3 Takeaways From Charles Hudson On Raising Money When You Don’t Have a Product
For most entrepreneurs, raising money if you don’t have a product is really hard. There are some notable exceptions.
Charles Hudson, managing partner and founder of Precursor Ventures, provides a peek inside the heads of investors to see how they think about pre-product, pre-launch companies.
An early-stage venture capital firm, San Francisco-based Precursor raised $31 million for its second fund in early 2019 — almost double what it raised in its 2017 debut effort.
Prior to founding Precursor Ventures, Hudson was a partner at SoftTech VC, where he focused on identifying investment opportunities in mobile infrastructure.
Tech firms in the Precursor portfolio have included: Fixt (Founder: Luke Cooper), HingeTo (Founder: Leandrew Robinson), Envested (Founder: Isa Watson), Special Guest App (Founder: Damon Wayans) and FieldVision (Co-Founder: Kavodel Ohiomoba).
Hudson shared tips on How To Raise Money When You Don’t have a Product in a short recorded version of a presentation he gave earlier this year.
Here are three takeaways from Hudson’s presentation courtesy of mmhmm, an app born of necessity during the pandemic and built for people to collaborate with, present to, and entertain each other.
1.Your odds, in buckets
It’s important to remember that right now we’re in an environment where investors will wait to see more data if they can, Hudson said. “People’s funds are bigger than ever, they’ve got more capital and in general I think people feel like, if waiting to see another card get turned over will give them more data and insights, in a lot of cases people are going to take that opportunity to do so.”
There are four buckets investors put pre-launch pre-revenue companies into:
- Very low odds but not zero: If you’re in this bucket, you don’t know the founders super well and their familiarity with the market is a little bit questionable for you. Those are hard to say yes to but not impossible.
- Easy yes: You know the founder very well and they’re familiar with the market, they know the space and it’s an easy yes.
- Maybe (lean yes): It ends up being some combination of the knowledge you have of both the founder and the market which puts it in that maybe category.
- Maybe (Lean no): In the mind of the investor, you’re always trying to figure out, do I have to make a decision on this company right now?
2. How to build the case if you’re trying to launch pre-product
One thing that does work is if you have a relevant experience around a problem that you’re solving from your previous job. It’s one of the most powerful things that you can bring to the table if you’re trying to launch pre-product — a really strong sense of what you know about the problem that you’re trying to solve, Hudson said.
3.Focus on people who are doing what you’re doing but doing it badly
Hudson said what he always get excited about — but that can be a tough sell for some people — is to focus on people who are doing what you’re doing but doing it poorly.
“If you’re trying to make the argument that the world needs a new product, it helps to look for hacks and workarounds,” Hudson said. “Where people are using other tools to solve a problem but where it’s inelegant. I tell people, look for processes that run on spreadsheets, people stitching things together with tools like Zapier or other automation tools to solve the problem. Often these are things that can be solved with an API-based approach, or there’s some other solution sitting there in plain sight that someone just needs to invent.”
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Hudson cites as an example Calendly, which succeeded in a world where many other people had tried to solve scheduling problems and had been unsuccessful.
Another example is Zoom, which revolutionized the world of video in a market where there were plenty of other competitors who already had something going.
“It’s really important for you, the entrepreneur, to have a really strong thesis on why those products haven’t worked,” Hudson said.
4.Bonus takeaway: Go beyond knowing your competition
Who is your competition? It isn’t just other pre-launch pre-traction companies, Hudson said. “It’s really all companies that are raising money at your stage, whether they’re repeat founders that have traction or highly credentialed people who don’t.
“Whatever the case may be, think more broadly about who your competition may be,” Hudson said.
Hear more by Hudson at mmhmm.