Charles Hudson, Managing Partner at Precursor Ventures, spoke to the AfroTech audience about the basics of knowing when to invest. Companies must fit into the product market and have some form of traction.
But what he said next drew some surprised looks from the audience: Founders need to test investors with small problems to see how they react to the problems. “I'm on a board with someone who tends to explode every time a founder brings up an issue,” he said. “As you can imagine, the founders basically stopped bringing in problems.”
And that in itself can be problematic, both in investing and in life. If people feel like they can't trust you with small problems, they're more likely to not trust you with big ones. Hudson said these small tests can weed out constructive problem solvers and help establish trust early. “Some people confide in their deepest, darkest secrets, while others bring up mundane problems.”
Hudson has extensive experience in building trusting relationships with founders. His firm has invested in more than 400 companies, including social networking apps. Why?! Diem, and the diaper company Kudos as well. The company has $250 million in assets under management, with about $89 million in dry powder, according to Pitchbook.
He shared with senior executives in the audience what he was looking for in a pitch deck: a balance of storytelling and data. A good team (to check if the founders are making good hiring decisions and also check their previous startup experience). But what really struck me was how he talked about the importance of vulnerability and the skills needed to build trust, such as how to have a conversation. , and how to communicate emotional intelligence.
It's quite unusual to see an investor speak so openly about the importance of openness. “Not all investors who pass or give feedback are telling the truth,” he says. The moderator then asked if investors shouldn't tell the truth more, to which Hudson replied, “This whole ecosystem would work better if people told the truth.”
He and his team strive to give founders as much feedback as they want to hear. But they often aim to go deeper than that.
“I think it's great that investors and founders can now trust each other to be honest and open,” he said. “Vulnerabilities can exist in both directions.”
He said he has met many investors who believe they are worthy of the founder's trust. But it's something to earn, he said. “You never approach any other relationship in life expecting a stranger to tell you their deepest, darkest secrets and trust you.”
He said he always tells his founders that his goal is to get to a point where they can trust each other. That way, you can receive tough feedback as if it were coming from the point of care.
For similar reasons, Hudson said he values emotional intelligence, “because I think it's fundamental to a lot of the challenges you're going to face as a startup.”
Founders need to learn how to hire, evaluate, and influence people, companies, partners, and investors. He said there is a connection between emotional intelligence and emotional well-being. “One of the things I always test is, 'Can this person handle the emotional ups and downs of startup life?'” he said. This is why we always look for other difficult tasks a founder has taken on as clues to see how he deals with stress.
“It could be a hobby, it could be travel, it could be a startup, it could be a nonprofit,” he says. “I just want to see evidence that someone worked on something difficult and stuck with it, because startups are a big challenge.”