Starting a VC Fund, Episode 5: Scaling Yourself as a First-Time GP

Hi, guys. My name is Patrick Evis. I'm the founder and CEO of Mind Maven. We're a coaching organization that helps CEOs save 10 hours or more a week. And here we have.

I'm Charles Hudson, managing partner of Precursor Ventures. We're an early stage venture fund that invests in founders at the earliest stage of their development.

That's awesome. And so we're finally coming to the near end of our series here. And so we want to talk about something extremely important that often gets forgotten, and that is how to measure your effectiveness. So the question I have for you, Charles, is a simple one. Why do you think that's so important?

Boy, I'm really glad we invested in measurement early at Precursor. I think when you're first getting started as a new manager, there's so much work to do. It's tempting to just try to brute force everything. And I think of the measurement systems we've built at Precursor as this really great data based way for me to interrogate some of my instincts and assumptions. So sometimes that Precursor feels like something's off, a process is broken, it's not working as well as it used to, and I want to know why. And oftentimes the answer is in the data that we collect about how things run at our firm.

Okay. And how's that important in the long term? You know, we're talking about starting a VC fund. It feels like that's the last thing I have to worry about.

Yeah. I think for those of you who start funds and are fortunate enough to continue in this business for a long time, my experience has been volume scales over time. The number of portfolio companies you have grows, the number of requests you get for your time grows. The number of companies that want to pitch you grows. Everything grows. So whatever you were doing today in the early days of your fund that's working, I can almost assure you it will break at some point. With scaled volume. And having good measurement systems allows you to sort of see that coming and ideally get ahead of these problems before they break.

I have a bit of worry that our listeners here will think we're throwing this just in here because it's our last afterthought. And what series wouldn't be complete about not talking about measuring? Let's convince them. Do you have some really good examples on where you measured something or didn't measure something, and because you didn't, it broke, or because you measured something you were able to adjust?

Yeah. I'll give you one really tangible example. When I started Precursor, I really felt like if we were successful in our mission in providing capital to founders who had problems accessing capital, we should end up with a portfolio that was diverse on the dimensions of race and gender, because, typically speaking, black and brown people and women have a harder time accessing venture capital. So we didn't need any explicit strategy that should be an output. And early on in the fund, I was very proud of our gender data. Until I. Or race data, rather, until I took a look at it through the lens of gender. And particularly, you know, if you looked on the surface, we were doing great. We were 25 or 30% of our founders were black or African. If you looked below the surface, though, it was 90% men. And so without interrogating the data, we might have patted ourselves on the back and said, we're doing a great job finding and funding black founders. Look at how successful we've been. Nearly a third of the portfolio. But we were failing on this really important dimension. And having really good pipeline data on the people who pitched us allowed us to go back and look and see, like, is it that we're not seeing black female founders? Is it that we're seeing them and not funding them? Are they in categories where we don't operate? And it allowed us to go back and figure out what the problem was. And the problem for us turned out to be more around in intentionality. And so we fixed it. Now, I'm very proud of our numbers at the intersection of race and gender, but that's something that without the ability to go back and figure out, well, where's the root cause of this problem? We probably would have just sailed along feeling really, really good about ourselves when we weren't actually living up to our own standards.

So what would be a similar example, for example, for, let's say, somebody who starts a venture fund who might not have the minority aspect you have, but, like, what would be a good analog?

I'll tell you one thing that almost every new manager I work with struggles with eventually, which is time. I think when you're first getting started, you're trying to build your brand, you're not top of mind for the founders you back, you're not top of mind for other investors. You might actually have a surplus of time as a new manager at some point that shifts, and typically what ends up happening is you're trying to juggle, well, how much time should I spend running my firm, how much time should I spend with my portfolio companies, and how much time should I spend meeting new entrepreneurs? And I've had periods of time where the time to meet a new entrepreneur has crept up well beyond what I would describe as our safety stop. We had a period at one point where it took two months for people to get on my calendar, which is unacceptable. And the funny thing, Patrick, is I knew it was bad. I didn't know it was 60 days bad. If you'd asked me, I would have said it probably takes people two or three weeks to get on my calendar. That seems to be what it feels like. My intuition about it taking too long was right. My intuition about the scale of the problem was really wrong. And once I realized that we were looking at a 60 day average time to first meeting, I was like, we have to pull the Kanban cord here. This is a problem. We have to. And it turned out that there were some things on my calendar that were blocking out my ability to meet with new founders. And so we adjusted some things internally and brought that way back down by more than half to be well in spec of what I think works for our fund and our strategy.

