William Leonard
Based in San Francisco, Precursor Ventures invests in people over products at the earliest stage of the entrepreneurial journey. Their sweet spot is pre-seed and with over 200 investments in a solid track record. They become one of the premier pre-seed funds globally. Today, I’m joined by a Precursor Investor, Ayanna Kerrison, and throughout our conversation, Ayanna will outline Precursor’s approach to pre-seed startup evaluation. She’ll talk about how their nimble team brings tremendous value to their earliest portfolio companies will briefly talk about her involvement with Startup Runway as a judge. And if you’re aspiring to be a venture capital investor, you won’t want to miss her incredible story of persistence and perseverance on her roller coaster journey of breaking into venture capital. Ayanna, thanks for joining me today.
Ayanna Kerrison
Thanks for the invitation, William. I’m excited to be here.
William Leonard
Of course, we’re excited to have you judging the Startup Runway coming up next week as well. I think to kick off this conversation, you’re an investor at Precursor that’s based on the West Coast. I would love for you to just give us the overview of Precursor and the fund itself.
Ayanna Kerrison
Sure. The fund has been around for quite some time. Charles Hudson launched it in 2013. This is kind of post his days and uncorks his premise which is like the ethos of the fund. We want to be the first institutional capital into founders, regardless of their pedigree, regardless of their background, and it’s a driving force for us today. Our notion is if you have a great idea, really unique insights about the market and your customers’ spending behaviors, then, no matter your proximity to us, in terms of the personal network, we want to be that person you can reach out to cold or through any other form of introduction. Pre-seed is our bread and butter, as I was alluding to, and then we also invest at the seed stage. We’re a generalist fund, which is exciting. We invest in a host of different sectors. We’re mainly a US-focused fund but we’re pretty international. We have investments and long-term investments in Southeast Asia, Dubai, and on the continent of Africa, as well as Canada, so pretty global which is cool. We’re pretty aggressive in terms of the number of investments you make in a year. We probably write 20 to 25 checks a year. Between 2015 and now we have a really large portfolio, a little over 300, and a pretty large founder community, roughly 600 plus that is a mix of like first-time founders, solo founders, and folks that have multiple successful exits under their belt. That’s kind of like a high level about Precursor. I’m happy to dive in more about our value prop or anything else.
William Leonard
Yeah, for sure. We’ll definitely touch on that. But that’s super impressive, you said 300 portfolio companies now. Definitely check writing for sure.
Ayanna Kerrison
We are busy.
William Leonard
How big is the team over there?
Ayanna Kerrison
Actually pretty lean. The four folks on the investment team, so you got Charles, who’s the solo GP, Sydney Thomas, who’s a principal, myself, and Marina, who are the junior investors on the team. And then we have an operating team, which is great. We have a CFO and a chief of staff. We started to do something last year a year-long MBA internship which is great because these individuals also provide a level of access in terms of diverse thought on the industry, and a diverse network that contributes to the top of our funnel, but the core team is pretty lean.
William Leonard
That is definitely a lean team for one of the investments that you’re doing on a yearly basis. That’s very impressive. I want to take a step back here. How did you kind of break into the venture? How did you get connected at Precursor and what were the early origins of your life and career?
