Charles Hudson didn’t consciously set out to become the go-to venture capitalist for creator economy founders of color, but that’s how he’s described now by quite a few startup entrepreneurs, including Rella’s Natalie Barbu and Hype’s Nick Chen.
“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.
Hudson is the founder and managing partner of the venture capital firm Precursor Ventures, a company he started nine years ago that focuses on investing in entrepreneurs raising seed-round funding. He started the firm after spending five years at Uncork Capital, where he realized he felt most energized working with first-time founders.
Most of these founders were outside of the “traditional venture ecosystem,” meaning they didn’t have prior existing connections to venture capitalists, he said of his work at Uncork Capital.
“The best investments I made were when we bet on a person or a team we’ve never heard of before,” the San Francisco-based VC 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’s loved learning about the innovative ways entrepreneurs were addressing issues for creators.
“I just kept finding these really smart founders who are building interesting ventures that I wanted to be a part of,” he said.
Expect more creator startups to shutter in 2024
Hudson’s firm usually makes 30 to 50 investments a year, writing checks from $250,000 to $500,000. However, by the end of 2023, he expects Precursor to make 20% fewer investments than it does annually because it’s raising the bar for what it looks for in investments.
“We got slightly pickier about the attributes we’re looking for in founders,” he said.
Starting in January 2024, Hudson expects funding in the creator economy to pick back up compared to this year, specifically from VC firms that specialize in Series A, B, C, and later-stage funding rounds. These are markets Hudson said have been frozen for the past approximately 18 months, and activity is due to rebound.
However, he doesn’t think funding will return to the level it was at in 2021, which he said was the year many creator startups got the majority of their funding.
“Every investor I knew then was pretty optimistic and would follow through on financing, but that’s changed,” he said. “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.”
It’s this extra pressure that might lead to some high-profile creator startup failures in the next year among companies that raised a lot of money in 2022 and 2023, Hudson said. He didn’t spotlight specific areas within the creator economy that are at risk of collapse or consolidation. However, the industry already saw many creator-focused companies downsize in 2022 after running low on cash or facing pressure 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 said.
First-time founders should seek out ‘high access’ founders who can connect them
Hudson said the creator economy, like any other industry that raises capital, is a “who driven business,” meaning people who have established connections are usually 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 said. “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 that he’s chosen to focus his company on seed funding; he’s able to get to know the face behind a startup and assess if they have what it takes to go the distance.
“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 said. “Once you have that first stage of funding, it definitely gets easier.”
Usually, the founders he’s already invested in connect him with other BIPOC entrepreneurs, which is how he’s earned his reputation as a go-to VC.
As a result, he advises founders of color who are in the early stages of funding or those with “low access,” to seek out “high access” founders who have successfully raised several funding rounds. Lots of these founders meet at events, or someone may reach out via a cold DM or email. Even if they don’t know the person that well, Hudson has had founders reach out and introduce him to others.
“Founders’ willingness to help other founders is extraordinary,” he said. “Find people in your community who have access to VCs. You don’t have to know them that well. Just ask if they’ll make an intro.”
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