed before and made money with and who I'd gone to college with and who I think very highly of. I was like, and the price, I was like, this is the perfect deal, right? Valuation, amazing founder, really cool hardware application in sort of the energy management space. And it just goes to show you like as an investor. So I think that founder is a terrific human being and very talented. It was an electronic product and this was during the Trump tariffs on electronics. And like sometimes, like if Covid and like other things have taught us things, sometimes there are external factors that were not part of your underwriting. And one thing that wasn't part of my underwriting was that like the US government was going to slap gigantic protectionist tariffs on electronics imports that would dramatically change the cost of goods sold profile for the products we were selling. And that made it really hard. Also it was a good reminder that sometimes like a really good technical innovation can be difficult to bring to market and to scale. And so I learned so much from that investment that like a things I learned backing people that you want to see succeed who you think are great and work hard even when it doesn't work out still feels good. Second, not everything in your underwriting ends up being the thing that matters for companies. I just think about that in the context of we have two companies, Modern Health and Bobby, who both have benefited from for Bobby, the formula shortage and for Modern Health, like the COVID focus on mental, like those were not things, those are tailwinds I did not anticipate, but that were helpful and it was just a really good education that like, to some extent venture is a weird business. You get judged on your outcomes. But, like, consistent underwriting is also, like, the thing you could control every day. And I always ask myself, like, would I do that investment again today? And I think I 100% would, just based on, like, what I thought of the founder and the quality of the thinking that went to the product and, like, the market opportunity, I think I totally would do it again.

Yeah. So if you were to, like, outline what you look for when you invest today based on all these learnings, even this particular first one, like, what is that short list that goes through your mind as soon as someone jumps onto a first meeting over zoom or in person with you?

Over time, I have tinkered with the waiting between the idea and the person. Right Now I'm like, 70% person and 30% idea. And I often toyed with what if you want 100% person? My whole theory is, like, a million dollars goes pretty fast, and if you're pointed in a completely ridiculous direction, you might spend too much money before you realize it and just simply run out of cash. So the idea has to matter. But I'd say in the beginning of the firm, there's some things I passed on because I had strong opinions of businesses where I actually didn't know that much. Now, what 70, 30 to me means is the people have to be incredibly compelling, and the idea has to be good enough. I say you have to be in the right zip code of a good idea.

I love that. Let's drill a little bit into those two areas. Right, so when you say someone has to be incredibly compelling, what does that look like to you?

So I've tried to, like, break it down for other people on my team. I think it goes back to something you and I talked about before, which is, I think most of the people I invest in, they are not repeat founders. They are doing this for the first time. And most of them have been at what I call small jobs. Not that they weren't important, but that, like, the zone of control you have over your job is small. Like, you get a budget, you're going to hire somebody. You're using the ATS and the hiring rubric that the, like, you are not a designer of anything. When you're a founder, you're a designer of everything. So I'm looking for these people where I'm like, well, if they're in a small job and I take away all of these, like, very intentional constraints that the organization has put on them, are they going to flourish? Are they going to tap in? And usually, if I look in their life, I will find evidence that they've done something that was risky or scary or at least interesting because I think those people tend to be the ones that have done well for us, I don't really care if people are technical. It's funny, we have a bunch of companies where the founders knew nothing about the category they went into. And when it comes to the idea, I really prefer categories where like, nobody knows anything yet. They're new because like the rules of engagement haven't been defined and like there are no incumbents versus categories where I'm like, oh, there are very good companies in here and they're sort of like established rules that if you don't understand them, it's really hard.

And so when you really talk about idea, you are talking about the space or the market that they're operating in.

Yeah, I went and looked at a lot of companies we've done. A lot of them are business model innovations. Like it's somebody looking at a problem and saying, I think there's another way to solve this. I'm going to take something that's expensive and clunky and make it simple and free. I'm going to take something that works well for this category of people and come up with a model that allows it to work for a much larger category of people. It ends up being a lot of business model innovations.

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

And usually what ends up happening is that business model unlock something that's hard for other people to copy. Like, you know, when I first met Tammy when she was building carrot, like the goal wasn't to sell through the employer channel. That was a learning that happened from trying to build a consumer version of the product. I was like, oh, we can get the employer in the loop. There's something for it in the employer in terms of like a benefit that should drive retention. And frankly, most people can't afford to pay for IVF or fertility assistance without a deep pocketed employer in the loop. Like, this is maybe the only way to provide this service to a meaningful number of people. And so I don't know, the nice thing about being a generalist is like, I learn things and like assemble all these bits and pieces from like meeting lots of people who are doing wildly different things.

