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

Charles Hudson has spent more than a decade investing in early-stage startups. As founder and managing partner of ⁠Precursor Ventures⁠, he has invested in hundreds of companies and witnessed massive market shifts that require founders to get creative and break out of the old fundraising playbook. In this week’s episode of Build Mode, Startup Battlefield leader Isabel Johansen talks with Hudson about the headwinds facing early-stage founders today and the most common mistakes founders should avoid in order to get funding.

Improve high ratings on wise planning

A high valuation doesn’t make sense for every company. While it can attract media attention and lend legitimacy to the company for other investors, founders need to be realistic about the expectations they place for their company with their valuation and, more importantly, consider who they choose for their cap table. Is a big check worth working with an unsuitable investor for the next 10 years?

“The real risk in these big rounds is that you end up being a prisoner of your own company,” Hudson said. “You’re raising all this money, and you’ve sold people out on a big vision. They don’t want the money back — they want you to find a way to build something worth what they gave you.”

Conduct your due diligence on potential investors

Talk to the portfolio founders to find out what kind of added value the investor can provide. Check out the claims they make about recruitment, GTM support, and connections to other platform teams. Remember, venture capitalists are courting you as much as you are courting them.

If you’re interested in learning more about valuations and investor selection, be sure to subscribe to Build Mode. Next week, Elorian co-founder and CEO Andrew Day comes to discuss the company’s massive $30 million valuation they received before even raising seed seeds.

Find out if venture capital is right for your company

Great companies are not always enterprise scale companies. Venture capital only works if you’re building a company that can return money.

“I’ve been more successful lately in telling people: ‘This is what venture capital needs you to do,'” Hudson said. Let us stay away from your company. This is the kind of business you need to want to build. Is this your wish?

Understand the reality of fundraising today

Venture capital has changed dramatically in the past few years. Investors aren’t just evaluating your company against last year’s startups; They also compare you to the fastest-growing AI companies in history. Even startups that show potentially amazing growth in other markets can’t keep up.

“They’re doubling, tripling, quadrupling, and the message they’re hearing from the market is this is good but it’s not great,” Hudson said.

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

We are entering into the bootstrapping and crowdfunding process. We break down term sheets and offer practical advice on the pitch.

Subscribe to Build Mode on Apple Podcasts, Spotify, or wherever you want to listen. And watch the full videos on⁠YouTube⁠. New episodes of ⁠Build Mode⁠ are released every Thursday.