The New Math: Seed Investors Selling Winners Earlier Amid Liquidity Concerns
The venture capital landscape is undergoing a significant shift as seed investors grapple with new pressures to generate quicker returns. Charles Hudson, founder of Precursor Ventures, experienced this firsthand when an LP requested an analysis of potential returns if portfolio companies were sold at Series A, B, or C stages.
Hudson’s experience reflects a broader trend. Limited partners (LPs), who traditionally accepted longer hold periods of seven to eight years, are now increasingly focused on interim liquidity. “Seven or eight years feels like a really long time” to LPs right now, says Hudson, even though “it’s always been seven or eight years.” The shift is driven by a slowdown in venture returns and the availability of more liquid investment options.
The analysis Hudson conducted revealed that selling everything at Series A was not advantageous. However, selling at Series B presented a different picture. “You could have a north of a 3x fund if you sold everything at the B,” Hudson discovered. “And I’m like, ‘Well, that’s pretty good.’”
This realization is influencing Hudson’s portfolio management strategy for 2025. With 22 years of VC experience, he notes that investors in early-stage companies are being compelled to think more like private equity managers, focusing on immediate cash returns alongside long-term growth potential.
The transition isn’t easy, especially when the companies generating the most secondary interest also hold the greatest future promise, according to Hudson.
Hans Swildens, founder of Industry Ventures, echoes this sentiment, noting that venture funds are becoming “savvier about what they need to do to generate liquidity.” Some firms are even hiring dedicated staff to explore alternative liquidity options.
The pressure is particularly acute for smaller funds like Precursor, which focuses on backing unconventional founders. While mega-funds can afford to wait for massive outcomes, smaller funds must be more strategic about when and how they realize returns. Hudson points to portfolio companies like Laura Modi of Bobbie baby formula and Doktor Gurson of Rad AI as examples of the types of founders Precursor supports.
University endowments, once the most sought-after LPs, are now facing challenges that impact their investment strategies. Federal investigations, compliance issues, and scrutiny of endowments are making them hesitant about illiquid, long-term commitments.
Hudson notes that the LP base is becoming more complex, with some investors prioritizing quick returns, even if suboptimal in the long term, while others prefer a hold-to-maturity approach.
Navigating these conflicting demands requires sophisticated portfolio management, a skill not traditionally emphasized in seed investing. Hudson observes that venture is increasingly resembling other sub-asset classes in finance.
Despite these changes, Hudson remains hopeful. He acknowledges that as funds grow larger, they tend to become more algorithmic, focusing on specific categories and founder profiles. While efficient for deploying large amounts of capital, this approach can overlook the “weird and wonderful” companies that have driven Hudson’s best returns.
He cautions against relying solely on resume screening tools, as they may miss individuals with relevant experiences that algorithms fail to recognize.