Okay.

That'S.

You know.

The interesting thing is.

What I'm hearing you say is that basically a lot of people might say, hey, look how Charles Hudson, I don't know you that way. Like 60 days. Are you serious? So what you really are saying is like, look, when you are in the business and you're really running and you're scaling it, it's just really important to sometimes see the real hard data in front of you. Almost like a mirror of like, look, here's how you really performing and then basically makes it much easier for you to start taking the actions to, to basically take care of it. All right, so maybe share a few thoughts about what, what do you guys measure?

So I, I'm a solo gp. So as a solo gp, there's tremendous pressure on my time and there's only one of me, which means the decisions I make about how I want to allocate my time across meeting new founders, existing portfolio, company speaking, fun. It's gotta have some of that and other activities. I need to have some sense. So we do a weekly meeting tracker which covers two dimensions. The total number of meetings I take per week. And we have sort of some tolerance bands in terms of what's, what's acceptable, what's sort of uncomfortable but necessary and like what's not long term sustainable. And then the breakdown of time spent by meeting type. And for me this has been really helpful because it allows my team to help me be accountable. So you know, for example, I Say, hey, I'd like the time we spent with our existing portfolio companies to sort of not be more than half of my meeting load by volume. And sometimes it gets outside of that tolerance and it's easy for me to say, well it's at 60% because we're in peak fundraising season and this is one of those times where they really need me and need our help. So I'm okay having this be above target for this two to three week period where we're helping a lot of people. But having this allows me to also just see, look back and say, wow, last week felt really hard. Why was it hard? Was it the number of meetings? Was it the distribution of meeting type? And it's really helped me dial in a couple of things like a when am I running too hot? And you and I have talked about this, like when am I running too hot? Meeting volume wise? And also like what kind of, what kind of meetings give me energy and what kind of meetings take energy away from me? And are there ways for me to construct my day based on meeting type that will leave me feeling energized at the end of the day? So this is something I go over every week just to get some insights about, like what did I do last week and what changes should we make for the next couple of weeks as a result.

And so what that really points to is that you are using that type of measurement to truly drive the intentionality of how you allocate your time so that you are working at the most effective level, which is totally critical for you as a sole gp, I would say. And then, and then second also to just not get burned out, which is a very important thing given that you own a business and for everybody who's starting a venture fund needs to know that this is a long term play. So that's awesome. I think you also told me that you know, along the lines of the example you gave me earlier. Right. You're now measuring also time to first meeting.

Yeah. So one of the things I've gotten as I've gotten busier as a gp, I have a tremendous team that helps me schedule meetings, but I now have the ability to see time from intro to meeting. And that's something I track now because the business has become even more competitive and at precursor and going back to sort of one of the philosophical reasons I'm so interested in measurement is at the precede stage where we invest. I actually believe speed is a weapon. Speed is a competitive dynamic and speed manifests to me in two dimensions. One is how quickly can you get in front of an entrepreneur and hear their pitch. The second dimension is how quickly can you hear that pitch and make a decision about whether you want to invest. The latter part is very easy for me because I don't have an investment committee with a bunch of partners that we have to sell. So it's incumbent that we also really laser focus on the first piece. Because it doesn't matter if I can make a decision at the end of a 30 minute meeting if it takes 45 days for that meeting to occur. Occur. And so for us, sort of, because speed is such an important part of the process when it comes to decision making, you have to look at sort of the whole pipeline from like, when did you get introduced to when did you make a decision? And if it's really backloaded, there's opportunity, there's the likelihood you're going to miss really great companies because you're just going to simply get to them too late. Even if you can make a decision on the spot, the rounds are already allocated. By the time they get to you, you might even get the meeting.

