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Highlights:
- Don’t forget the macro: Government regulations can lead to massive opportunities or failures. We discuss case studies of companies like Samsara, Movtive (fka KeepTrucking), Republic, and Zum, showing how regulatory shifts led to category-creating opportunities. Charles’ worst investment was wiped out due to changes in government regulation.
- Team vs market: We discussed the interplay between having the right team, idea, and timing for startup success. Charles evaluates opportunities 70% team and 30% idea. Both Aamir and I take a more balanced approach than Charles does.
- Fund size vs. outcomes: Reflecting on the past learning, "Your fund size is your strategy." We wonder what role that played in Charles’ decision to invest in the Athletic, later acquired by the NY Times for $550M.
Links:
- Follow Charles Hudson on Twitter: @chudson
- Read Charles’ blog on Substack
- Learn more about Precursor Ventures: Precursor Ventures
- Connect with Charles Hudson on LinkedIn: Charles Hudson
Connect with Us:
- Follow the First Funders Podcast
- Newsletter with behind-the-scenes access and key takeaways
- Twitter/X: @shaherose | @avirani
- Email us with feedback and suggestions on topics and guests
Disclaimer: This is for information purposes only. This is not investment advice.
Creators & Guests
Host
Host
What is First Funders?
Learn from angel and seed investors bold enough to write the first check.
How do they decide which startups to invest in?
How do they gain conviction in founders and ideas?
How do they add value to their companies?
Shaherose Charania and Aamir Virani are operators turned investors. They chat with their friends investing in early-stage technology startups and learn about their strategies to fund the best founders and startup companies.
If you are an angel investor or seed investor, you'll hear how others operate.
If you are a startup entrepreneur, you'll hear how investors filter and decide on writing that first check.
FIFU 08 MINI
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Introduction and Format Change
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[00:00:00]
Shaherose: All right. Welcome to First Funders. Today, we're going to try something new. We're going to record our takeaways separately from the interview so that for those of you who don't want to listen to the interview in full, you can join us here and listen to us share our takeaways. And with that, let's share some takeaways from our conversation with Charles Hudson of Precursor.
The macro matters
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Shaherose: So one that just like stuck out to me as like a theme throughout the conversation was a reminder that the macro matters. Charles talked about how, you can't predict certain market outcomes, of course, like there's things that happen that you can't predict.
And that seemed to show up in both his worst investment and his best investment. His worst investment was [00:01:00] one where he talked about unexpected tariffs on importing electronic goods. No way he could have predicted that. And in his best investment, the macro trend that he saw.
And in which case he did predict was the demise of. Local media and the rise of social media to lead to his investment in The Athletic. And so it was, for me, it was just like, yeah, of course, we're assessing the founder. We're assessing the market. But one level above the market is the macro.
Aamir: Shaherose, you're right. The macro does seem like a big deal.
Sometimes you'll just hear like, right team, right idea, right timing, right? And so the timing and the macro kind of like intertwine. So when have you seen this in your career?
Shaherose: Such a good question. when I think about a company like Republic, which, was starting at a time where the regulations were changing for how non accredited investors can invest in private assets. And that was a macro government level change that was about to happen that the founder saw.
And capitalized on as becoming one of the first movers in the space and now is a unicorn offering all sorts [00:02:00] of ways for retail investors to invest in private assets, in different types of assets at this point. So that was really like a macro shift that was happening. A founder paid attention to it and just rode those tailwinds, how about you?
Aamir: Let's see, for me, I remember hearing about this like in the moment in a similar way to you was with Samsara. I did not invest in them. I wish I could have, but I heard enough about it at the beginning to hear that, , their company keep trucking in one or two other people in this, like, what looked like an IOT space was really around regulations for truck driving and how those were changing.
And so a few companies picked up on that early and said, we can put sensors in these trucks, and that there will be a regulation coming from the U S government for being able to track, trucks and like freight around is going to mean that they have to put more IOT devices in their boxes.
And we'll be there to do it first led to like the explosion of some of these companies in that time period of like 2013, 14. So don't hold me to this exactly, [00:03:00] but like there are three companies. I know of, one was Samsara. One was Keep Trucking. That I externally saw, jumped on the opportunity early and got out to huge market leads as a result.
Shaherose: Yeah, you, you say trucks and it reminds me of another company that I invested in called Zum, ZUM, and they have been riding , the push from the government towards all electric vehicles on the road and particularly for school buses. And so they keep winning these government inspired changes at the school district level.
Time and time again, hundreds of millions of dollars per contract. And so it's another example where the, , macro in this case, and the ones we're talking about government shifts lead to why now opportunities?
Learning from past investments while staying open minded, what about bias?