Ayanna Kerrison
How much time do we have? I would tell the abbreviated version. My life story is born and raised in New York. I’m a middle child. I split my childhood in terms of locations between the Bronx, which is a borough in New York, and Westchester, a town called Larchmont, and I bring this up because this upbringing and being exposed to two different neighborhoods, really shaped the way I see the world. Life in the Bronx didn’t have a lot but felt crazy wealthy in terms of the community we had and the family structure. I would describe some of the neighborhoods as close to proximity, but not close to the proximity of poverty but not right there. And then completely, in contrast, is Larchmont, which is one of the wealthiest towns within Westchester County. It’s interesting. It’s also different because the majority of my life in the Bronx in terms of demographic has always been around folks of color. And then to go to Larchmont, which is the complete opposite. From an early age, I’ve always kind of grappled with the question of how does the world society decide who gets to have access? What neighborhoods get to be really well-financed, full of resources to just help an early child tap into all the things they need to develop versus one that doesn’t have much? And it was interesting because as I was growing up, I didn’t realize that I didn’t have much financially until middle school when at the age of 15/16, I started seeing my friends driving Mercedes Benz boxes, and I was like, “Cool. I don’t have that. I’m still taking the city bus.” But what it did do is it fueled my fire to figure out professionally, how do I get to be that person that solves that problem? I went on the venture of starting a career in finance. Now, caveat, there is a very fortunate that I’m hooked on that our private wealth managers to this day, and so I was lucky to go off to Orange County in California and essentially shadow them. I was hanging out now as I understood it, like I was shadowing them, and learning all the things that they did, as a kid had no clue as to like what they were doing. But the mere fact after I got older and could understand some of the language used, they were in their simplest form, helping people with their money problems. And at my core, I love being the person that is a valuable resource to help you unlock anything that is a challenge to you. I really do believe like, one of our greatest callings is to be of service to other humans. And so for me, once I got that bug, I want to be that person that helps people with their financial problems actually started out my journey in financial services pretty early. I did a bunch of high school internships at Merrill Lynch, which I loved, and always thought I was gonna be a Merrill baby up into my retirement age, but plans are always different, which is good. As the time came to prepare for my college career, I basically studied finance and went along the race of working in investment banking. I’ve always worked either at really large IB shops or small shops across Wall Street, mainly in a COO capacity. I’ve done back-office, equities, and coverage, and as I take stock of what I was looking for, I was always chasing impact. I wanted to work on that project that would give me proximity to the person that was going to change something. Be the change agent in terms of really direct proximity to the client that contributes to the bottom line. I would work on some really interesting projects a lot around business operational efficiencies to drive revenue. But I realized, as I took stock of what I was doing at work, and what I was doing outside of work, I had way more fun and satisfaction working on projects, whether they be nonprofit in nature, that were allowing me to directly touch and talk to the person in need of service. I knew, I always think and I still do, that there is power and capital if it’s put in the hands of the right person. And so for me, nonprofit wasn’t going to work because there’s a lot of red tapes and I have a lifestyle that I want to maintain. What is next? I started to have a lot of friends that were way smarter than me and left IB. They were either going to venture or start their own companies. The ones that were starting their own companies started asking me a bunch of questions around like, “Hey, how do I find an investor? How should I think about this operational question or this number?” And I didn’t have a lot of the answers which was not a position I like to be in. I was like, how do I get into a position where I can be a resource, not fully making the decision that I wanted to jump into the venture? A caveat is I always knew what venture was just because of the nature of my work. I worked in financial sponsors where our clients are private equity. We’re always working with private equity that also has dual models as also having a venture arm. The catalyst for me, this is the next leg of my financial career, reading the ProjectDiane report. To me, it makes no sense that people who have great ideas may not be a part of these really exclusive network nodes and may not have a couple of really interesting blue checkmarks behind their name, whether it be the institution that you went to or neighborhood they lived in, they should be less deserving of funding because of they didn’t fit that model. And I was just like, that’s me. I want to be that person. That is that conduit, essentially, for these people that have great ideas. Once I had that Aha! moment, and it was like, “How do I get there?” Which took a long time. I don’t think you and I’ve ever had this conversation, but it actually took me four years to get here. That’s a long time. And the reason why it took me four years, I got a lot of nos. Even with getting some of the nos, I started to question whether or not I was the right fit for the venture. It was interesting because, in my mind, I’m an operator, because I’ve been a COO for several years. That transition should make sense and should be seamless but I kept getting nos and then getting those nos, I think like everyone else does as they’re trying to break into venture going on a series of coffee chats to figure out like, what is that thing? What is that secret sauce? What should I know about the day-to-day of being an investor? Finally, I got to ask someone, it’s not about the role, what do you care about? What is the experience? If you look back on what you’ve been doing all these years that you do and don’t want to replicate? To me, that was a powerful question, because I had to take stock of my value systems all over again versus just check chasing the world.
William Leonard
You have a why. Wanting to get into a venture is such a thesis-driven industry. I love that you have that realization, because obviously, you’re going on these conversations, these interviews, and you have to do some self-reflection. That’s a great point that you made about reaching out to somebody in the industry, maybe a mentor, or a friend. That’s interesting. How did you get connected at Precursor?
