The new math: why seed investors are selling their winners earlier

Charles Hudson had just closed his fifth fund several months ago – $ 66 million for Precursor ventures – When one of his limited partners asked him to do an exercise. What would have happened, the LP wondered if Hudson had sold all of his portfolio companies to series A? And the B series? Or series C?

The question was not academic. After two decades of venture capital, Hudson looked at math of seed investment, perhaps permanently. The LPs who have already been patient with periods of detention from seven to eight years suddenly pose questions about provisional liquidity.

“Seven or eight years of age feels very long” for LPs at the moment, says Hudson, even if “it’s still seven or eight years old”.

The reason: a constant flow of venture capital returns in recent years – the yields that have rendered the longtime periods acceptable – has widely targeted. Coupled with the availability of other more liquid investment options, numerous donors from VC to very early require a new approach.

The analysis that his LP requested revealed an uncomfortable truth, explains Hudson. Selling everything to series A did not work; The effect of composition of the stay in the best companies prevailed over the advantages of the reduction of losses early. But the B series was different.

“You could have a 3x funds north if you sold everything at B,” said Hudson. “And I say to myself:” Well, it’s pretty good. “”

Beyond fairly well, this achievement is to reshape the way in which Hudson thinks of the management of the portfolio in 2025. Although now a veteran investor – Hudson has spent 22 years in VC between precursor, he says that investors in very young companies are following luck, if they are private managers, their private career managers.

It is not an easy to make mental change. “Companies where there is the most secondary interest is also the set of companies where I have the biggest expectations for the future,” explains Hudson.

It’s not just Hudson; His reflection on secondary sales reflects wider pressures that reshape the company’s ecosystem. Hans Swildens is the founder of Industry VenturesA fund based in San Francisco and a direct investment company with issues in 700 venture capital companies, said to Techrunch in April These venture capital funds “begin to become tastier on what they have to do to generate liquidity”.

He sees venture capital funds hiring full-time staff specifically to pursue alternative liquidity options, certain seed managers devoting months to “manufacture the liquidity of their funds”.

Although this reshuffle of priorities extends far beyond a single fund, the pressure is particularly acute for smaller funds like the precursor, a traditional seed stage which prides itself on supporting unconventional founders like Laura Modi de Byheart Baby formula (a solo founder in a regulated industry without previous experience) and Doktor Gerson Rad ai (whose previous startup had failed). While companies with mega-fusions like Sequoia and General Catalyst can afford to expect results of $ 25 billion, smaller funds must be more tactical at the time and the way they raise yields.

Perhaps nowhere is the change visible only in Hudson’s relationships with limited partners. University allocations, formerly the most coveted LPs in the company, are now struggling with unforeseen challenges of the Trump administration.

Harvard, of course, is the Poster herewith federal surveys on his admission practicesThreats looking for funding linked to questions of conformity and the continuous boom in its substantial endowment in the midst of calls so that universities increase their annual expenditure requirements or face a taxation.

Hudson says that on the basis of his conversations with the LPs within these organizations, they never believed more in the power of the company, but they never felt more hesitant to make illiquid commitments from 10 to 15 years.

The result is a more complex LP base with competing needs. Some want “as much money as soon as possible, even if it is a long-term sub-optimal result”, explains Hudson. Others prefer that Hudson “has everything in maturity, because this is what will maximize my yields”.

Navigation on these requests requires the type of portfolio management sophistication of which start -up investors do not traditionally need, which Hudson considers with a certain ambivalence. Venture, he says, begins to feel much less as an art and something that “is much more like some of these other sub-active courses in finance”.

Hudson is not hopeless, he adds, but it is clear on what changes on the field, as well as on the opportunities that these changes create.

As funds grow and deploy more capital, they necessarily become more algorithmic, looking for “companies in these categories, with founders of these schools with these academic environments that worked in these companies,” he said.

The approach works for the deployment of large amounts of capital effectively, but it lacks “strange and wonderful” companies that have defined Hudson’s best yields and kept the pioneer in the game.

“If you are going to hire people right next to a CV screening tool,” he says, “you will miss people who may have really relevant experiences that the algorithm does not catch.”

You can hear our complete maintenance With Hudson via the TECHCRunch Download Podcast. New episodes come out every Tuesday.