Charles Hudson has spent more than a decade investing in startups. As founder and managing partner of ⁠Precursor Ventures⁠, he has invested in hundreds of companies and seen massive shifts in markets that require founders to get creative and throw out old fundraising playbooks. On this week’s episode of Build Mode, Startup Battlefield lead Isabelle Johannessen talks with Hudson about the obstacles early-stage founders face today and the most common mistakes founders should avoid to get funded.

Optimizing for high valuations instead of prudent planning

A high valuation doesn’t make sense for all companies. While it can attract media attention and legitimize the company to other investors, founders should be realistic about the expectations they set for their company with their valuation and, most importantly, think about who they choose for their cap table. Is it worth working for a big check with an unsuitable investor for the next 10 years?

“The real risk with these big rounds is that you end up being a prisoner of your own company. You raise all this money and you’ve sold people on a big vision. They don’t want you to pay them back; they want you to find a way to build something that’s worthy of what they gave you,” Hudson said.

Run your own due diligence on potential investors

Talk to the portfolio founders to see what kind of added value the investor can offer. Check the claims they make about recruiting, GTM support, and connections with other teams on the platform. Remember, VCs court you as much as you court them.

If you are curious to learn more about valuations and investor selection, be sure to subscribe to Build mode. Next week, Andrew Dai, co-founder and CEO of Elorian, will talk about the whopping $30 million valuation the company received before even raising seed.

Know if venture capital is right for your business

Large companies are not always venture-scale companies. Venture capital only works if you are creating a company capable of returning a fund.

“I’ve had more success lately telling people, ‘This is what venture capital needs you to do. Let’s get away from your company. This is the kind of business you need to want to build. Is that your desire?'” Hudson said.

Understand the current reality of fundraising

Private equity has changed dramatically in recent years. Investors aren’t just evaluating your company in comparison to last year’s startups; They’re also comparing it to the fastest-growing AI companies in history. Even startups that are showing growth that would be surprising in other markets aren’t measuring up.

“They’re doubling, tripling, quadrupling, and the message they’re hearing from the market is that it’s good, but not great,” Hudson said.

The new season of Build mode is now available. Every week we talk to investors backing some of the hottest startups in the game and founders building from the ground up and those who have successfully exited their companies.

We are getting into bootstrapping and crowdfunding. We’re breaking down term sheets and providing practical advice on proposals.

Subscribe to Build Mode on⁠Apple Podcasts⁠, ⁠Spotify⁠or⁠wherever you want to listen⁠. And watch the full videos on YouTube. New episodes of Build Mode appear every Thursday.