Ayanna Kerrison
Precursor is really special that way. I applied, which is very atypical. I learned about Precursor in 2015, when it launched because folks would ask me if I could pick one person that I admire, who is that? Folks that also asked me, “Do you know Charles Hudson?” and I did not know Charles Hudson. I got the side I every time I didn’t know Charles Hudson. I started to do a lot of research on Precursor. And as I mentioned before, after kind of going through that checklist of what I care about, I was like, this is the fund. This is what I care about, just backing people who are smart. I don’t really care about the pedigree and Precursors doesn’t care about the pedigree. It just so happened, definitely divine intervention, because I had applied to a New York fund and they told me no, that same day, I went online on Twitter to just look on their page. They announced Precursor’s hiring. That happened to be the deadline for the position that I now have. I applied and submitted at exactly 11:59 and the deadline to submit the application was 12. I got an email from Sydney Thomas, saying, “Hey, I want to interview.” I went on four rounds of interviews with them. I finally got the offer and the rest is history in terms of me moving from New York to the Bay Area, but it was very special. It was a blessing, honestly, how everything unfolded.
William Leonard
Talk about divine timing with literally one minute to spare. That is an incredible journey for you breaking into a venture. You mentioned Precursor is focused on pre-seed. You take a fairly generalist approach. As you think about industries that you all invest in, are there two or three industries that get you the most excited out of your generalist theme?
Ayanna Kerrison
That’s a good question. I don’t know if I can keep it at two or three, but I think the areas that I’m focused on, I’ll speak from the fund. We’ve definitely been digging into Web3 which is really exciting. We’re bullish on FinTech, especially on the B2B side. I have been digging into just verticals that are a little bit slow to adopt the technology. I’m a big fan of construction tech. I’m also excited about just even more investments that are going into tackling maternal mortality rates, especially for black women. I’m looking for someone that is going to build that application that is essentially the advocate in a woman’s pocket while they’re about to go into labor, even post, and there are a lot of great tools out there about supporting a woman, prenatal, and postpartum. But you really need someone to be an advocate when they’re in the hands of a physician. If you know anybody, let me know because I think there’s going to be a lot of investment in that space, especially with the black maternal mom’s week that happened at the top of this month. I’m excited about that space. Also excited for technology that’s going to be servicing communities that traditionally lack access. That’s either disability tech. And then, of course, there are definitely a lot of great opportunities that I’m seeing around connecting consumers in a more specialized way, whether that be IRL or via virtual. I was just chatting with the company the other day that’s basically building a dating app for the Metaverse. I think there are a lot of just unique relationships that are out there, whether that be the never meets, and anyone in between that’s just looking for ways that IRLs, current social media platforms don’t allow them to build organic and just authentic relationships to connect with people in another way. People are actually getting married via the Metaverse, which is like, really, really cool.
William Leonard
I think Metaverse will have almost endless applications as you think. I mean, that’s the first I’ve heard about marriage in the Metaverse that is totally new to me. But we’ve heard about real estate transactions. Sports education. I think education is going to be totally disrupted by Metaverse applications and that’s very exciting. Content, women’s health, and the Metaverse applications are kind of top of mind for you. That’s good to know for our audience as well, who are oftentimes early-stage founders, building startups in hot spaces right now like those areas. As you all are kind of hyper-focused on pre-seed, I’m curious, how do you evaluate a pre-seed company? Our audience is, oftentimes, pre-seed seed-stage founders and super high level here, you don’t have to get into anything proprietary to Precursor, how do you evaluate a pre-seed company that oftentimes doesn’t have revenue and may not have a functional product in the market? What are some of the things that you would look at to say, “Hey, this could potentially be a great investment for us down the road?”