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

Yeah.

In a wonderful way. Thank you for sharing. So really, it sounds like, what you're looking for is these people who really give you a sense that they can, if given the opportunity, with no constraints, build something from nothing and entering into spaces where, like you said, the rules of engagement have not been defined. And so there's new opportunities. And so that just maybe keeps you out of certain crowded spaces. Is that right?

I try to stay out of those spaces. Occasionally I break my own rules. But no, I. I do have an affinity for things where I'm like, the answer here is, like, unsettled. We have to actually go discover the answer. And, like, that's what's gonna be.

Okay. Let's go down to the dark side of this journey. Right? Obviously, you've had some wonderful companies, have some outcomes, have some markups, make some changes in the world, but investor life is not always full of roses.

What is a really challenging experience that you remember in this journey? We like to call it the worst investment. And what did you learn from it?

I had a company that I invested in that got off to just an incredibly rapid start, raised a fair amount of money fairly quickly, grew really quickly, hired a lot of people, and it's one of those companies where I always was like, do I totally understand how this model works? I'm seeing revenue numbers, I'm seeing like, but do I really, really understand how this model works? And it was a company operating in a regulated industry.

And I just had this nagging feeling. I was like, something here doesn't add up. I don't think that the founders are lying to us. I just don't think I'm asking them the right questions to get to the place where I fully understand how and why this model works or doesn't work so well. And we were trying to raise a follow on round of financing for this company, and we couldn't get it done. And we started getting notices from a regulator. And it was scary. Sort of like, we have some questions about some of your business practices. We're not saying they're illegal. We just need to understand them better. And that, like, caused me to, like, really dig in. And I was like, oh, this doesn't actually work as well as we thought it did. Now that I fully pieced the chain together, the founder doesn't yet see that this doesn't work. I think she hasn't connected the dots in the way that I have to show that this actually, there was one core hypothesis in the model. It just isn't true or it hasn't proven to be true yet. And this is a problem. This is probably why we can't raise this new round. And it was a company that was running out of money and it was very stressful and it didn't work out. And it was a company that had gotten off to such a really fast start. It was a very visible part of our portfolio. And it was hard to explain to my LPs that something that we had thought would maybe return a significant chunk of the fund was not going to do that.

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

I think the big aha for me was like, it's okay to not understand things, it's not okay to continue to not understand things. And I really should have pushed much harder to make sure I understood the connection between all of the hypotheses that were embedded in the companies product. And I think had I pushed on that sooner, the company would have been better off too because the company would have had to confront, oh, this doesn't work as well as we thought. And I feel like that's what's happening right now in the aftermath of like 2020 and 2021. And all of the like enthusiasm during ZIRP is a lot of people are like, well, we raised a lot of money with the assumption that these hypotheses were true, but we hadn't really tested them. Maybe we need to test them asap. And oh, like it turns out they're not as true as we thought they were now that we've tested them.

I mean, so much has changed, right? Not just the investing environment, but consumer behavior has changed, market dynamics changed, all these things. Like you said, you couldn't have underwritten. We all were hopeful.

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

We did, yeah.

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

Nothing. Which is actually really hard to do. It's funny. So when all of the crypto stuff happened, I went to my LPs and said, we're not going to be your crypto answer for a bunch of reasons. No shade to crypto, but it's like, this isn't what we do and you can buy it yourself or find a manager who's dedicated. This doesn't seem like a place where it's good to dabble. This isn't our focus. We had a similar conversation around Web3, and probably the hardest conversation was like, in the early days of AI, I was like, I'm not sure I see how we build enduring software companies with high margins in big revenue here, given the way that things work today. So you're only going to get so much AI from us.

And I know everybody else is like, all in on it and there's a risk that like, by not being all in on it, we might miss out on the very best companies. But my job is to invest in things that make sense and my imagination cannot tell me the story I need for many of these companies. And we won't know if this was a good decision or a bad decision for four or five years, but I can tell you is going to look bad for 12 to 24 months because of the amount of money I expect to flow into this category. And they were like, are you sure? I'm like, I'm as sure as I am every time I make a decision. I just am not convinced that, like, this is a great place for early stage companies to build. And I mean that in the sense that, like, I'm not willing to bet the whole fund on this thesis. Our job is to, like, invest in things that I think can make money for our fund in a meaningful way. And this doesn't feel like one of them yet.

