Algorithmic or Artisan? Charles Hudson on the Future of Venture Capital | Alone Together | S1E6

I'd say that takes us up to 20, 22. And now I think we're in this new era, which I don't have a word for it, but I'd call it. It's like the institutionalization of the solo GP thing was. I was talking to my wife one day, she's like, you seem very frustrated and bored with your work. I'm like, I am. She's like, why? I'm like, I don't know. She's like, all right. She's like, usually you work these things out by writing. And that was like the other input to this post. And it just. I think I started feeling this, Mike, during the SAS era when everything felt very spreadsheet y and people were like, what's your. What's your.

What's your net revenue?

What's your nrr? What's your revenue? And I'm just like, do we even need people to do this anymore? Most of our most successful companies are first time founders with very limited experience in the domain that they're building in and oftentimes not a lot of credential or signal that would suggest that they would be good at the thing that they're building. And for the first time ever. God, I don't know why I feel so, so free today. Maybe it's because I closed my fund foreign.

This is Mike Ma. I'm the host of Alone Together, and sometimes I'm the managing partner at Sidecut Ventures. And I have to tell you, I. I say this for every episode, which I genuinely believe. But I am thrilled and, and with high anticipation having today's conversation with Charles Hudson from Precursor. And I've been looking forward to this and it was one of the first things I wanted to aspire to have on the who I wanted to have on the show when I started this pod. So thanks, Charles, for being here. You're so busy and so prolific to have time for a little old me and a podcast. It means the world.

Solar gps. We got to stick together.

Solar gp.

Love, and I love the name of the pod. I think it is the essence of what this journey is like.

Totally, totally. For those of you who listen to this show, I don't think you need an intro, but for the.0001% chance probability. Who don't.

Could you give us a quick background?

Sure.

And Precursor. And we're going to talk about building a solo GP firm today. But I just want to give some context, so if you do us that honor, I'd be.

Yeah, it's crazy. I left Unqork 11 years. My last full time day at Unqork was 11 years ago and 23 days ago. So I've been on this journey for a while now and I started Precursor really with one simple observation. It felt to me like the venture business. And this is if you go back 10, 15 years ago when seed was just emerging as an asset class, it really felt more like angel investing and less institutional partially Mike, because none of the institutions would invest in seed funds. So you kind of had no choice. And as the asset class matured, I was like, well, who's still investing in all of those really raw entrepreneurs, first time people, pre product market fit. Those are the people who really need help and I don't really see anybody looking to serve their needs. And what if I built a firm whose primary focus was on meeting those people where they are, which is they oftentimes have really good ideas, limited entrepreneurial experience and limited connectivity to VCs. I said I want to work with those people, but we also of course want to leave room for people who are also coming at this from a repeat experience standpoint. And I said let's see if we can go raise and we'll talk more about this. Raising money for a solo GP pre seed fund in 2014 was not easy and we could talk about some of that later. And we've now raised like a quarter of a billion dollars and there's 14 people at Precursor. I'm still the only GP and it's been quite the journey and I'd like to think we've really stayed true to our original mission, which was to be a firm that really rolls out the welcome mat to first time founders and people who don't have deep connectivity to Silicon Valley, New York or the other kind of big capital ecosystems. And that we can be a really good trusted partner in helping those people go from zero to one.

Amazing, you know, catching us right now. Quarter billion just closed Fund 5, right? Yep. So could you, for those who are interested being solo GPS from 14 now, can you chunk out, are there apparent chapters for you about the evolution of where solo GPS in the ecosystem? And I'd be interested in your commentary and I want to land at the last piece you wrote on your substack, but do you have eras that you think about that you'd educate us on what you see in terms of the evolution of this?

I do. So when I started in 2014 there were a couple of solo GPS. There had been Steve Anderson at baseline who obviously had been super successful There was Saka before he brought on Matt, who'd been very successful. You had Manu Kumar, who I consider the godfather of Precede at Canine. You had Tim Connor. There were a couple of people who were out there as solo GPS, but most people didn't really like most LPs were like, this isn't a thing. This is something we tolerate, not something we look for or celebrate. And I think that was what I'll call like the era of solo GP skepticism. And most for a lot of LPs. And still to this day there are institutional LPs who have a blanket we don't do solo GP rule. And they've explained it to me. We could talk more about this later. I think there's more nuance to it than they let on. Then there was this, and I would say that era was sort of 2008 to maybe 2016. There were other people. Kent Goldman at Upside, Michael Narrow. I had like a whole little pledge class of people who started out solo, just like me, with relatively small funds. Dustin at Wonder. I mean there were people, but not many of us. Then around 1718, I think LPs started getting more comfortable. And honestly I think part of it I would attribute to Sandana and Michael on that team being willing to back solo gps. I think that sort of institutionalized solo gp. Then we have what I would call like the Cambrian Explosion, which was like 2018 to 2021, where a lot of little funds got started and most of those funds could only afford a single gp. And then we had like a little mini boomlet of the solo capitalists like Oren Zev and Elad Gill and Josh Buckley and Lockheed Groom, who I think are of a different ilk. And I'd say that takes us up to 2022. And now I think we're in this new era, which I don't have a word for it, but I'd call it, it's like the institutionalization of the solo gp, which is like, what do you do once you have three or four of these funds under your belt as a solo GP? And I think LPs are trying to figure out, oh, a lot of them did solo GP funds. Thinking eventually this turns into a regular looking partnership with a bunch of people around the table, right? And I was like, well, maybe, maybe not. Or the GP retires after a few funds because they're done. But now we have people like me who are five funds in still solo and there aren't that many of us. So this is the new frontier, which is like well, what are these institutionalized scaled solo GP firms look like and how should LPs think about them from like a returns, longevity and structure?

I want to hit on that because I think that if you haven't read, if you're listening to this podcast, you haven't read your substack, your last one on what does it mean to be a venture capitalist today? I think so much of this I want to ask about what that means in institutionalizing the solo gp. Maybe for those who haven't read it, like the, what I took from it, the broad contours were it was very much like a philosophical like.

Criticism of like this institution, not just of solo gps, but the sameness. Right. And we're, we're missing some of the parts about taste and we're missing some of the parts about asymmetry and, and art which made venture great. And we're starting to look like a large index. Right. And I'm a former Vanguard person, so I know what that looks like.

