Charles Hudson, leading partner at Precursor Ventures, informed attendees at AfroTech about the fundamental indicators for investment: A firm needs to demonstrate product-market alignment and some measure of momentum. 

However, the subsequent remark he made elicited some unexpected reactions from the listeners: Entrepreneurs should probe investors with a minor issue to observe their problem-handling approach. “I serve on a board with an individual who consistently reacts explosively whenever the entrepreneur presents a challenge,” Hudson stated. “Predictably, the entrepreneur has stopped bringing issues to their attention.” 

This situation, in essence, represents a problem — in both investment scenarios and daily life. When individuals feel they cannot entrust you with minor issues, they are unlikely to rely on you for major ones either. Hudson emphasized that these small tests are useful for filtering out productive problem-solvers and establishing early trust. “Some people are reserved for your deepest secrets, while others are for everyday issues.” 

Hudson possesses extensive expertise in cultivating trust with entrepreneurs. His firm holds investments in over 400 businesses, counting the social platforms why?! and Diem, along with the diaper producer Kudos. According to PitchBook, the firm oversees $250 million in assets, maintaining approximately $89 million in reserve capital. 

He imparted to the senior leaders gathered what he seeks in a presentation deck (a mix of narrative and data); a competent team (to gauge the entrepreneur’s hiring acumen); and even the founder’s past experience with startups. Yet what resonated most was his discourse on the significance of vulnerability and competencies essential for building trust, such as engaging in discussions and expressing emotional acumen. 

It’s uncommon to encounter an investor who candidly embraces the value of being transparent. “Not every investor who declines or offers feedback is honest,” he stated. When the moderator queried if investors should be more truthful, Hudson replied, “Our entire ecosystem would function more effectively if honesty prevailed.” 

His team endeavors to furnish entrepreneurs with as much feedback as they wish. Still, they frequently strive to delve further than that. 

“It’s quite commendable when an investor and an entrepreneur reach a stage of mutual honesty and transparency,” he expressed. “Vulnerability has the potential to be reciprocal.” 

He mentioned meeting several investors who assume they merit an entrepreneur’s trust. However, trust is a quality that must be built, he remarked. “You wouldn’t interact with any other relationship in your life, expecting a stranger to confide their deepest, darkest secrets and place their trust in you.” 

He consistently tells entrepreneurs that his objective is to foster a level of mutual trust. Thus, constructive criticism can be perceived as originating from a benevolent place. 

For comparable reasons, Hudson asserted the significance he places on emotional intelligence, “because I genuinely believe it is fundamental to many challenges encountered in startups,” he elaborated. 

Entrepreneurs must master hiring, evaluating, and persuading people, a company, collaborators, and financiers. There exists a correlation between emotional intelligence and emotional stability, he stated. “One aspect I routinely evaluate is, ‘Do I perceive this individual can cope with the emotional dynamics of startup life?’” he remarked. Therefore, he always searches for other challenging endeavors a founder has pursued as a clue to gauge their stress-handling ability. 

“That might be a pastime, travel, creating a startup, or engaging in nonprofit work,” he mentioned. “I simply seek proof that an individual has confronted something arduous and persevered. Because startups encapsulate a collection of challenges.”