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There was a fun theme that we keep seeing that Charles talked a lot about, which is like not turning all your lessons into rules. And I'm still trying to figure out like how you keep doing that. We talked about that with almost everyone so far where they're saying, Hey, every [00:04:00] investment, treat it like its own and I am doing my best to do that.
Shaherose: But at the same time, we're also learning from previous experiences and previous investments. And so that's one takeaway that is sticking with me and I'm trying to make it my own still.
Team vs. Market
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Aamir: Yeah, I agree. I think what I wrote down was, special companies are special in their own way. When he was talking about that, I was like, yeah, that's right. Like, I'm sure there were companies that came along that thought about trucking before the ones we were talking about earlier, or people who thought about addressing public transportation
I do have a hard time saying there are no rules to come out of this because the way he's saying it makes it sound like, oh, there should be no rules in venture capital for this, but I do think that each person in the end has inherent biases, like Charles may say he has none, but he definitely does, right?
So I think these somehow like it becomes internal hardwiring and I think it would have been cool to hear more about what biases do you observe in yourself? Maybe that would have been a good way to get out. Like, no, something trained you to think of these as biases, right? Like, maybe a different way to ask that was like, well, you do.
Focus on [00:05:00] pre seed. And you're saying you don't do repeat founders. That in a way is a rule you have, you just proclaimed it, even though you may say that's not really a rule, but like, why is it that, 70 percent of the time you're saying it shouldn't be a multiple time founder that you want to work with? Like, there's something there that I think is still maybe it's not a rule, but it's a bias.
Shaherose: Yeah. and either bias or hypothesis that he's very focused on staying true to, right? I hypothesize that there are bigger, there are more alpha opportunities if I invest in first time founders who have yet to prove, their ability and that whole idea of like giving them free reign, even though they may have never had it.
So You can think of that in other ways too.
Aamir: Yeah, I mean, I'll like, you know, just from personal experience, right? Our team was working on Dropcam, we had some really fast followers, people who mimicked our website and UI interface almost immediately, , after we went live and got any like coverage in the Silicon Valley news media outlets.
I remember one [00:06:00] company came out, we think it was in Austin, we're not sure. But they started selling a camera too. And their interface was just a copy paste of ours in Flash. And yeah, they didn't get any traction. And so why were we special compared to them?
I think there was something around our team and like,, not just the founders, but the early initial engineers that were working on things. I think we just had a really good set of people at the start. Was that the special way? Was it that we were in Silicon Valley versus in Austin?
Was it that we like placed a bet on the right third party camera? I don't know. Like you never really know, right? Like there's something that is interesting about the little decisions that seem to add up and work out right. But I was definitely thinking about that. Like, yeah, even just like my personal life, there's a world where another company , would have become the breakout leader in home cameras and smart home stuff.
But it was us.
Shaherose: Yeah, I love that. Thanks for sharing that. Um, another quote that just stuck out to me was to say, like, my goal is to never open Excel. [00:07:00] I'm in my zone of genius. And it's just a reminder for all us at the sort of particular pre seed level that this is really a qualitative assessment to some degree about the people, the market, and of course the macro, like we talked about.
And I just thought that sat with me as like, yeah, okay. I mean, you do want to get a sense of whether this can become a hundred million dollar business. And so does he ever open Excel to figure that out? Or it's just more about quick back of the envelope math. Because I do think I want to see that from a founder.
I do want to see a founder be able to show me that even though they're at pre seed, they do see such a big opportunity. And I don't know how you do that without Excel, but, it stuck to me as like the real magic of pre seed. It leans more heavily qualitatively. What are your thoughts?
Aamir: I thought about this a little bit when he was discussing The Athletic as the of his linchpin pinnacle investments so far, I'm sure he's going to have a lot more in the future, but The Athletic was the one he went to [00:08:00] first. I remember hearing about The Athletic.
I am an avid reader of it. One of the reasons I keep my New York Times subscription is to get The Athletics NBA coverage. And back then I remember thinking, why is this a startup? This is a media company and it's like a new age newspaper. The bets were interesting, right? The bets were on not players like the Players Tribune, but on beat writers.
in each individual city. I actually remember thinking, Oh, this is totally going to work, but this is not a multi billion dollar company. Why would anyone place a bet on this? So hearing Charles talk about this, like, that's what I wanted to ask him to like along the lines of what you're saying, how did that pencil for you?
Like there's a world where The Athletic is running today still as an independent company. And they raised much less money, but they're very happily profitable, right? They're just a national sports newspaper, that is not a billion dollar company. What made him say, I'm going to place a bet? Because yeah, on paper, I can't imagine him having said, this is a multi billion dollar outcome.