And then I started squaring in my own head like, shoot, what does that look like for a solar gp? I'm curious if you would do us the honor of updating this thought about institutionalized. Well, what does it mean to be venture capitalist today? Yeah, first and just writ large. And then I would love for you to like tease into what is the implication of that for an emerging fellow gp. Because you just talked about like it's great for someone like you on fund three, you know, front four, fund five in your case. But man, there's a lot of people listening that are on the one or.

Zero they're like working on Fun one. Yeah.

I should just tell you where that post, that post came from. Two inputs. One is I went to a meeting with people who are running really scaled multi stage venture funds and we spent the day talking about the future of venture and I turned to one of those people, I was like, oh, we're in the same industry but we are not in the same business.

This is a firm that has a team of individuals dedicated to generating DPI every year. I was like, we don't have that at Precursor normally ever. And just listening to them talk about the things that they were trying to solve for from a capital deployment and capital return standpoint. These are not the problems of a small fund. These are the problems of a scaled asset manager. So that was one the other day thing was, I was talking to my wife one day, she's like, you seem very frustrated and bored with your work. I'm like, I Am. She's like, why? I'm like, I don't know. She's like, all right. She's like, usually you work these things out by writing. And that was like the other input to this post. And it just. I think I started feeling this Mike during the SaaS era when everything felt very spreadsheety and people were like, what's your. What's your.

What's your net revenue?

What's your nrr? What's your revenue? And I'm just like, do we even need people to do this anymore? If we're just gonna like, put numbers into a spreadsheet and like, put companies into histogram bins and just say we're only gonna do the top 20%. Like, do you even, like, do you even need people to do that? Like, you could just do that with AI and it produces companies that all feel the same because everybody's applying the same lens and the same logic, which for even the people who want to do things differently, the incentives are not to do different. Because eventually, no matter how cool or interesting your GTM is, you're going into the database and spreadsheet and you're going to be compared on these very coarse metrics. And then the metrics become the game, not the goal. And it's like, how do we game our nrr? Or maybe we should undersell the initial deal so that like there's built in expansion. Like, that's not, that's not the. Not accusing anybody of doing that, but maybe have seen that happen a few times.

No, I, I just. To bring this very current. One of my founders is in my house right now. We had a meeting and I can, I can shout him, Alex DeMarco at Money Second, we had this exact same conversation. He's like, well, investors want to see this and investors want to see that and I should do X, Y. I was like, stop, stop, stop doing all of that. Like, build the business the way, you know, to build a business.

We'll.

We'll find a way to package it and that. No, I would confirm you with local maxima. That's. I mean, it happened 36 minutes ago. Literally. That was the conversation we were having on our patio about stop doing it. And it scares me to think that for every one conversation I know there has to be a hundred that you weren't part of. Yeah.

And I mean, the other thing is, if you think about it, when venture was like more small and artisanal, you can deploy small amounts of money in a craft way if you want to move Billions of dollars. You kind of need an algo. I mean, stepping outside of venture. If you're a hedge fund, if you're any like large, the only way you can move money in large scale is you need patterns or an algo of some sort. You can't do bespoke underwriting for everything. And I was like, look, one of the consequences of two things, venture firms have gotten bigger and more of that money is concentrated in fewer hands. I'm like, well, the only way you can deploy that money is you have to have a going in point of view about what good looks like. And if you're like, look, I just want to do really qualified people who worked at big companies or big important startups that I know, went to schools that I know. Yep, I can out if you're just like, I could. I got writing out them and said, hey, if you're one of the first 150 people at OpenAI and you're doing something in AI, I'm just going to make you an offer. And you might argue that like it's probably better than actually trying to meet those people and decide because you're going to say yes to 80% of them, so why not just say yes to 100% of them and spend your time elsewhere? But these are the things you do when you have large pools of capital that need to be put to work. You have to get thematic because you have to find veins that can absorb lots of money and you have to have heuristics for what good looks like because you can't actually afford. I mean, I'd argue if you're running a multi billion dollar venture fund, how much time can you really spend underwriting a 2 to $3 million seed check? The answer is the senior people can't spend any time and the junior people probably can't spend much time. So you need heuristics to decide what to do. And then everybody adopts the same heuristics. It's not like one person's like, I want to go get like the first hundred people from this failed AI company. No, everybody wants the same people. So everybody has the same heuristic and is trying to move the same amounts of money. I'm like, guys like, this is kind of boring, isn't it? Like I got in this business because when I worked at in Q Tel, we invested in weird stuff, man. Invested. It didn't all work, but we invested. I'll never forget when we invested in Keyhole, John Hanke's company, I was like, this is pretty cool, this like flyable map of the world. We're like, who's going to want this? We're like, I don't know. Turns out that was Google Maps and it turned out to be a wildly useful technology. But like John was a game developer and like I oftentimes ask myself, Mike, like my biggest fear is that the companies that have made us money and are going to be the fund returners in Fund one or Fund two. I always ask myself like, would you fund that team today? And I'm like, I probably would. But I'd be much more worried about where the next round of capital would come from because most of our most successful companies are first time founders with very limited experience in the domain that they're building in and oftentimes not a lot of credential or signal that would suggest that they would be good at the thing that they're building. And I'm like, it'd be harder to get follow on financing for those companies.

I want to ask you to double click on that twice. Yeah, it's hard for you being you quarter billion closed fund. What do you say to the people, first of all, just emerging fund managers writ large who are doing Fund one and then I'm going to ask you to do another whack at it for those who are solo Fund one.

Yeah.

If there is any difference between. There may be no difference.

No, there, there I think there is. So I've been on the investment committee for Screen Door for the last three years. I want to say I, I've lost track of time for a while since, since the early days and I think for anybody who's doing a fun one today, solo GP or not, the bar for differentiation is so much higher. Like I'll tell you, like we had a lot of. And I don't always talk about this but you, you've gotten me to a place where I feel comfortable. Very early in this interview sharing this. Part of why I think Precursor worked in the beginning is that like most things are a bug or a feature, depending on how you look at them. When I went out to pitch Precursor, there were very few people talking about Pre Seed. It was like not a thing. Manu was doing it. But if you know Manu Kumar, he's a pretty private person, pretty low key, wildly successful, but like pretty low key. Tim Connors from Pivot north, also very successful, also pretty low key. There was nobody publicly talking about Pre Seed, so there was an information void that I was able to jump into. And so I got on a ton of panels and I got invited to a ton of events as kind of the Pre seed representative, as if I'm some like, president of the Precede VC association or something. But there just weren't that many people that were doing what we were doing. And so when LPs were like, trying to get up to speed on Pre Seed, like, we were kind of the place to come. Not all those people gave us money, but it got me meetings and it gave me an immediate differentiator because we started. People like, you're the godfather of Precede. I'm like, other people were doing it before, they were just doing it quietly. And I jumped into an information void and that was available because of the state of Pre Seed. You can't do that.