Okay, so, so, so now you see that that number crept up to a level that you're not comfortable with. What do you do or what have you done in the past?

Yeah. So I went back and asked my team that does scheduling and meeting management, what's getting in the way of us meeting with people sooner? You all tell me you're the experts, I'm not the expert. And you know, at one point they just said, hey, you're. Now that you know it's, you've got more conferences and events to attend. You're attending a bunch of events where you're offline for a whole day. You've told us that like you don't want meetings scheduled because you're in this conference and you want to be present for it. That means we're shifting out 10, 15 meetings from that day and you want them to happen soon. Which means the available slotting for new meetings is pretty tight. So now, every week I basically ask my ea, how far out are we scheduling people right now? And she tells me, hey, right now we're scheduling people, this is the week. And I'm like, wow, that feels too far. Let's stop right now and figure out what can we do to create some capacity between now and then for high priority meetings?

Yes. Fantastic. All right.

What about.

Things you track around decision making you make.

So one of the big things I track in our CRM system for new prospects is why did we pass? And we track it by category. So was it the market size, Was it the founders? Was it the product? Was it the business model? And we also track it by person.

So there's three people on our three or four people on our team at any time that are meeting with founders. And one really clear thing that emerged from this data is we all have different philosophies. Like, almost all of my passes are market size or business model. Those are like the typical reasons that I end up passing at a company.

Okay, so what do you do with that data?

What I realized is if market size tends to be something I really care about, I've started not meeting with companies that are in categories where I have a pretty strong view about the market size. Now there's this tension. You know, markets change and there's disruption, but at the margin, if I have two choices, a company that's in a market that I don't know much about but I'm curious about, and a company that's in a market that I have a pretty strong opinion isn't big enough to create a venture scale outcome. I should probably take the curiosity driven meeting over the other one. And all this stuff ends up being zero sum. At the end of the day, there is only so much time in the week for me to meet people. And so it's helped me think about, hey, if you have real reservations about the business model, should you really use one of the meeting slots to meet this company? Unless you think you're going to learn something novel about the application of that business model or approach.

So is it too much to say you think you and your firm, you really have a measurement culture?

We do. And I've tried to instill that in everybody on our team that, like, measurement is important because measurement allows you to debug problems much quicker. And sometimes by having a measurement culture, you start measuring things early. Even if you're not 100% sure what you're going to do with that data later, it presents itself. And like, if I go back to that concept of sort of race and gender, because we were tracking race and gender already as a firm, we were able to go back and pretty easily look at the differences. And we didn't start tracking that, thinking we wanted to be great in intersectionality, we're like, this is data that's probably going to be useful in the future, but we should track it. And so I think the measurement culture means that people expect that we're going to ask questions of the data that we collect. So we should Try to be thoughtful in what we ask for, what we collect, and how we organize it.

Okay, I think that's awesome. But you said it's important. But is it also important to figure out to track those things that are important and not just everything?

Yeah. What we've done as part of our measurement culture is sometimes there's data that no longer serves us. There's something that used to be really important to collect that we tracked, and either we found another way to capture it, or we just decided it's not as important or valuable as we once thought, and so we don't track it anymore. Like, we used to track a lot of our funnel metrics about who was applying the precursor. Like, where were they from geographically and what sectors. Now I'm like, you know, we're pretty happy with the output of what comes out of the funnel, like, the actual investment decisions we make. Maybe being obsessive about what the pipeline looks like is less important. So we don't track as much about the companies that are in funnel around sector, gender, race. We focus on the decisions we actually make. And it turns out that when you're happy with the output, you don't have to be as obsessive about measuring the things on the input side.

Awesome. Well, folks, there you have it. Measurement is important.

And it's important to build it in early into your journey so that you start having that culture that just grows as the demands on your operations grow. And I guess, right, Charles, you would say, just don't let that slip.

Don't let it slip. And the earlier you start, the easier it is.

Perfect. Well, thank you, guys, everybody.