Ayanna Kerrison
I mean, honestly, that’s our sweet spot. We call it the pre-everything. It’s like pre-product, pre-revenue, pre-launch. It’s leaning into and focused on the founder. We are betting on the individual behind the idea and vision. One of the things we really care about is the founder’s story and it’s whether that’s the professional or personal connectivity to the problem that they’re solving but also just like, do they have a clear and concise vision? Understanding first their market and where they fit in that space. Large incumbents, their peers that are coming in at the same time, do they have a clear understanding of the customer needs? What is that moat that makes them really defensible against anyone else, and usually have a clear and concise vision of how they’re going to get from T0 to the next important inflection point in their business. It really is that simple as that. We rely on any and everything that the founders shares. Now, depending on some of the verticals, we may dig a little deeper, so like TPG of course, we want to dig a little deeper and understand some of the metrics and overarching really is the same. We want to understand what you’re building, like what unique insights you have, and what makes you different.
William Leonard
Fascinating. There’s a strong emphasis on the founder. That’s awesome. That’s great to know. I want to transition our dialogue here a bit as you are situated on the West Coast and I’m here in Atlanta. There are so many ways that we look at evaluating early-stage companies. I’m curious and would love your thoughts on the kind of fundraising in any valuation trends that Precursor is seeing right now relative to the pre-seed, seed-stage companies? Is there an uptick in valuations or a downtrend? What are you all seeing? How is that kind of impacting the overall market would you say?
Ayanna Kerrison
I feel like there’s a lot of the greater impact that’s happening like a later stage as it relates to a lot that’s happening in the public markets, what’s happening from a geopolitical standpoint, and Ukraine, like a lot of that, too we’ve seen happening in later stage and to the point that there is definitely a lot more scrutiny and it just takes more time for these later-stage rounds. It’s interesting. We look across funds, and for the most part, pre-seed seems to be stable. We’re in line with the valuations that we typically get. But as you know, there is a lot of capital in the market. We’re seeing probably a good amount of evolution, for lack of better wording, with the seed rounds. I feel like last year, we probably saw anything between 12 and 15, maybe post-money. It’s definitely almost double that, sometimes even more. And so for me, it’s just like a founders market, because there’s a lot of capital out there. Founders are even more understanding than they were the years prior, they have the ability to just pick and choose who they want to be on a cap table, and they have the ability to say, I do not want to negotiate on that price. This is what I think we’re worth. That’s it, and then walk away. I think the thing that I always caution founders about is to think beyond just the round that they’re raising and to keep in mind how the market is shifting. I think when folks get to see these large rounds that are being raised by veterans in the industry, folks that are well connected, they do the “Why not me?”, and not taking into a stock that there are sometimes other parameters that go into those decisions may not always be fair. Don’t take into account that you may price yourself out of your next opportunity because it may not work for the fund that you want to speak to and may not work for their model. It’s interesting to see this, but also I’m curious to see how it’s gonna shake out as the rest of the year progresses?
William Leonard
That’s an interesting perspective. I think there is a ton of capital in the market right now but I think from what we’re seeing here is kind of a tightening on the checkbook almost. We’re at the seed stage, we’re seeing these valuations that, as you said, are almost double what they were last year. Certainly, some trends to keep out for and I say just because you can raise a lot of money right now doesn’t mean it’s necessary. Capital efficiency is the name of the game at this age and managing burn and managing headcount, that’s all important things to keep in mind here. That’s great advice. As you think about Precursor investing, really at the pre-seed stage, how do you all see your value add to the founders that you are investing in now?
Ayanna Kerrison
That’s a fair question. I mean, I think our core pillars are around hiring because we realize finding quality talent is to this day, a massive pain point. And then fundraising is a big one. Whether that’s helping to round the syndicate out and just get folks around the table to close to being super hands-on but like your subsequent round, so I would say we’re definitely hands-on with raising subsequent round and supporting our founders. They’re from curating their story to helping them figure out who the right investors are. This is like my point of founders being discerning. One of the things that I think is special in terms of how we look at our data and analysis that we do internally of our portfolio, founders don’t just want capital. They want strategic partners, they want people on their cap table that is aligned to their value systems. And so more often than not, we’re getting requests from founders who want investors that have a trend of backing female-founded companies, they want a list of investors that back BIPOC or LGBTQIA founders. We’re fortunate enough that everyone internally is big on capturing and recording that data so that we can provide that curated experience for our founders. I would say the thing, and I’m curious to know what you think, but the thing that we found to be even more valuable is peer-to-peer support. We are fortunate enough that our large founder community is super engaged and they’re super supportive of each other. More often than not, where we’ve seen, especially around fundraising, founders want to hear from the investors, but knowing that they have the community that has been in their shoes and the trenches that they can speak to get some back-channel feedback on a given fund or an experience, or just get some tips around how to run an efficient process. We’ve noticed that super valuable and we’ve just been doubling down on ways to make those connections happen organically or curate them a bit more.
