Charles E. Hudson of Precursor Ventures is one of the judges for TechCrunch’s Startup Battlefield in San Francisco on October 19, 2022. Image credit: Haje Kamps/TechCrunch | Image credit: Haje Kamps/TechCrunch
Charles Hudson just shut down his fifth fund a few months ago – $66 million Predecessor Venture – When one of his limited partners asks him to exercise. I wondered if Hudson sold all the portfolio companies in Series A. How about Series B? Or Series C?
The questions were not academic. Twenty years in venture capital, Hudson is permanently looking at the mathematics of seed investment changes. LPS, who previously had a hold period of 7-8 years, suddenly asked about interim fluidity.
“Seven or eight years feels like a really long time,” says Hudson.
Why: The steady flow of venture returns in recent years – returns that allow long hold periods to be accepted – have largely been exhausted. Many supporters of very early stage VCs, coupled with the availability of more other liquid investment options, are calling for a new approach.
The analysis he requested by his LP revealed an unpleasant truth, Hudson says. Not everything was sold on Series A Stage. The compounding effect of staying at the best companies outweighed profits from reducing losses early. However, Series B was different.
“If you sell everything in B, you can have a 3X North fund,” Hudson discovered. “And I’m like, ‘Well, that’s pretty good.’ ”
Beyond pretty good things, that realization reshaping what Hudson thinks about portfolio management in 2025. Currently a veteran investor – Hudson spent 22 years at VC among the precursors, eight years at UNCORK Capital and four years at IN-Q-TEL early in his career. Their career.
It’s not an easy mental change to make. “The companies I have the most secondary interest are also the set of companies I have the most anticipated for the future,” says Hudson.
It’s not just Hudson. His thinking about secondary sales reflects wider pressures to rebuild the venture ecosystem. Hans Swildens is the founder Industry venturesa direct investment company based in San Francisco and investing in 700 venture companies, he He told TechCrunch in April The venture fund is “starting to be honest about what they need to do to create liquidity.”
In fact, Swildens sees venture funds hiring full-time staff members, particularly in pursuit of alternative liquidity options. Some seed managers said, “We’ve dedicated several months from our funds to liquidity manufacturing.
This restructuring of priorities is well beyond a single fund, but the pressure is particularly severe for small funds like Pluser. Bobby Baby Formula (founder of a solo in the regulatory industry with no previous experience) and Doktor Gurson rad ai (A previous startup failed). Companies with megafunds like Sequoia and General Catalyst can afford to wait for a $25 billion outcome, but less funds need to be more tactical about when and how they are harvested.
Perhaps nowhere is there any visible shifts as much as Hudson’s relationship with limited partners. The university’s fund, once the most coveted LPS of the venture, is now tackling unexpected challenges from the Trump administration.
Of course, Harvard is Children with posters hereThere is a federal investigation Entrance practicethreats to research funding related to compliance issues, and ongoing scrutiny of its substantial contributions amidst the university seeking to increase annual spending requirements or increase taxation.
Based on their conversations with LPS within these organizations, Hudson says they have never believed in the power of ventures more, but have never been more hesitant to make a 10-15 year illiquidity commitment.
The result is a more complex LP base with competing needs. “In the long run, even if it’s a suboptimal outcome, some people hope to have the money back as quickly as possible,” says Hudson. Others say that Hudson “likes keeping everything mature because that’s what maximizes (their) returns.”
Navigating these demands requires a sophisticated variety of portfolio management that seed investors traditionally did not need. Ventures are beginning to feel much less, like art and things like “feeling like some of these other sub-subsiset classes in finance,” he says.
Hudson is not without hope, he adds, but he has a clear eye for what is changing on the ground and the opportunities that those changes will create.
As the funds grow and more capital is deployed, they are inevitably becoming more algorithmic, and “these academic backgrounds have been where companies in these categories, the founders of these schools, worked in these companies,” he says.
This approach works to efficiently deploy large quantities of capital, but misses the “strange and great” company that defined Hudson’s best returns and maintained its precursors in the game.
“If you’re going to hire someone right next to your resume screener tool,” he says.
You can hear us Complete interview Use Hudson via TechCrunch’s StrictlyVC Download Podcast. A new episode comes out every Tuesday.
Corrected: This story originally listed Byheart as a precursor portfolio company. The organic baby formula manufacturer that has been backed by this is Bobby.
