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Precursor Ventures Raises $15.3 Million for Seed Investing, with a Twist
Charles Hudson has lived in the Bay Area for the last 20 years, working as product manager, as an entrepreneur, and an investor. As such, he’s had a front row seat to a number of changes in the way that startup are funding, including the evolution of numerous angel investors into so-called micro VCs into fund managers who are now responsible for hundreds of millions of dollars.
Take investor Jeff Clavier, who began sprinkling tiny amounts of money across what appeared to be a new crop of capital-efficient startups back in 2004 and soon after launched a firm, SoftTechVC, where Hudson would become a partner in 2013. By 2014, SoftTech had closed a fourth fund with $85 million. Last June, it closed on a record $150 million across two funds.
Hudson was cheering on the firm — from down the street in San Francisco. Since last year, he has been creating his own brand, Precursor Ventures, to seize on the funding vacuum creating by firms like SoftTech that can no longer write small checks. Hudson, one of few African American VCs in the Bay Area, also sees another underserved opportunity in funding women and other minorities.
We talked with Hudson last week about how he’s approaching both missions and whether they were a difficult, or easy, sell for Precursor’s investors, who’ve given the company $15.3 million for its first fund.
Why strike out on your own with a new fund?
The big observation for me was that all the micro VC funds are really big now and they’ve stopped doing classic seed-stage funding. The goal for Precursor is to write checks in the range of $150,000 to $250,000 to teams that have maybe two founders and a prototype and probably not much in the way of a launched product or traction, with about 20 percent of the capital set aside to participate in [slightly more mature] companies that are maybe raising $2 million on a $6 million [pre-money] valuation.
How many companies do you think you can support with this new fund?
The idea is to write 18 to 20 checks per year, so I’ve made 50 investments over the last two years, including [as I was raising this fund].
And investors didn’t think that was too much, that you were spreading your investments too thin? Why not go in the exact opposite direction and make lesser, more concentrated bets?
For one thing, because there is so little institutional capital at the pre-seed stage, I felt like I could be more aggressive. Also, because of the rising cost of doing business in San Francisco, and because a lot of the founders I back don’t need to be here, I’ve encouraged many of them to stay where they are — in Tampa and Raleigh and Charleston and Baltimore. And it’s pretty cool to see how much more capital efficient they can be in these regions with $150,000 to $250,0000 in backing.
Are you leading most of these rounds?
I didn’t think we’d lead, but we do lead a lot, because without us, these rounds don’t come together. It’s sort of like, everyone is in for $25,000, but no one wants to issue terms. Believing in people early and being able to issue terms helps rounds come together.
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