The Past, Present, and Future of Pre-Seed | Charles Hudson, Precursor

**Turner Novak** (0:03)
Charles, welcome to the show.

**Charles Hudson** (0:04)
Thank you for having me.

**Turner Novak** (0:06)
Thanks for being here. I think it will be fun. So you started Precursor in 2015, and kind of like helps create this category called Precede.
A lot of people argue that Precede is now dead.

**Charles Hudson** (0:18)
Yeah.

**Turner Novak** (0:20)
How do you reflect on and think on that?

**Charles Hudson** (0:22)
I don't think anyone's ever had a consistent definition of what a Precede round is since I started our fund. So I started working on Precursor in 2014 and really got it off the ground in 2015 And back then, the only people I really knew who were talking about Precede were Manu Kumar at K9 and Tim Connors at Pivot North. And even they were like, oh, these Precede rounds are small. They're like 500K.
And for most of the time that I started the firm, from like 2015 to 2017, we had this very strict definition. Precede is a million dollars or less.
Anything greater than that is seed. And that kind of worked. There was this sort of like bifurcation of people who were raising a little bit of money and people who are raising like more money.
Then we had to kind of update the firmware, so to speak, about three years ago. Let's go, hey, Precede rounds are now maybe more like anything under one and a half million dollars as a Precede, and anything above that as a seed. And the reason I've always tried to maintain this distinction, which maybe doesn't matter anymore, is I always felt like Precede rounds were about product market fit finding. They're not about scaling out the management team. They're not about generating a ton of error. They're basically figuring out, like, is the thing I'm working on interesting to anybody else? And somehow you can keep going.

**Turner Novak** (1:38)
Yeah, like, you have a hypothesis, like, this is a problem.
We can probably make a product to solve the problem. Some customers might want it.

**Charles Hudson** (1:46)
That's right.

**Turner Novak** (1:47)
There could be a company, but honestly, like, that's like a just whole different equation. Like, it's just like, can we even, like, do this thing?

**Charles Hudson** (1:53)
And if we do it, does anybody even care?

**Turner Novak** (1:54)
Yeah, that's fair.

**Charles Hudson** (1:55)
And so I've always felt like, well, that's what Prec is about. It's this hypothesis validation phase. It's about proving that people care about the thing that you're building. And I still don't think for most software companies, you actually need much more than one or two million dollars to execute on that vision. The problem is if you do it too skinny, then you have financing risk. And so I was mentioning to my friend earlier today, we have two companies that have done nine million dollar pre-seed rounds. And my friend said, I didn't know pre-seed rounds could be that big. I said, well, they called it a pre-seed round. By my terminology, it would be probably closer to a Series A. But they called it a pre-seed because they want to maintain the ability to call the next round a seed.
And so I don't even know what round names mean anymore. But I will say, I think we're in a world where, for some companies, they think there's a negative stigma around raising a small round. Because somehow the perception is, well, if you're only raising a million or a million and a half, it's not your choice. It's all that the market would give you. So your company must be not that interesting if you didn't raise $3 million or $5 million.
And your pre-seed, like some people, are just better with small amounts of money.

**Turner Novak** (3:08)
Yeah. To that point, though, too, I mean, sometimes for some of these AI companies, you could say you need to...
There's like some capex sort of related to this. And you need $20 million to even get things rolling. That's another argument that can be made.

**Charles Hudson** (3:24)
You couldn't do like an inference company for like $500K. You wouldn't even be able to do anything. And I do think...
I think I told someone the other day, you know, like First Round Capital is probably, in my opinion, one of the greatest names of a venture capital firm, because it leaves very little room.

**Turner Novak** (3:42)
Yeah, the first round.

**Charles Hudson** (3:43)
That's right. Which means no matter what you call it, it's the first round. And I think Preseed, when it started, was needed because seed rounds were becoming more of these post-product market fit early expansion rounds.