Now.

Being a Pre Seed investor is not a differentiator. It's a statement of strategy. And when I did it, everyone's like, oh, this is a new thing. Let me learn about this new thing. So some of it depends on, like, what. What are the, like, starting constructs in the ecosystem when you start your fund? So the biggest thing I ask people at Screen Door is like, why are the people who are core to your investment strategy going to choose you and not somebody else? And the answer doesn't have to be some sophisticated strategy. It doesn't have to be a platform team. Sometimes it's just like, I'm really good at building human connections with the people that I'm going after. And that's my super. It's funny, one of my earliest LPs was like, good for you. You're playing in the cult of personality sliver adventure. And he said this to another LP that I was trying to close. And I was like, mortified when he said it. And the other guy goes, what do you mean? He goes, so long as people like that guy, they'll take his money. He goes, that's his superpower. People like him. Kind of hard to put that in a pitch deck.

Yep.

But I do think that, like, having a good reputation and being easy to deal with and being well liked by our co investors are all things that contribute to precursor success. And I think there are many people who believe their strategy is differentiated. And then when I put their pitch deck up against the last hundred I've seen, I'm like, if I took your name off, these things all sound the same. So you sometimes have to like, plumb to the depths of like, what really makes you unique. And sometimes it's a strategy, sometimes it's an approach, sometimes it's A style. Sometimes it's an insight on a type of person. But I always encourage people, like, be really clear with yourself about why you win and like, what would happen if your firm didn't exist? I always tell people, if our firm didn't exist, fewer people would get the chance to be entrepreneurs.

Like, I can say that confidently. There are other firms. I'm like, if that firm ceased to exist, I think nothing would happen. Somebody would fill the void for what they're doing. And I think when you're doing solo gp, there's an added layer of like, well.

What are you going to build? Is this. The questions that I've learned are really at the back of a lot of LPs minds. Having asked them with solo GPS is like, do I think this person can juggle the competing demands? As you know, Mike, fundraising, investing and running these little firms, which are kind of like accountancies or a lot. They're like little white collar services businesses. You got to do all three. And do I think this person can do all three? And second, like, what is this person's ultimate aspiration and what do they want to build? And I think when you have two people, you're usually like, odds are they want to build some enduring thing that they can hand off. When you have one person, like, I did it. I asked somebody, I was like, One of my LPs is like, not very many solo GPS do more than five or six funds. And I went back and looked at the data and she was right. And I asked her, well, why is that? And she said, well, there's one of two things happen. Either you don't get to fund three because you're not successful or because the carry tends to be concentrated in one person. You make so much money somewhere between three and five that you quit raising outside capital. And I was like, well, how do you feel about that? They're like, we'd had a little bit of wine, so they were feeling a little honest. They said, part of the challenge is we like underwriting franchises. It's much better for me to get to know a fund manager who we can have a 20 to 25 year relationship across maybe two generations of leadership. I think for them that feels like a better return on diligence time and return on relationship investment, whatever you want to use. And for the first time ever, God, I don't know why I feel so, so free today. Maybe it's because I closed my fund. I, for the first time ever, had an LP who passed on our last fund because he said, I don't know how many more of these you're going to do. And I said, why does that matter? He's like, well, because in my mind I'm underwriting this one plus two. And if I like, I'm going to do all this work just to have you not do Fund 6. It doesn't feel like a good use of my time. And I was like, that's fair. I have no plan to do anything else. I plan to do at least what you outlined. But the fact that that's in your mind tells me something.

So you laid out the challenges. Right. And I'm going to remind you of the, you know, so it's hard to differentiate being a good human being. This was some. This was something else.

Andy Will at Willpower is a solo GP in dc. We were having this conversation about the same thing. It's really hard to differentiate being a good human being.

You also talk about the franchise aspect is in everyone's mind and who will this person leave it to? But I want to juxtapose those challenges versus what you just talked about, which is institutionalization of the LP capital. Right. Like it feels like these are moving in, in completely different directions. Particularly when you. Everyone's talking about the pitchbook data from last year. Right. Five firms, 80 whatever, totally Pareto efficient in the VC market. How does, what's the. I mean you. How does someone solve the crux And I don't know if you want to talk about it philosophically, if there's fun ones you want to shout from Screen door. I like, I would love for people listening to leave with like a couple. Like that's something you read on solid. But like, no, like it looks like this. Yours won't look like this, but it has looked like this. Like what, what give someone some hope anecdotally of where we are in the stack.