Yeah, and I remember having that convo about crypto and then Web3 and even AI with you. And I think having again, an independent thought on this and staying diversified, especially at the 0 to 1 stage, sounds like your strategy.

I mean, the other thing is I have friends in pre seed who've been like, I'm going to continue to do pre seed, but like, in this environment we're just going to raise the traction bar. We're going to change what we look for. More traction, more experienced founders, people we know better, people who've built more. And I'm like, that's cool, I get it. That's a reasonable response. We're not going to do that. And it's a little crazy and it's a little scary, but that's what we're going to do.

And I think you're doing that because you're proving out a hypothesis that takes time to come to fruition.

So long.

So long. Okay, so let's talk about this so long. It's been so long. You've made how many investments so far in your career?

We'll go with over 400.

Over 400. Can you talk about your best investment thus far? Ideally one where you've had a realized outcome. And what did you learn from that?

Well, that one's easy. The athletic is the best one. Well, I mean, in the context of Precursor, the athletic is the best one. I mean, the funny thing was, like, that one just made sense for me from the very beginning. And I thought that, like, what Adam and Alex knew from Strava would be super valuable and that they'd be able to put it to good use. And that turned out to be really true. And I think also every good company I've invested in has a good macro tailwind. And for them, unfortunately, the demise of local newspapers just meant there was a ton of writing talent that needed a new home. And the rise of social media meant a lot of these authors had a direct relationship with their readers that they could kind of take with them. And it was sort of this, like, perfect storm of, like, writers needing a new home, social media growing and giving writers the ability to bring the audience with them. And also, there were essentially no competitors. There was players. Tribune was probably the only competitor because most people thought a subscription sports media site was a bad idea. And so, as my friend says, like, part of your job as a venture capitalist is to find good ideas that sound like bad ideas.

And I think Adam and Alex and the team took what sounded like a bad idea. And honestly, if not for Covid, if we hadn't lost the year of sports, not that sports is more important than human safety. Let's be very clear. Had we not lost that year of sports, I think the company would have had a significantly larger outcome.

What multiple? Did you realize over what period of.

Time there's two checks on a blended basis, not including the SPV, like 25x.

And that took how many years?

Seven.

Which is funny because, like, a bunch of my LPs, when I asked them, hey, when do you think you will start to get meaningful cash back from Precursor? They're like, in years seven through nine is when it should start. And it was like, almost literally to the day. Seven years.

Wow.

Turns out they know what they're doing. Yeah, yeah, they've seen this one before.

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

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

Yeah.

Part of when I said, like, what are we doing differently? Nothing. Like, nothing is a big deal. Because they're always asking me, well, what have you learned? You've made foreign investments. Like, what have you learned? I'm like, what I've learned is that all of our special companies are special in their own invite. And I tell them that, like, I never want to take the things we learned and turn them into rules because they don't want to say, oh, we've lost money doing X so let's not do X again, or we've made money doing Y so we should always do Y. And I'm like, I think there's this temptation to say, we've seen enough of these things. We now know the answer. And if I look at our best companies, like, I look at Bobby, like, Laura had never manufactured a product and she'd never dealt with the fda, but she, like, understood feeding babies. She had three of her own. And I just like, you know, what are you supposed to do as a vc? Invest in people who have domain, expertise and experience. That all works. Like, one thing I want people to understand is, like, I don't think that everything that's like a VC trope about what to do, it shouldn't be all thrown out. Investing in the top 5% of the YC batch, if you can, is a pretty good strategy on average. But I'm also just like, instead of bashing all the things that people do that work, but maybe not as well as people think, what about all the things that we don't even try? There's just so much richness in the things we don't even try that I'd rather run new experiments. So in our annual meeting, I showed our LPs. I was like, female founders are as well represented in the top 10% of our portfolio as they are in the portfolio at large. They're, like, here because they're supposed to be here because they're driving more than half of our performance. And they all have some common attributes. The big ones being, I just think people didn't take them seriously or people underestimated their capacity for leadership.

Because they hadn't done it before. I think one of the things that's like a core tenet to me is like we're supposed to bet on weird patterns or different things. That's our edge. Our edge is actually like the willingness and ability to bet on people, Profiles, backgrounds that quote unquote like tier eyewear will end up being one of our best investments. Nathan and Sophia are first time co CEOs.