And if you did say that, how, what was the story [00:09:00] going to be?
Shaherose: Yeah. Um, I guess we won't know unless you bring him back on the show, which we, we could do. And what comes up for me is I know he made this investment early in his career, in the history of Precursor. And if you go back to what we've talked about a lot, which is your fund size is, your strategy, well, if his fund size was smaller, technically he could see if this led to some sort of a hundred million dollar outcome, it's actually perfect for his fund size.
Aamir: That's right. And that's where the fund size thing is really important to think about too. Right. And, , that's where I thought his alignment with what some angels say was really great. And, you know, would you make The Athletic investment today? Like if the exact same scenario played out, but he's got a fund size, that's what was like 20 to 40 million right now, I guess.
I don't know. But you know, given that size, would he still do it today? Or would he say, yeah, I can't make that one. Cause now it doesn't pencil out.
Shaherose: Yeah. I want to know that too, because , [00:10:00] he talks about how he's not changing his strategy at all in terms of who he invests in and at what stage, right. But as the fund size changes, which he commented on how it changed when he was at Softech. It changed how SoftTech operated. They moved more upstream because the fund size was getting larger.
And so I am super curious. I know what's unique about Charles is he's remained a solo GP in this journey, and that might be something that has a contributing factor to staying focused on the stage and risk level that he's at. I feel like we need to bring him on and have a convo about this.
Fund size vs outcomes
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Aamir: Yeah. So why didn't I share one of my takeaways? Um, I really appreciated his take on, at this early stage. I think like The Athletic is a good example. He may have just had a bias for it, right? Like, Oh, I like sports. I'm writing smaller checks. I just like this space.
I just like this idea, or I just like these people. And one thing that came out to me as he was talking in the interview with you is [00:11:00] the "70 percent person, 30 percent idea" breakdown that he gave, right. That he still heavily places weight on the person or the initial team more than the idea or the market.
And that's a common theme now for the pre seed folks, right. That they just expect so much churn and change that they're going to look at the people more than they would if it was a series B or C company. I know in my personal, investing experience, that's true. And that every time I've had a bad signal on.
A founder and their ability to, not just execute, but to think clearly that that's played out after the investment. Whenever I've said, they're a little bit fuzzy and I wish I was thinking about it much more coherently the way Charles is.
Shaherose: on that point, I asked him like, well, how do you know if these are the types of founders that are going to lead to success? And he's like, well, I guess. and you know, He said something that we've said in other episodes, which is he's assessing how they think by how they frame the problem and the solution.
And Amit had said that our interview as [00:12:00] well. And so it's a reminder, yeah, like in the pre seed space, we're spending more time assessing the founder, but I personally think that market matters as much, because there's lots of churn, like you talked about, or pivoting. If the team is set up to be building something in a particular market and they're not in a market where there are opportunities that are big enough, or it's a crowded space to begin with, or, you know, like the conditions of the market are not sound, or there's no tailwinds, I would still, irrespective of team, not want to take that bet. And I have made that mistake where I'm like, I don't really know this market that well. I don't know if there's opportunity, but I love this team. It was like a FinTech bet in consumer and didn't go anywhere. Right. Like the exceptionality of the founder to pivot into a completely different space is a big ask.
Aamir: Yeah. Along the same lines, like one other thing I'd written down that he said [00:13:00] was follow the talent, not theses. So it's again, like more about the people than it is about the market or product. , I think he did align with you around the idea of, the people in the market are.
Most important to him, the product, not so much. And I think that's interesting. I've always, I think what I do is I say, well, let me try to figure out whether these founders are legit and then what's the product they're building. And is the product something unique? Then I think about the market third, like whenever I'm trying to do spreadsheet work.
And it's interesting to hear him say that he's just thinking about that the other way around.
And obviously he's had a great track record. How do you think about this? Are you also following the same pattern then? Like more about the teams and then the market, and then you look at the product last or, like in the moment, how are you assessing and weighting these things?
Shaherose: Yeah. I think product and market go sort of together in my mind. The product is operating in a market. And I think it's so early at pre seed that as long as there's like some sort of initial idea and there's clarity on what they don't know and what they're going to figure out. And there's a sense that [00:14:00] they are nimble enough to figure something out.
I think that's important. We recently met a team who have built something in more of like a bio environment, and they're now doing consumer. And my hunch was like, these are obviously highly capable founders. They found an opportunity that's a problem they're solving for themselves.
I do agree that there's a market here for it or that the market conditions are good. But my worry was that tbe way they were showing up around the product was so concrete at a pre seed stage that they weren't even able to articulate yet what they don't know. They're like, we're building this. And so that mindset of I'm building this at pre seed, I realized it's hard to show up.