So if you are somebody who's a junior partner at a big firm, it has never been a better time to leave if you're unhappy. I'm not saying you should leave, just to leave. LP appetite for spin out emerging managers is the highest I've ever seen it in my career. Yep. And I think that tells me a lot about where the risk appetite is for a lot of LPs, which is they're like, I want new firms because new firms have an energy that older firms typically don't have. But I also want a little bit of that brand pixie dust trust. So if that applies to you and you're thinking about starting a fund, this is A pretty good time to go do it. And also those folks are going to raise $100 million out of the gate. Okay. So that doesn't apply to me, doesn't apply to probably most people in the world. So we'll put that aside. But I do want to say that there is something happening that is not being reported that I have observed from a lot of my work, which is if you get them in a comfortable place and you ask a lot of LPs, what are your expectations about return on capital from these big mega platforms? It is not even close to what they expect. They are realistic. They are not underwriting those funds to the same level that they are underwriting small funds to. And I think a lot of the LPs I've talked to, like we have, we've sort of decided how much we want to put to work with that pool of managers. We are not going to grow that pool. We are going to find alpha from smaller funds. But like the amount of money we have to do that is maybe smaller also. This is like really weirdly, it took me a while to wrap my head around this paradox. When a lot of those funds were smaller, there were a lot of LPs who couldn't get into them because there was no room. And as those platforms have grown, there are people who didn't have any venture exposure before because they're like, I'm not going to do this unless I can be in Sequoia, Lightspeed, Andreessen. If I can't get into those funds, I'm not going to have a venture program. Now that those funds have gotten larger, some of those people have gotten into venture because they now have access to platforms that when they were smaller scale, which has opened their eyes. So the funny thing is, towards the tail end of Fund 5, I started meeting people who were like, we're building a venture book from scratch and we're glad we missed 18 to 21. We don't have any like vintage overhang. We don't have a ton of pre existing. I've met people who are like trying to go from 5% to 25 or 30% with fairly significant pools of capital and new leadership. And so I would say if you're an emerging manager or a solo gp, what you want to do is you want to try to find. And One of my LPs told me, he's like, if you want to know where to look, always find someone who has a new CIO or has a new leadership for privates, because that person usually will look at the existing book and want to put their own stamp on it. And you know, conversely, if your sponsor leaves, you should also make sure you have multiple levels of connectivity at those firms. But I have found if you meet people who have a new leader, they will oftentimes be more open to rebalancing the book. And I've met a couple of large institutions that were dramatically underweight venture for a very long time and, and they think now is the time to start. Now look, if you go to Yale or if you go to Harvard Management company as an emerging manager, they're probably pretty happy with the relationships they have. And so there's some places that I'd say as an emerging manager, it's worth it to go have the meeting, get to know them. But the answers for you are in people that either have new leadership. And the funny thing is the people who are building these programs, they're very good at not advertising that because they know what their inbox would look like, but they will tell you in a meeting. And I met with three or four university endowments towards the tail end of our fund who are. But the answers for you are in people that either have new leadership. And the funny thing is the people who are building these programs, they're very good at not advertising that because they know what their inbox would look like, but they will tell you in a meeting. And I met with three or four university endowments towards the tail end of our fund who are like we're trying to double or in some cases triple our exposure to venture and we're not going to fill it all with big established funds.

Fascinating. I mean I'm sure there's people are writing agents right now as they speak on prequent like.

It's a good thing to, it's a good thing to track.

Let me ask you another question about like the, the whole spin out game. As someone who thinks thoughtfully about like are you happy with Venture?

How'd you describe it? You still get the durability with a little bit of that new brand pixie dust.

Does that make you happy? Do you think that will answer the need of what you see in the venture world? A lot of those firms getting funded and you get to read about them all the time and TechCrunch information. I see it all the time. And I have to admit too, I'll, I'll be, I'll, I'll keep it a hundred with you. Like I get a little bit like about that. Um, I'm just curious about what you think about Me too.

And they're my friends and I'm just like, you're gonna raise a hundred million dollars. But you know what I realized is every, almost everybody's fundraise feels hard to them and like it's not a pain competition. And you know, I had one person when I raised my second fund was like, God, our fundraiser is so hard. It took me 13 weeks and I was like, do you want to trade? It took me a year and a half. But for that person, that 13 weeks felt really stre and hard and relative to the fund they were leaving, it was hard. And so.

I do like, I look at the chemistries and I look at like what Brian o' Malley is going to build. Like I could name like a dozen people that are all like publicly doing this. I do think those firms are all being born with, with an energy and a vitality that didn't exist at their previous firms because they weren't in charge. And I think that's going to like. But here's the question is like how long do those firms remain small and nimble? And you know, if you look at theory and you look at conviction, they're both, they like Sarah and Tamash have raised like quite a bit of money. They're both quite good. But those aren't small firms anymore. Their time as like small firms was like very brief. And I think most of the innovation and experimentation and venture that's interesting tends to happen in two places. New firms and small firms. I like never forget when like Andreessen, General Catalyst and SV angel decided to index the whole YC class and everybody like made fun of them and it turned out it was a brilliant idea.

And those firms weren't small, but they were new enough I think to say like this is a cool idea, we should try it. And I think firms tend to calcify as they mature. But I think spin out firms are not enough. I also think we need net new crazy people in venture or people who have like different insights or who are working on like different ideas or have a different lens or a different network or different point of view on the world. We need more of those people in venture. I think we're like overallocated on the known networks and known people and known ideas and under allocated on people who are trying things that are truly different and hard.

Do you think that we're going to get there? I mean.

I worry a lot.

There's days I see it and there's days I don't. As someone who's in the mix I'm curious, like, yeah, binary. Do you think we're going to get there? And if so, why? On either side of that question I.

Do, but I think we're going to have less of that energy in our business than we used to.

And that's kind of what I worry about is there's a lot of things that have gotten funded that sounded like objectively bad or weird ideas when they got started. And it turned out like those founders knew what they were doing. And I keep asking myself, like, would we fund those today? Like, I, I don't, I don't know. It doesn't, it doesn't appear, it doesn't appear to be the case. We have the same appetite. Look, there are some people who are doing things in robotics and construction, like they're working on like truly like frontier weird problems, but those people are not a significant amount of the capital in our industry. A significant amount of the capital in our industry is focused on whatever the hot thing of the day is right now. It's whatever AI agents, probably later this year it'll be humanoid robotics. It'll be, yeah, it's stuff where I'd say, like, for all the talk of software eating the world, software has kind of stayed in software. It kind of has. We've pushed out on the edges, but software has kind of stayed in software. There's a lot of places that haven't been touched. So there's a long way away of me saying like, I have a cautious yes, because I'm an optimist, but I'm deeply concerned because what you really need is LPs who want to see these firms exist. There's no shortage of GPs who want to do interesting off the wall things. The question is like, how many LPs want to underwrite that stuff?

Yeah, yeah. And again, in a completely unscientific small sample of doing this, and in the WhatsApp groups I'm in and this pod, et cetera, like, I definitely feel the same. And unfortunately, supply and demand, you know, this may not be an efficient market and that, that bums me out.

So I think. But I will say this. If the capital concentration increases 5 or 10% beyond where it is today, I would probably become far more positive having 75% of the dollars go to the big firms. There's still enough for. Then you assume like some portion of the other 25 is going to go to also fairly conventional things. There's still enough left over for experiments, but software's kind of stayed in software. There's a lot of places that haven't been touched. So there's a long way away of me saying, like, I have a cautious yes because I'm an optimist, but I'm deeply concerned because.