Essentially right out of college. And they are fantastic leaders and I hope they never start another company and they take pair public and work there forever. That's like my hope for them that probably won't happen. They're too young. But like betting on two recent grads running a manufacturing business. So like my biggest fear, Sharda, is that like we learn so much that we forget what made us successful in the first place. And I fight this all the time with our team and with myself that all you can learn from one investment is what you can learn from one investment.

Wow.

That's it?

Yeah.

And we were talking about psal, like I don't get it, like why don't you take advantage of it? I'm like, we do. But like you just can't assume that you know more. I'll give you a really perfect example. Post pandemic I started looking at our data and I was like, wow, there's a very clear failure pattern here. People who are pre product market fit, who are distributed and don't know each other from before, have a very low probability of success, but it's not zero. So maybe the lesson is it's really important to get a sense for why these people are not together and what they're going to do to overcome that than to say as a blanket rule, you have to be in San Francisco or New York together whenever it feels like we should never do X. And like that to me is always a signal that like we have more work to do.

Wow, wow, wow, wow. To remain disciplined and continuously learning and not generalizing and pattern matching, which is very much the rhetoric around how VCs invest, it's a really strong position to focus on and it requires a lot of strength to stay in it. So do you think that what you're doing is certainly learning and integrating insights from these past investments, but then every time someone shows up, you're kind of coming with the Beginner's mind. But that foundation is built on past insights.

Integrating is the word that I use a lot. It's like we've learned a lot about. For example, product velocity in the first six months is probably the single greatest predictor of success for pre seed companies, and we've adopted it. Observation begs a bunch of other questions. Can we, as precursor actually influence someone's product velocity or is that a given? It turns out the answer is yes. In both cases, it's yes. Sometimes you are able to help people see that they are not moving fast enough and get them to move faster. And sometimes you cannot. It turns out it is much better to simply find people who you think have high motor, high velocity than it is to try to coach people into it or help them see it.

I agree.

And so it's this really hard practice of learning these things. The goal is to figure out what are the things that matter and try to figure out like, well, how does this person rank on the things that matter? Like, it turns out one of the big predictors of CEO success in our portfolio is comfort making decisions under high degrees of ambiguity and not being afraid to pull the trigger on things. Because most startup decisions can be reversed. Which is why I do these monthly check ins with people. Part of what I get out of it is like, what were you stuck on last month and what are you stuck on today? As you know, as a startup founder, a month is an eternity in startup land. And if you're still stuck on the same thing a month later, this is not a good sign.

Yeah, how are you assessing these things like velocity and ability to make decisions in ambiguous environments when you've just met a founder? Because you're getting to know this information with these monthly check ins over time, how do you decide?

So I guess up front and when I say I guess up front before we invest, I do a lot of writing about what have I learned about this person? And it's structured, it's like a bunch of forms I fill out. What is my intuition about their problem solving ability? Also part of what I get is the way that they frame and present the problem. And the solution tells me a lot about the way they think and how much of it they figured out. And I'll ask people like, what are some things about this business that you haven't figured out yet? The answer shouldn't be nothing. And the people who I think are like, these are the things we need to answer. And I was asking myself, do the things that they mentioned align with the things that I think are important. And it's not about me being right, it's about us agreeing to work on the same things. And so a lot of what I end up doing is asking myself a I have to make an assessment with limited data of what I think about this person. But if you do enough of those and you look back, you start to get a sense for how good are you at predicting. And we're like pretty good. We have enough rocks that like we're pretty good at scoring people. The problem is what you don't know is how much hidden upside there is in that person. And I'm working with somebody right now who's a first time CEO who's turned out to be incredibly capable. And there's really like not much in their previous experience that would have like pointed you towards the level of success that this person's having.

Wow, this is amazing. I want to keep digging in here, but I'm looking at the time and so let's go to a few of the last questions. Let's talk about how you're investing today. Tell us about your check size, how many deals per year, how are you finding your founders these days?

Yeah, we're normally like 20 to 40 investments a year. This year will be slower. Our checks are like 500k normally we can lead if people need us to. We cannot lead if people would prefer we not lead. I find a lot of our investments actually through our co founder network. First of all, if you look at volume of where top of funnel comes from, it's the website that's like 80.

To 100 a week which again speaks to the brand that you've created. And this anonymousness with precede which is amazing.

