Charles Hudson shares common mistakes he’s seen after investing in 500+ startups

Charles Hudson has spent over a decade investing in early stage startups. As a founder and managing partner at Precursor Ventures⁠, he has invested in hundreds of companies and seen major changes in markets that require founders to reinvent and break old fundraising playbooks. In this week’s episode of Build Mode, Startup Battlefield lead Isabelle Johannessen talks with Hudson about the storms facing early-stage founders today and the most common mistakes founders should avoid in order to get funding.

Optimizing for higher valuations is more about smart planning

A high valuation doesn’t make sense for every company. While it may attract media attention and legitimize the company to some investors, founders should be realistic about what they expect from their company at their valuation and more importantly think about who they choose for their cap table. Is a big check worth working with a poor investor for the next 10 years?

“The real danger with these big rounds is that you end up being a prisoner of your company. You raise all this money, and you sell people on the big idea. They don’t want the money back – they want you to find a way to build something that’s worth what they gave you,” Hudson said.

Do your due diligence on potential investors

Talk to the founders of the portfolio to see what kind of value addition the investor can provide. Verify the claims they make about recruiting, GTM support, and networking with other forum groups. Remember, VCs are looking for you as much as you are looking for them.

If you’re interested in hearing more about ratings and investor selection, be sure to subscribe to Build Mode. Next week, Andrew Dai, founder and CEO of Elorian, will discuss the company’s massive $30 million round they received before raising the previous seed.

Know if venture capital is right for your business

Big businesses are not always the best businesses. Venture Capital only works if you build a company that can repay the fund.

“I’ve had a lot of success recently in telling people, ‘This is what you need to do for business capital. Let’s get rid of your company. This is the type of business you need to want to build. Is that what you want?'” Hudson said.

Understand today’s reality of fundraising

Venture capital has changed a lot in the last few years. Investors aren’t just evaluating your company against last year’s startups; they also compare it to the fastest growing AI companies in history. Even startups that show impressive growth in other markets do not sustain.

“They’re doubling, tripling, quadrupling, and the message they’re hearing in the market is good but not good,” said Hudson.

The new season of Build Mode is out now. Every week we talk to investors backing some of the hottest things in the game and founders building from the ground up as well as those who have successfully exited their companies.

We’re getting into bootstrapping and crowd funding. We break down term sheets and give direct speaking advice.

Subscribe to Build Mode on Apple Podcasts⁠, ⁠Spotify⁠, or⁠wherever you like to listen⁠⁠. Also watch full videos on YouTube⁠. New episodes of ⁠Building Mode⁠ drop every Thursday.