What you really need is LPs who want to see these firms exist. There's no shortage of GPs who want to do interesting off the wall things. The question is like, I mean, look, I'm on my fifth fund. I still get the exact same questions I've gotten from the beginning. Don't like your portfolio construction. And we have a new problem related to your question about institutionalization. I talked to an LP and he goes, I've got a problem. I'm like, great, well, if you have a problem, then I have a problem. I said, what's the problem? He said, well, you know, I've done a lot of the solo, capitalist perma, solo gp, Ashmeet, Sandana, or I've done those. We have like a perspective on those. I've also done the Felicis Floodgate. Uncork starts solo, forerunner starts solo, turns into a partnership thing. He's like, I don't have anyone like you. I'm like, what do you mean? He's like, well, you have at the time. How many LPs want to underwrite that stuff?

Yeah, yeah. And again, in a completely unscientific small sample of doing this, and in the WhatsApp groups I'm in and this pod, et cetera. Like, I definitely feel the same. And unfortunately, supply and demand, you know, this may not be an efficient market and that bums me out.

A dozen people, but you're a single gp, so you have the infrastructure of a firm, but in support of a single decision maker. He's like, I don't know what to do with that. In my memo, I was like, oh, what do you mean? He's like, yeah, we don't have examples of people who've built their firms the way you do. So I know I'm going to get a lot of questions on this and I don't have like a relevant example to point to. I'm like, I get the sense that this is not good for me. He's like, no, it isn't. This would be a lot easier. And so like, I still am getting the same questions ten years later about our model that I got, even though we've got a lot more information, a lot more data and simply, like, survivorship bias, you would think would have helped. No. Which tells me a lot about the time cycles required for LPs to get comfortable with novelty. And they are longer than the time cycles for, I think. But I will say this. If the capital concentration increases 5 or 10% beyond where it is today, I would probably become far more positive having 75% of the dollars go to the big firms. There's still enough for. Then you assume, like some portion of the other 25 is going to go to also fairly conventional things. There's still enough leftover for experimental GPS to get now comfortable novelty, which are longer than the cycles for founders. So everybody up the chain needs more time to get comfortable with new things. And I think for LPs, you know, it took a decade. For seed, it was really like mid 2000s to mid 2000 teens, that seed really grew up as an asset class. It became institutional. And I think some of these new models will take time, too.

The last question on this, I want to turn this back to you. Do you think it's a timing thing? Like, if this were, you know, if we're still in the ZIRP world, this. We're 22. Do you think this would still be that issue? Like, would that LP come with you with that concern that I can't put you in a bucket, therefore you're at risk? That seems like a very.

I mean, I think the one good thing about Bubbly Times is the. The window of, like, the kind of Overton window of what's. I mean, look, I'm on my fifth fund. I still get the exact same questions I've gotten from the beginning. Don't like your portfolio construction. And we have a new problem related to your question about institutionalization. I talked to an LP and he goes, I've got a problem. I'm like, great, well, if you have a problem, then I have a problem. I said, what's the problem? He said, well, you know, I've done a lot of the solo cap fundable, like, just gets much broader. And so you run a bunch more experiments, many of which fail, but some of which are wildly successful. And I tell people, like, if you want to, like, you know, I've read a lot of Bryce's writings about NDVC and the lessons learned. I think there are, like, other capital structures that founders desperately want, but we haven't figured out how to provide to them. And even if we provided them, we haven't figured out what LPs want to see those things exist and for how long. And so I do feel like we're going to look back and say, wow, there's some things that came out of 2020 and 2021 and I bet you it's going to be people who on paper had no business being adventure.

Are going to turn out to have been great managers. You're like that. But a list Perma, solo, gp, Ashmeet, Sandana or. I've done those. We have like a perspective on those. I've also done the Felicis Floodgate. Uncork starts solo, forerunner starts solo, turns into a partner person got their start, got their window. It's kind of like with coding boot camps. Like when the. When the pressure on engineering hiring was really great. It was good to be a coding boot camp graduate because people were so hungry for engineering talent they were willing to take a chance on people with a different background. When things are tight like they are now in venture, people get more conservative and this would be the last question thing. He's like, I don't have anyone like you. I'm like what do you mean? He's like, well you have at the.

Time but like the way you frame the first part against that backdrop is you can almost say it's algo versus artism.

Yeah, that's what it feels like.

And do you like.

And what you just said this backdrop, if I read it right or heard it right, it favors algo. Right. Because it. So yeah. I'm just curious one do I have that and does my analysis yours and then I'm curious about your comments if that is the analysis.

I think it's true and I think if you look in the world a dozen people but you're a single gp so you have the infrastructure of a firm but in support of a single decision maker. He's like I don't know what to do with that. In my memo I was like oh, what do you mean? He's like yeah, we don't have examples of people who've built their firms the way you. There are lots of businesses where you have mass produced products that compete on price and distribution and you have. You do. So I know I'm going to get a lot of questions on this and I don't have like a relevant example to point. I mean look at handbags, shoes. There are artists and shoemakers who's who make not a lot of shoes and sell them for a lot of money. And there are people who make a lot of shoes and sell them for a little bit of. I'm like, I get the sense that this is not good for me. He's like, no it isn't. This would be a lot easier. And so like I still Am getting the same questions ten years later about our model that I Money is in as many places as they can, so I can't think of that many businesses unless cost is the only consideration. Where.

Sort of the Algo got. Even though we've got a lot more information, a lot more data and simply like survivorship bias, you would think, oh, distribution focused folks win. What I will say is the thing that scares me is Algos can absorb far more capital than artisans can. And so like you can, you can gross up an Algo a lot helped, no. Which tells me a lot about the time cycles required. You can make it a much fatter goose than you can artisan firm. And if I look at the firms that I admire, Benchmark and Union Square and like some of the folks who stayed small, they've managed to stay small and still be relevant and still have a good business. But the Algo firms have gone from being maybe twice their fund size to 10 their funds. 10. If you told me like when I saw that the news like, well, Andreessen's going to raise $20 billion, I'm like, I believe that. Like I like. And if you have the ability to deploy capital at scale for LPs to get comfortable with novelty and they are longer than the time cycles for gps to get comfortable novelty, which are longer than the fun the cycles for founders. So everybody up the chain needs more time to get comfortable with new things. And I think for LPs, you know, it took a deal. And look, I think it also comes down to where are you on the cynicism scale about the true motivations. Adventure on one end is it's all about the carry. And the fees are like what are necessary to keep your firm alive and vital until the carry shows up. I am of that camp. The other camp is like, look man, it's about the fees and you want to grow AUM. Decade for seed, it was really like mid 2000s to mid 2000 teens. And like the best way to grow AUM is to grow Aum. And the bigger you are, the easier it is to accumulate more assets. And the more assets you have, the more fees you get. And hopefully it all works out in the end. But maybe it doesn't. The Algos are much better set up to play that game than the artisans because the artisans are generally not interested in playing that game.