Read this, tell them like apply on the website. I read the website, everyone in my investment team reads the website. So website's the biggest. I'd say if you look at like things that convert our founder community is a big chunk and our co investor network is a big chunk. But my view is that like I don't want us to become so reliant on those things that we become a closed off firm that you either have to know a co investor or a portfolio company founder or you can't get in the front door. There's a lot of firms that operate that way and they're successful and like it works for them. That's just not what we're building here. I always have like this principle of openness which is like anybody with a good idea should be able to present us. The less we know about you the better the presentation of the idea and concept needs to be. But that's called life. Yeah, that's not a precursor. That's called life. I never want to have one channel be so dominant that if it were to go away. So we should be good at everything. That's my goal. We should be able to source great companies. The website is getting better. I think in probably one of our next two funds we'll get a meaningful number of our best opportunities will come to the website. It's already trending that way.

That's amazing. You touched on some of the areas that you're excited about or you have been invested in in the past. Right now as you get these pitches coming in, whether it's from the website, from your founders, from your co investors, what are you excited about investing in today?

I just try to follow talent. I don't have any like grand theses. Like the last couple investments I made, one was in a category roommate. Another investment where we lost money. But I learned a lot about what the right answer looks like. And I found someone as I think the right answer that was in health insurance, small employer health insurance. I learned a lot from that investment and I'm like pretty psyched about what this new company's building.

I just yesterday wired for my first longevity investment, which is a repeat founder who we backed before at Precursor.

Oh, that's cool.

So that's the fun thing now is I'm seeing people on their second and third. I just wrote a small, kind of like an incubation check for a founder that I worked with before whose company didn't work out. But I really liked him and I started doing more of this. I was like, here's 250 to go. Figure out the contours of the idea. The thing you described to me, I can't give you 500 for that, but I can give you 250 to go explore. And when you're exploring, you come back to me and pitch me on the thing that you're doing. I did that with someone else on Subway that's focused on intergenerational wealth for people who don't have it. And it's a really interesting quasi insurance concept. I also just wired for a company that is building an AI powered tool for commercial service businesses. So think like janitorial lawn care, but for commercial, not for consumer. There's like seriously no rhyme or reason. It's just I meet these people and I'm like, I think they're great. I think they're super talented. I Think our money will make a difference and the thing that they want to build coming to life. So we're going to write him a check. I love it.

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

That's a very good question. Something I always tell our team is that you will all be successful here, but probably not in the way that I am. And what I mean is they will discover their own zone of genius. And part of the reason I give our non GP people discretionary capital is like, I want you to learn how to find good companies in a way that's authentic and reflects who you are, not to become mini me like people who like ape my style. The only other way to get better is to figure out like most people are good at some combination of people assessment, market assessment and product assessment. And like the third circle would be things you're good at, things you think you're good at and things that matter in venture. And I'm like, everyone will have like a different weighting on product. People like for me it's mostly people in market. I'm not a big product person. Yeah. And so I'm like, I'm investing at a stage where like people in market are actually the two most important thing. I've worked with other people who I'm like, you seem really good at like market and product. Maybe Pre seed isn't like the best place for you.

Yeah, totally. In a few years you're on the midas list. What got you there?

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

Okay, speed round in 60 seconds. Who is another first funder you admire?

Boy, that's a heavy question. There's a lot of people. Let me pick. You know one person who I admire, who I think has like courtesy is Eric Tarzinski. A contrary his origin story for that fund, I knew him when he was first getting started is like pretty atypical.

Yeah.

And I'm like pretty impressed by what he's been able to achieve.

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

Wow.

So many of them. One I'll pick is Founders at Work by Jessica Holdingston.

Yeah, that's a good one. Zoom. Phone or in person? Meetings.

Your first meetings. Zoom. Just for volume.

Last question. Social media platform of choice.

God, I feel like a man with no country lately.

I know, right?

Yeah, I miss the old Twitter I would probably say I spend the most time on LinkedIn, I get the most joy out of Instagram, and I participate in Twitter because I secretly hope it will become again what it what it once was. But it isn't.

Wow. That is my exact same answer. And if you aren't following Charles on Instagram, you should see what he's cooking. Oh my gosh Charles. Thank you so much for today.

This was so fun.

Where can people find you online?

I write a substack called Venture Reflections. I am on LinkedIn a lot. You can always just email me. Charles Recursor VC we read them all. So yeah, those are the main places I hang out online.

Thank you again Charles. We're the best. Awesome.

Thank you.

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