- Charles Hudson founded Precursor Ventures to work with founders who don’t have existing ties to venture capital.
- He’s funded seed rounds for creator startups including Rella, Clutch, and Hype.
- He shares his predictions for 2024 and how BIPOC founders can connect with VCs.
Charles Hudson didn’t set out to be the go-to venture capitalist for creator economy founders of color, but that’s how many startup entrepreneurs, including Rella’s Natalie Barbu and Hype’s Nick Chen, now describe him.
“I want to invest in founders who don’t have deep intergenerational connections to venture capital, and if we do then we’re naturally going to end up with a lot of women and people of color in our portfolio,” he told Insider in an interview.
Hudson is the founder and managing partner of Precursor Ventures, a venture capital firm he founded nine years ago that focuses on investing in entrepreneurs seeking seed-round funding. After five years at Uncork Capital, where he realized he felt most energized working with first-time founders, he founded the firm.
According to his work at Uncork Capital, the majority of these founders were outside of the “traditional venture ecosystem,” which means they didn’t have prior existing connections to venture capitalists.
“The best investments I made were when we bet on someone or a team we’d never heard of before,” the San Francisco-based venture capitalist said. “That was a sign that this is the style of investing I’m supposed to lean into.”
Half of the firm’s investments are focused on the creator economy because he enjoys learning about how entrepreneurs are addressing issues for creators in novel ways.
“I just kept finding these really smart founders who are building interesting ventures that I wanted to be a part of,” he added.
More creator startups are expected to close in 2024.
Hudson’s company typically makes 30 to 50 investments per year, with checks ranging from $250,000 to $500,000. However, he expects Precursor to make 20% fewer investments by the end of 2023 than it does now because it is raising the bar for what it looks for in investments.
“We got slightly pickier about the attributes we’re looking for in founders,” he went on to say.
Hudson anticipates a rebound in funding in the creator economy beginning in January 2024, particularly from VC firms specializing in Series A, B, C, and later-stage funding rounds. These are markets that, according to Hudson, have been frozen for the past 18 months, and activity is expected to pick up.
However, he does not believe funding will return to the level it was in 2021, when many creator startups received the majority of their funding.
“Every investor I knew then was pretty optimistic and would follow through on financing, but that’s changed,” he told me. “For anyone who isn’t building an AI company or specifically capitalizing on AI, then you have to get twice as much progress per dollar per day as you did two years ago, to be competitive.”
This added pressure may result in some high-profile creator startup failures in the coming year among companies that raised a lot of money in 2022 and 2023, according to Hudson. He did not highlight specific areas of the creator economy that are in danger of collapsing or consolidating. However, many creator-focused businesses have already downsized in 2022 due to a lack of cash or the need to preserve capital in an uncertain economy.
“A lot of that pain will be coming in at the later stage, because for these companies, their runway is likely to run out,” he went on to say.
First-time founders should look for ‘high access’ founders who can help them connect.
The creator economy, like any other industry that raises capital, is a “who driven business,” according to Hudson, which means that people with established connections are more likely to receive funding for their ventures.
“We’re good at giving money to our friends, or friends of friends, or people we know,” he went on to say. “It’s very much a people business, so imagine if you’re from a marginalized group and enter the industry without any connections.”
It’s one of the reasons he’s chosen to focus his company on seed funding; he can get to know the person behind a startup and determine if they have what it takes to succeed.
“Raising money at the first stage is the hardest for a founder, because you’re betting on the person more than the the idea or concept,” he told me. “Once you have that first stage of funding, it definitely gets easier.”
Typically, the founders in whom he has already invested connect him with other BIPOC entrepreneurs, which has earned him a reputation as a go-to VC.
As a result, he advises founders of color in the early stages of funding, or those with “low access,” to seek out “high access” founders who have successfully raised multiple funding rounds. Many of these founders meet at events, or they may be approached via a cold DM or email. Hudson has had founders reach out and introduce him to others even if they don’t know the person well.
“Founders’ willingness to help other founders is extraordinary,” he told me. “Find people in your community who have access to venture capital.” You don’t need to know them very well. Simply ask if they will make an introduction.”