I'm trying to reserve judgment because that.

That makes me mad.

Right.

I run an artisan fund and I'm.

That Seed really grew up as an asset class. It became institutional And I think some of these new models will take proudly.

So, you know, it's, it's small and weird. I mean, maybe this is a good segue to bring this time to the last question on this. I want to return this back to you. Like, do, do you think it's a timing thing? Like if this, if this were, you know, if we're still in the zer world, this, we're 22. Do you think this would still be back from Raging at the Machine? I'd like to bring back to you.

So much. Your commentary has been about like being calcified and becoming jaded and over institutionalized. Like, I still see you as someone and this is with love, like small and weird. Right. You know, when I. That issue, like where that LP come with you with that concern.

Yeah.

That I can't put you in a bucket. How do you, like, what do you do to still stay small and weird as the solo gp, habitually, structurally, strategically, how did you. How have you done that? And, and any, any takeaways from, from, from that.

I think when I started also, like, we also hold a lot of beliefs at Precursor that maybe get in the way of us raising more money. One is that like, our strategy is not infinitely elastic And I've told LPs the way we invest it kind of scales to 100, 120 million per fund. I don't think it, I don't think I could deploy 250 the way we do.

Therefore you're at risk. That seems like a nice.

I mean, I think the one good thing about here and have the same results.

So Bubbly Times is the window of like the kind of Overton window of what's fundable, like just gets much broader. And so you run a bunch more experiments. Many of I've accepted that as a constraint on our model. And for some people, honestly I've met some LPs who are like, people who don't want to grow their aum and fund size aggressively, don't have ambition. And there's this weird dichotomy where if you ask most LPs, you're like, what happens when most people's funds get which fail but some of which are wildly successful? And I tell people, like, if you want to like, figure the like performance goes down, I'm like, well, then why do you continue to fund them? They're like, oh, because it gets easier as the funds get bigger and they have more track record. I'm like, but you just told me on the one hand that like, you know, that performance goes down with fun size. But you also told me people who don't grow their fun size and your eyes are maybe less ambitious. What am I supposed to do with that information? And I was just like, every model has trade offs. I really enjoy what I do for a living. You know, I've read a lot of Bryce's writings about indie VC and the lessons learned. I think there are like other capital structures that founders desperately want, but we haven't figured out how to provide to them. And even if we provided them, we haven't figured out who who want what. LPs want to see those. It is super fun. And the version of Precursor that exists today largely reflects what makes me happy and what I think the ecosystem needs. The constraint is we're never going to raise, as far as I know, 250 or $500 million fund. Like, we're just like not gonna do that. And for some people that's gonna be. I've Talked to some LPs who are just like, we're not interested in firms that like stay things exist and for how long. And so I do feel like we're gonna all. The other thing that helps me stay sane is to find other people who share our views and like, just to shout out a team. We have a lot in common with the folks at Founder Collective. Like, we have a lot of shared unspoken beliefs that every time we speak of them, like, oh, we think the same thing. And spending time with those folks and like, Rob at night, there's a handful of people who look back and say, wow, there's some things that came out of 2020 and 2021 and I bet you it's going to be people who maybe aren't as extreme about being small and weird as I am, but generally are of that ilk. Spending time with them makes me feel better. Spending time with people who are like, dramatically scaling AUM makes me question the way I run my own firm. I'll be honest, it makes me question. I'm like, am I doing the right thing? I don't know, but I'm doing what I think. I don't know. I like the whole Ikigai framework and I'm trying to do what I think on paper had no business being a venture.

Are going to turn out to be great managers. You're like, that person got their start, got their window. It's kind of like with coding boot camps. Like when the, when the pressure on engineering hiring was really great. It was good to be a coding boot camp. Like, makes me Happy what I think the world needs, what we can get paid for and what we're good at doing. Like when I look at all those things I'm like that is a sub $100 million founder focused generalist firm that takes a lot of risk on people but is mostly right when we do. That is what I want to build. If I wanted to build some gigantic like Aum and look to be clear, I have a lot of respect for Hemant at General Catalyst. Having spent time with him. I think he's an amazing thinker and leader for that firm and he's totally capable of managing that firm at that scale. I would be terrified to do his job. It would not come natural to me. So this isn't like those guys are all bad. Many of them have graduate because people were so hungry for engineering talent they were willing to take a chance on people with plans, capabilities, systems and capacity to manage money and deploy it in a way that like different background. When things are tight like they are non venture people get more conservative.

This would be my last question but like the way you framed the first part against that backdrop is you can almost say it's algo versus artism.

Right? Yeah, that's what it feels like.

And, and do you.

I'm just not gonna do.

I mean and, and that you, you're even seeing that with, with, with him. And you know they just acquired Wayfinder so they're like having to make moves into this space but still do this in a way that is different. Right. So I don't know. I, I don't know these people specifically. I just, I read the area.

It's very bright.

Like everyone else.

They, they, they got a good one in there. So probably the most crazy thing is someone told me and this is someone who's been a financial services M and a banker for a really long time. He's like well you know the other thing that tends to happen when asset classes mature is M and A based consolidation. I'm like what do you mean? He's like yeah, you know when private equity he's like, you know private equity is buying up private credit firms. And he's like you just haven't like.

And what you just said this backdrop. If I read it right or heard it right, it favors algo right. Because it. So yeah. I'm just curious one do I have that and do does my seen much.

Meaningful M and A inventure. I was like yeah, you know when things got hard in 21 analysis yours.

And then I'm curious about Your comments if that is the analysis I think.

A lot of LPs are like do you think these firms are going to get acquired? I'm like oh the ones you wouldn't put your own money in? Again no, they're not going to get acquired. But I do think like there are going to be people who are like I think it's true and I think if you look in the world we need to get into seed. It's another line item in our product portfolio. We don't have a competitive line item. Maybe we should go buy one. And most of these seed funds are still on first generation ownership. And I am very convinced with no knowledge of any pending transactions I'm very convinced that what General Catalyst did with dawn and with Wayfinder and with the firm they picked up in India they will not be the first or only firm that decides the combination of these brand and people and their access. It is better to buy and put them on our platform than it is to build. And I don't think all of the buyers will be venture firms. I think there'll be other There are lots of businesses where you have mass produced products that compete on price and distribution and you have asset managers who decide. So I think there will be a generation of seed fund managers who end up I mean look at handbags, shoes. There are artisan shoemakers who make not a lot of shoes and sell them for a lot of money and there are people who make a lot of shoes and sell them for a little bit of selling their management companies and joining bigger platforms in the same way that like PE firms have bought up middle market and other PE firms to get or what happened in private credit last year.