You want to show up like you know what you're doing, and at the same time communicate that you're figuring things out. And that's a hard thing to do as a founder. And so I actually feel like product and market go together for me. I think that comes from having built products and, you know, lived in that space.
Aamir: The other thing that like this twiddles is, [00:15:00] I think. It was Amit who talked about you want the founder to love the market and the problem, not their own solution and product. And, this kind of aligned with that too. I was like, yeah, I do a bad job of looking at the decks in the product demos and say, Ooh, I like the product and what they've built, right?
Instead, I should be saying to myself more, this shows they can build something and that's really great, but is the space they're working in going to be something that the team will work on, even if this first version goes out the door and is really terrible.
And if it goes out the door and it's really great and suddenly there are followers, like, are they just going, are they going to listen to the market and keep adapting, or not? And I know like, I've definitely seen this in my personal life. One team I worked with, they had built something similar before internally, at a company. And they're like, Oh, everyone will want this outside the company. And after working with them for three months, I was like, you really need to talk to someone else at another company. And just determine what tweaks you need to make.
And they would not do it. They were like, V1 should be what we had [00:16:00] built internally. And they never got the V1 out the door because it was so complicated and it had taken multiple years as an internal product, right? Instead, they should have gone out with an MVP just to get feedback and decide what's more universal than the thing that we built at one place.
Shaherose:
Investors don't know it all
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Shaherose: so just like to wrap up here, shared this really vulnerable idea . Like, , it's okay not to understand, but it's not okay not to continue to understand. And I feel like I know a number of folks who were actively investing in 2021. Doing just that. And I remember myself being in a position, being asked to invest in some company that I literally did not understand multiple times over, in the crypto space.
And glad I didn't. Because I still don't know what they do. And I just felt very validated because that's when I would call Charles. I'm like, A, like, what are they building? And like, why is the valuation at what it is? Like, what am I missing here? " Am I the [00:17:00] dumb one in the room?" is sort of what started to happen to me during that time.
And when he said that, I just kind of like had a sigh of relief because I was like, yeah. And if I don't understand, it doesn't mean that I'm missing out, or it doesn't mean that I'm not smart enough. It probably just isn't , in my field of understanding, and that's okay. And it probably might just be a bad idea.
Aamir: I feel like one place to dig would be to figure out at that early stage when you're making the investment, then how do you deal with the time pressure you feel on making an investment? Are you going to immediately then filter out and say, if I don't understand it, I don't invest? Because you're not going to pick up everything in the few weeks you have.
In order to make the investment happen. So think it would be interesting to hear not just from Charles, but from other folks, how do you get up to speed that fast? and like, adjacent to this, I was actually wondering when you interviewed [00:18:00] Charles, on this point. How do you think the other investors that were not coming in, in that subsequent round of funding, what do you think they were seeing?
Like, do you think that they were doing a spreadsheet model that just was different from yours and immediately saying like, Oh, flag bye, or was it something else? Like, cause if it was something in the spreadsheet model, that means there's something that you learned that maybe was standard for the later state investors that we should know about that he picked up as a now pre seed investor who's like doing better modeling, right? That became really important. So I wonder what that learning was.
Shaherose: Yeah, same. The last thing I'll wrap on is he said this very quickly and I wish I had dug into it. He's like, and in my monthly check ins with my teams, And I just kind of was floored thinking how many companies is he doing monthly check ins with? Cause he has a huge portfolio and maybe like I'm hypothesizing, maybe that only happens in the beginning.
It is something I'd love to ask him. The next time I see him, because I would love to be able to do that with my teams, but not sure how to work that in given time [00:19:00] constraints.
Aamir: Yeah. I was also wondering about that just to see how has he built out his team? He's the solo GP, but he's not the only employee at Precursor now, right? So what is the rest of the team doing? Or is it just all set of folks who are doing modeling? Or are there some people who are handling that relationship?
And he's helping those people ramp up. To be supporting in that way. But maybe he is the one handling everyone's check ins.
Shaherose: I wouldn't be surprised. His capacity is probably the biggest I've ever seen. Um, okay. This was great. We really enjoyed our time with Charles. Any final thoughts, Aamir, before we wrap up this session?
Aamir: Thank you for handling the interview on your own. You did a great job. I think we're going to try to do some of that experimenting a little bit more, right? Just a solo interviewing and maybe having other hosts on in the future. So if you have any feedback for us, as you've listened to this episode and this breakdown between episode and takeaways, please reach us at teamatfirstfunderspod.
com.
Shaherose: That's right. We'll see you next time. [00:20:00]