William Leonard
I can definitely agree with that point. I would even take it a step further and say that’s important to have within a portfolio but I think we’re situated here in Atlanta city that’s certainly not as mature as San Francisco Bay area. A good point of maturity is how founders are helping each other in your respective city and ecosystem that we see here in Atlanta all the time as founders are communicating. They’re helping each other out with running, as you said, a tight process, helping you understand how to pitch to certain investors they’ve pitched to, and I think that all really helps advance the ecosystem as a whole. Whether it’s within your portfolio, whether it’s within your city, I think that’s a trend that we should certainly see more of in less mature startup ecosystems.
Ayanna Kerrison
I feel like there’s been a big investment around platform teams or community managers. I’m sure that will happen.
William Leonard
I agree. That’s awesome. As you think about 2022 for Precursor, what is most exciting for you as we wrap up the conversation here?
Ayanna Kerrison
I mean, honestly, finding amazing companies to back that is at the core of it. One of the things that I’ve been focusing on is getting more entrenched in the Southeast community, meeting more investors like yourself and more founders, and also spending some time getting more connected to investors in the founder community in Africa. I feel like there is a massive opportunity just across transportation, infrastructure, commerce, and tools that facilitate commerce, you name it. I’m super excited as a team to kind of just dig in there some more. What we do every day, which is like for the founders that we have in our family, as we call it the Precursor family, brings out ways beyond what we do now that we can support them. One of the things I’m actually super excited about is that we launched this executive coaching and leadership pilot this year. For us, it’s doubling down on ways beyond just our current infrastructure that we can make their life easier on fundraising, provide additional support around leadership, and everything in between. I’m excited.
William Leonard
Good, you should be and I think you’ll become even more excited after you continue to dig into the southeast, which I think it’s one of the best regions in the world. It’s one of the fastest-growing, we’ve got fantastic talent here. Fantastic companies that are moving here. I’m excited for you to dig into this region, and hopefully, we can collaborate.
Ayanna Kerrison
Let’s make that happen. I’m excited to have this opportunity to meet with the founders of the program. I think by connecting with people like you and some of the other investors I’ve been fortunate to meet, I’m sure I will achieve that goal of getting more interest in the ecosystem.
William Leonard
For sure. Well, Ayanna, this was truly an insightful and fun conversation to get your thoughts on early-stage fundraising trends to hear your unique path of getting into VC and your journey from Westchester County all the way to the Bay Area now. I’m excited for you to be a judge at Startup Runway with us here shortly. Hopefully, we can meet you here in Atlanta sometime.
Ayanna Kerrison
That’s the plan. I have family there so I think I will make a trip. Thank you.
William Leonard
Cheers. Take care.
Lisa
We’re thrilled to have you as an Atlanta Startup Podcast listener to help you get the most out of the experience. Let me invite you to three insider opportunities from our host Valor Ventures. First, want to be a guest on this amazing show. Reach out to our booking team at atlantastartuppodcast.com. Click on booking, It’s a no-brainer from there. Are you raising a seed round? Valor definitely wants to hear from you. Share your startup story at valor.vc/pitch. Are you a woman or minority-led startup valor sister program? The Startup Runway Foundation gives away grants to promising startups led by underrepresented founders. The mission of the Startup Runway Foundation is connecting underrepresented founders to their first investors. Startup runway finalists have raised over $40 million. See if you qualify for one of these amazing grants at startuprunway.org. You can also sign up for our next showcase for free there. Let me let you go today with a shout-out to Startup Runway presenting sponsor Cox Enterprises and to our founding partners, American Family Institute, Truist, Georgia Power, Avanta Ventures, and Innovators Legal. These great organizations make Startup Runway possible. Thanks for listening today and see you back next week.