I think as our asset class matures I am 100% convinced this is going to happen and I have no idea who the buyers and sellers are going to be but I'm like money in as many places as they can so I can't think of that many businesses unless cost is the only consideration where.

Sort of the algo distribution focused folks win. What I will say is the thing that scares me is Algos can absorb far more capital than artisans can and convince it's going to happen.

Interesting. Let me some of the stuff is breaking up on our I think the bandwidth gods in Riverside may be tired of our conversation. Let me, let me pivot to the final part of some some of this on personal because like and I want to continue this conversation the last question we talked about like what do you do to say small and weird and I'M not gonna let you off the hot seat. Which is like, oh, I'm just gonna take less money. Like which is again first class problem. I'm actually curious on if we broke that down to a behavioral level. Like Charles the person, Charles the gp. What are some things you do personally or in a firm building basis that keep you small and weird? Keep the focus on artisanal, keep the focus on building, backing great people and a repeatable process. How you habituate.

So like.

You can gross up an algorithm a lot, you can make it a much fatter goose than you can an artisan firm. And if I look at the firms that I admire, Benchmark and Union Square, and like some of the folks who've stayed small, they've managed to stay small and still be relevant and still have a good business. But the Algo firms have gone from being maybe twice their fund size to 10. One thing I've done is I give my junior non GP teammates. I try to give them the experience of being me, which is I give them a fund where they have full discretion. So I'm like, hey, I'm going to start you with an angel fund. It's going to be 250 to 500k and I'm going to let you write 5 to 10 checks into companies that you think are interesting. I actually have no say in these, in what you pick. I have no veto and I have no approval.

Wow.

Yeah. Yeah. Now they have to pass legal due diligence and they have to pass the background check. But I don't. You don't. They don't. I have no say.

And when I first told my LPs about this, they were their funds tend. If you told me like when I saw that the news like well, Andreessen's going to raise $20 billion. I'm like, I believe that the guy like. And if you have the ability to deploy capital at scale and look how think it also comes down to where are you on the cynicism scale about the true motor concerned. And I said, well, we're in the judgment business. I want an elevations adventure. On one end is it's all about the carry and the fees are like what are if these people have good judgment and every other constraint I put because the people at my firm are smart. I think if I said, hey, you can do any deal you want, but I have to approve it. Suddenly there's a new dimension of is it good? It's is it good and can I convince him to do it? What if it's In a space where I've had terrible luck, what if it's a founder I'm, like, less enthusiastic about? And so giving them the room and space to make their own investments is, like, really invigorating to me. Just to, like, learn. What does another person think good looks like? And there are parts of my investment process I've stolen from them. I'm like, oh, that's a really good. Like, oh, you do it that way. I've never thought that I'm going to start adding that into the mix of how I think about things before I invest. So that's one and two. I really do think the freedom to make unilateral. Yes. Decisions as a solo GP is, like, so energizing because you never get beaten down by, like, going to committee and having yet another thing that you're excited about or necessary to keep your firm alive and vital until the carry shows up. I am of that camp. The other camp is like, look, man, it's about the fees and you want to grow Aum shot down or going to committee and having to, like, shuffle your way through something that someone else. And, like, the best way to grow Aum is to grow Aum. And the bigger you are, the easier it is to accumulate more assets. And the more assets you have, the more fees you get. And hopefully it all works out in the end. But maybe it doesn't in your partnership is excited about that you would, like, love to not do. I don't have to do any of that stuff. And that's like, a big deal. And also, I tell our team, like, there are fun sizes and check sizes that would change the work for us. I think if we were writing million dollar checks and taking board seats, the work would feel different. So I'm like, let's just not do that. Like, let's keep the check sizes small enough that, like, it doesn't feel like we have to become a different firm to deploy the fund. And so every time we think about changing something, I'm like, are we going to all end up working at a place that we hate? Because we don't want that. And it's a really good, like, reminder that, like, changing constraints changes the way you behave.

Fascinating. We're almost at a time and, God, there's so much stuff I want to talk about, you know, ranging from how you became a Chelsea supporter, which is fraught, being a Tottenham supporter. But.

We can cut. We can talk football another time. But maybe I'll just get out on this. I mean, I understand you. You have A. You have a son, right? More than one child, Just one kid.

The Algos are much better set up to play that game than the artisans because the artisans are generally not interested in playing that game.

I'm trying to reserve judgment because that.

That makes me mad.

Right.

I run an artisan fund and I'm. I'm proudly. So, you know, it's. It's small and weird. I mean, maybe this is a good segue to bring this back from rating at the machine. I'd like to bring back to you.

So much. Your.

Just one. So.

Just one. So.

So let me.

Your son, Liz's podcaster, looks back on your life. How old is he?

He's 8. He's 8 years old now. Yeah.

Gotcha. So 10 years from now. He's 18. Like, how do you. What do you. How do you want him to look back at this part of your life? Or what do you want him to think about precursor and trials? How do you explain this to him? And how will you explain this to him?

You know, I spend a lot of time working, and he sees me working a lot. I would hope he would say, I understand why my dad spent so much time working and while he. And why he enjoyed his work so much. And I hope that, like, in listening to this, he would get a peek into my brain and how I think about the world.

I hope.

Most importantly, I think he would. I hope he would be proud of me and say, I recognize that person as the dad I know.

That's awesome. That's awesome. That commentary has been about, like, being calcified and becoming jaded and over institutionalized. Like, I still see you as someone. And this is with love, like, small and weird. Right. It's so hard. I think with that I'm gonna. As a dad, I may. I may leave that one there. I'm a dad and I'm about to. I'm two years from empty nesting, so that.

Oh, wow, you're on the other end. Yeah.

