Charles Hudson, a seasoned figure in the venture capital landscape, has dedicated 22 years to the industry, guiding investments through various prestigious firms. He has accrued great experience as a partner at Precursor Ventures, Uncork Capital, and In-Q-Tel. At Bridgewater, he honed his craft as a respected and veteran investor. Hudson recently closed his fifth fund, raising an impressive $66 million for Precursor Ventures. This milestone arrives while LPs recalibrate their expectations for time to invest.
Hudson can’t blame them, because in a more dynamic market, he has seen an increasing impatience from LPs with long hold periods. This change has forced investors in early stage companies to adopt approaches more commonly associated with private equity managers. They are departing from old school venture capital approaches. Hudson emphasizes a new wave of enthusiasm amongst LPs about the power of VC to do great things. They equally demonstrate an unwillingness to make long-term, illiquid bets.
Hudson’s perspectives provide a prescription for a far more critical look at the current investment strategy. He recommends exiting portfolio companies at the Series B round. This has the potential to produce a three times return on money invested and upends the decades old mantra of just holding investments to maturity to get the best return. “Seven or eight years is a really long time,” he says. In the post-pandemic world, he urges us to rethink our approach to exit strategies.
That consistent waterfall of venture returns that fueled the last several years does not seem like it’s going to happen. Hudson explains that many LPs today are focused more on achieving faster liquidity than they are on long term, maximum value creation. This creates misalignment when some LPs demand a liquidity preference and therefore want their money back sooner, even if that is worse for the long-term,” he says. This points to a deeper and profound change in investment philosophy.
Hudson’s remarks were remarkably in sync with those made by Hans Swildens, founder of Industry Ventures. He’s optimistic because he thinks venture funds are succeeding in producing an improved form of liquidity. Swildens’ company now owns stakes in more than 700 venture capital firms and has seen, in real time, the reversal of that dynamic.
As seed fund managers work to find their way through these challenges, some are spending extraordinary amounts of time building their own liquidity solutions from their funds. This trend is an important first step that mirrors a larger realization that old ways won’t cut it in the new investment making.
Hudson dives into the changing state of talent acquisition in the startup world. He cautions against using only these algorithm-driven tools to take the hiring decision out of the equation. These methods risk filtering out candidates with relevant experiences that traditional metrics fail to account for. “If you’re going to hire people just off a resume screener tool, you’re going to miss people who maybe have really relevant experiences that the algorithm doesn’t catch,” he asserts.
