The New Math: Why Seed Investors Are Selling Their Winners Earlier

The venture capital landscape is undergoing a significant shift, prompting seed investors to reconsider traditional long-term investment strategies. Charles Hudson, founder of Precursor Ventures, recently conducted an exercise at the request of one of his limited partners (LPs) to analyze the potential outcomes of selling portfolio companies at various stages. The results revealed a surprising insight: selling at Series B could potentially yield a compelling return, leading to a reevaluation of portfolio management approaches.

Hudson’s analysis showed that while selling at Series A was not advantageous, holding companies until Series B presented an opportunity for a “north of 3x fund” return. This discovery is reshaping Hudson’s perspective on portfolio management for 2025, compelling him and other investors to think more like private equity managers, optimizing for cash returns alongside the pursuit of high-growth companies.

The pressure to generate quicker returns is particularly acute for smaller funds. Unlike mega-funds that can afford to wait for massive payouts, seed-stage funds need to be more strategic in harvesting returns. This shift is driven by a combination of factors, including a slowdown in venture returns and the availability of more liquid investment options.

Hans Swildens, founder of Industry Ventures, echoed this sentiment in a TechCrunch interview, noting that venture funds are becoming more proactive in generating liquidity. Some firms are even hiring dedicated staff to explore alternative liquidity options. This trend reflects a broader reshaping of the venture ecosystem, as funds adapt to meet the evolving demands of their LPs.

University endowments, once highly sought-after LPs, are now facing their own set of challenges. These institutions are grappling with issues ranging from federal investigations to scrutiny of their substantial endowments, making them more hesitant about making long-term illiquid commitments. This has resulted in a more complex LP base with competing needs, some prioritizing immediate returns while others prefer a longer-term approach.

Navigating these demands requires a level of portfolio management sophistication that seed investors haven’t traditionally needed. Hudson views this shift with ambivalence, noting that venture is starting to feel less like an art and more like other sub-asset classes in finance. Despite these changes, Hudson remains hopeful, emphasizing the importance of identifying unique and unconventional companies that may be overlooked by more algorithmic approaches.

Hudson highlights the risk of missing out on “weird and wonderful” companies when relying solely on resume screening tools. He argues that a more holistic approach is needed to identify founders with relevant experiences that may not be immediately apparent through traditional metrics.

For a deeper dive into this topic, you can listen to the full interview with Charles Hudson on TechCrunch’s StrictlyVC Download podcast.