How do you, like, what do you do to still stay small and weird as the solo gp? Habitually, structurally, strategically. How did you. How have you done that? And. And any. I'm just gonna leave that there. Listen. Yeah, I am. I am, but I thought that was a great way to lead this. Listen, I could talk if I had my time. I would talk with you forever about this stuff. Thank you so much for stopping by the pod. I know how busy you are and how in demand you are. It means the world for you to be here. If people want to get a hold of you or reach out to Precursor in general. What's the best way for them to do that?

I'm pretty good on email charles recursorvc.com works always happy to chat with folks and particularly any first time managers. I've also like any takeaways from from from that I think when I started also like we also hold a lot of got a bunch of written stuff I can share with people if they're stuck but I don't know. I really hope one of my big goals is that the next generation of of solo GPS has it easier than I did. I really want like to leave the world in that place.

Charles Hudson Precursor Ventures like thank you so much for stopping by that that.

Is the beliefs that Precursor that maybe get in the way of us raising more money. One is that like our strategy is not infinitely elastic and I've told LPs the way we invest it kind of.

Scales to 100amasterclass you delivered and I so thankful for stopping by Alone Together. I'm sure I'll see you on the road somewhere. I mean the Bay Area here or virtually or I'll see Maria Marina here in New York again. I'm Mike Ma host of Alone Together. Thank you for joining another episode and thanks to Charles for being here. We will see you next time.

Thanks for having me. This was awesome.

120 million per fund. I don't think I could deploy 250 the way we do here and have the same results.

So I've accepted that as a constraint on our model. And for some people, honestly I've met some LPs who are like people who don't want to grow their aum and fund size aggressively, don't have ambition. And there's this weird dichotomy where if you ask most LPs you're like, what happens when most people's funds get bigger? The performance goes down. I'm like, well then why do you continue to fund them? They're like, oh, because it gets easier as the funds get bigger and they have more track record. I'm like, but you just told me on the one hand that you know that performance goes down with fun size. But you also told me people who don't grow their fun size in your eyes are maybe less ambitious. What am I supposed to do with that information? And I was just like every model has trade offs. I really enjoy what I do for a living. It is super fun. And the version of Precursor that exists today largely reflects what makes me happy and what I think the ecosystem needs. The constraint is we're never going to raise, as far as I know, 250 or $500 million fund. Like, we're just like not going to do that. And for some people that's going to be. I've Talked to some LPs who are just like, we're not interested in firms that like, stay small. The other thing that helps me stay sane is to find other people who share our views and like, just to shout out a team. We have a lot in common with the folks at Founder Collective. Like, we have a lot of shared unspoken beliefs that every time we speak them I'm like, oh, we think the same thing. And spending time with those folks and like, Rob at night. There's a handful of people who maybe aren't as extreme about being small and weird as I am, but generally are of that ilk. Spending time with them makes me feel better. Spending time with people who are like, dramatically scaling AUM makes me question the way I run my own firm. I'll be honest. Like, it makes me question. I'm like, am I doing the right thing? I don't know. But I'm doing what I think I don't know. I like the whole Ikigai framework and I'm trying to do what I think, like, makes me happy, what I think the world needs, what we can get paid for and what we're good at doing. Like, when I look at all those things, I'm like, that is a sub $100 million founder focused generalist firm that takes a lot of risk on people, but it's mostly right when we do. That is what I want to build. If I wanted to build some gigantic like aum. And look, to be clear, I have a lot of respect for Heimat at General Catalyst. Having spent time with him, I think he's an amazing thinker and leader for that firm and he's totally capable of managing that firm at that scale. I would be terrified to do his job. It would not come natural to me. So this isn't like, those guys are all bad. Many of them have plans, capabilities, systems, incapacity to manage money and deploy it in a way that like, I'm just not gonna do.

I mean, and, and that you, you're even seeing that with, with, with him. And you know, they just acquired Wayfinder, so they're like having to make moves into this space but still do this in a way that is different. Right. So I don't know. I, I don't know these people specifically. I just, I Read the area.

It's very bright. Like everyone else, they, they, they got a good one in them. So probably the most crazy thing someone told me, and this is someone who's been a financial services M and a banker for a really long time, he's like, well, you know, the other thing that tends to happen when asset classes mature is M and A based consolidation. I'm like, what do you mean? He's like, yeah, you know, when private equity, he's like, you know, private equity is buying up private credit firms. And he's like, you just haven't seen much meaningful M and A in venture. I was like, yeah. You know, when things got hard in 21, a lot of LPs were like, do you think these firms are going to get acquired? I'm like, oh, the ones you wouldn't put your own money in? Again, no, they're not going to get acquired. But I do think, like, there are going to be people who are like, we need to get into seed. It's another line item in our product portfolio. We don't have a competitive line item. Maybe we should go buy one. And most of these seed funds are still on first generation ownership. And I am very convinced, with no knowledge of any pending transactions, I'm very convinced that what General Catalyst did with dawn and with Wayfinder and with the firm they picked up in India, they will not be the first or only firm that decides the combination of these brand and people and their access. It is better to buy and put them on our platform than it is to build. And I don't think all of the buyers will be venture firms. I think there will be other asset managers who decide. So I think there will be a generation of seed fund managers who end up selling their management companies and joining bigger platforms in the same way that like PE firms have bought up middle market and other PE firms to get or what happened in private credit last year.

I think as our asset class matures, I am 100% convinced this is gonna happen. And I have no idea who the buyers and sellers are gonna be, but I'm like, convinced it's gonna happen.

Interesting. Let me. Some of the stuff is breaking up on our. I think the bandwidth gods in Riverside may be tired of our conversation. Let me, let me pivot to the final part of some, some of this on personal because, like. And I want to continue this conversation. The last question we talked about, like, what do you do to say small and weird and I'm not gonna let you off the hot seat, which is like, oh, I'm just gonna take less money, like, which is again, first class problem. I'm actually curious on if we broke that down to a behavioral level. Like Charles the person, Charles the gp. What are some things you do personally or on a firm building basis that keep you small and weird? Keep the focus on artisanal, Keep the focus on building, backing great people and a repeatable process. How you habituated that.

One thing I've done is I give my junior non GP teammates. I try to give them the experience of being me, which is I give them a fund where they have full discretion. So I'm like, hey, I'm going to start you with an angel fund. It's going to be 250 to 500k, and I'm going to let you write 5 to 10 checks into companies that you think are interesting. I actually have no say in these, in what you pick. I have no veto and I have no approval.

Wow.

Yeah. Now they have to pass legal due diligence and they have to pass the background check, but I have no say. And when I first told my LPS about this, they were.