Charles Hudson on the fundraising mistakes founders keep making

Charles Hudson, founder and managing partner at Precursor Ventures, has spent more than a decade investing in early-stage startups and has backed hundreds of companies. On this week’s episode of the podcast Build Mode, Startup Battlefield lead Isabelle Johannessen talked with Hudson about the headwinds facing early-stage founders today and the most common mistakes he sees founders make when trying to get funded.

Hudson said a high valuation doesn’t make sense for every company. While it can draw media attention and lend legitimacy with other investors, founders should be realistic about the expectations a valuation sets — and, especially, about who they are choosing to put on their cap table. “The real risk with these big rounds is you end up being a prisoner of your own company. You raise all this money, and you’ve sold people on a big vision. They don’t want the money back — they want you to find a way to build something that’s worthy of what they gave you,” Hudson said.

Founders should also run their own diligence on prospective investors, Hudson said. That means talking to portfolio founders to see the kind of value an investor actually adds, and verifying any claims the investor makes about recruiting help, go-to-market support, or connections to other platform teams. The relationship runs both ways, he noted: VCs are courting founders as much as founders are courting VCs.

Not every great business is a venture-scale business, Hudson said, and venture capital only works for a company capable of returning an entire fund. He said he has had more success lately telling founders to set their specific company aside and ask themselves plainly whether they actually want to build the kind of business venture capital demands of them.

Hudson also pointed to how much the fundraising bar has shifted. Investors are no longer just comparing new startups to last year’s crop; they’re comparing them to the fastest-growing AI companies in history. As a result, he said, companies posting growth that would be considered remarkable in other markets — doubling, tripling, even quadrupling — are being told that’s good, but not great.

The new season of Build Mode continues next week with Andrew Dai, co-founder and CEO of Elorian, discussing the company’s massive $30 million valuation, received before it had even raised a pre-seed round.

Why it matters

Hudson’s message lands at a moment when even startups with strong growth are being measured against the fastest-growing AI companies ever built, raising the bar for what counts as fundable traction — and pushing founders to weigh whether the capital, and the investors behind it, actually fit the business they’re building.