Katie Dunn: [00:00:00] They think they have to write $50,000 checks, a $100,000 checks, I want to debunk that myth.

Every check I've ever written, I think this is gonna be the one! 

The thesis gives me a fast reason to say no.

Knowing how to play the game is more than half the battle. 

It's not about the money. It's about the relationships. 

Don't sleep on your banking relationship either.

It should be a heck yes. 

A "no" is being respectful, it really is. 

You can find whatever you're looking for today. 

Andrew Kazlow: Welcome to the Diligent Observer, the first podcast exclusively focused on helping angels see what others miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

My guest today is Katie Dunn, who after financing $10 billion in commercial real estate, became a full-time angel investor with a focus on underrepresented founders. In this episode, Katie shares her execution focused approach [00:01:00] to due diligence, her strategy for writing smaller checks across a diverse portfolio, and why the financial model is such a treasure trove of insight into the mind of a founder.

I hope you enjoy learning from Katie as much as I did.

Katie, thank you for being with me today.

Katie Dunn: Hi, Andrew. Thank you so much for having me.

Andrew Kazlow: So Katie, I'd love to start with my classic first question, and that is, what are you excited about right now?

Katie Dunn: I am excited about the most recent check I wrote, which was this week I actually ran an SPV for a founder. A female founder that was oversubscribed. Our allocation was actually a hundred thousand for the SPV. She was raising 3 million. I don't, the final number I should have after we record, but I think it's gonna be around 3.7.

And our SPV that I ran with my partner was, on this deal was, oversubscribed by over 50%. So, I am super excited about that. [00:02:00] I am super excited about the small checks we got from a bunch of angels, and I'm excited about the product because it is a personal CRM slash relationship copilot that will bring in all of your contacts from every source, email, your calendar, your LinkedIn contacts, any CSV files that you have. All of that into one place, and you can talk to it like a GPT. It's uses AI to provide analysis and you can put people into groups and all that. This is a tool I am dying for. Like, I almost was going to try and figure out how to create it for myself. So I am really excited. Female founder, exceptional founder. Literally has built her whole career around for this moment, and then the technical co-founder has worked with eight startups. He is unbelievable. It's just gonna be awesome. So, that's like my big high for this week, I [00:03:00] have to say.

Andrew Kazlow: Well, it's certainly a pain point that I think any of us that are active in this community feel, uh, just staying organized. There's so many tools and overwhelm is the name of the game. So, creating a way to streamline that pretty simple value prop, which is something that I love.

Say more about the work that you do and the excitement around syndicating small angel checks. That's a trend that I've seen more of recently, newer entrance into the ecosystem. Angels that are really leaning into portfolio theory and trying to spread their dollars across numerous deals. Say more about kind of your work to help make that happen.

Katie Dunn: This is a great point, Andrew, and I'm so glad you're seeing this too, because I see so many people that are interested in angel investing and they think they have to have a ton of money, or they think they have to write $50,000 checks, a $100,000 checks, and I [00:04:00] want to debunk that myth.

That is a huge part of what my mission as an angel. I have a couple different ways that I, things that I do professionally, but in the angel route, I wanna encourage people, and you have to be an accredited investor unless you're doing a Wefunder round. That's really important to point out, but you don't have to write these huge checks.

The chances of these startups failing is pretty high, right? So the whole portfolio theory is really important in spreading out across industries, across founder types, across what you're looking at, so that you give yourself the best chance to get one or two or three big payouts. I mean look, every check I've ever written, I think this is gonna be the one at the time I write it.

And then things happen and, you know, founders have struggles and, I've even had a founder get cancer. Like horrible things happen all the time that are beyond people's control including market changes and [00:05:00] market shifts and technology changes and all these things.

So, being prepared as much as you can, but spreading out your money and writing a $2,500 check if you can into an SPV can be an option. Or $5,000 or $10,000. Usually founders want you to be write a bigger check if you're going to be the one line on their cap table, which is very important to certain founders.

It's very important to have their name on the cap table. I subscribe to a different ethos to that, I think I can be helpful without being a line on the cap table even if I'm in an SPV. Whether it's doing LinkedIn posts for my founders and, I did a LinkedIn post for a founder yesterday that I invested $2,500 in the SPV and the post went viral. So, I'm getting a lot of attention for her and her company by adding value that's probably a lot more than my check is worth. My [00:06:00] name is not on that cap table, which is fine. So I think you can be helpful in other ways and you don't have to write a huge check so that you're diversified.

Andrew Kazlow: I have a lot of people that don't necessarily subscribe to this, but I have other friends that say, budget out what you're gonna do, try and write one check a month, that kind of thing. So that it keeps yourself, you have a strategy around it. I don't do that just because I don't wanna commit to one a month, and if I don't like something in that month. I wanna make sure that I'm being very methodical and following my thesis, doing my due diligence on the founder, all of those kinds of things before I write a check. 

A couple things you just said that I wanna double click on. One of those is your thesis. So, you have a pretty specific thesis that is less focused on your professional background than I would've expected. So I'd love to hear, how did you go about developing a personal thesis? Tell me the story for that.

Andrew Kazlow: What have you learned since kind of crystallizing [00:07:00] that thesis and then how does it play out on a daily basis as interesting opportunities that I'm sure are outside of that thesis hit your desk all the time.

Katie Dunn: Yeah, it is interesting. So, my background is in commercial real estate finance. I spent 25 years doing deals across the country, big, small, everything in between, but it really got me comfortable with underwriting people, places and things. And I talking about money and talking about money in terms of millions and billions instead of hundreds and thousands.

So, I think that gave me a headstart in angel investing 'cause I was, I'm comfortable with models, I'm comfortable with due diligence, that I think in Excel. All of those kinds of things are really important. But I have not made a PropTech investment or a real estate focused investment in my Angel portfolio.

And I think that is because I don't really see those deals, and I know that there's innovation in the industry, I just don't see them for whatever reason. And I [00:08:00] don't know why. But I am always interested in talking to people with them because I feel like I could add a ton of value and I wanted, you know, hear about what they're doing.

And I spent so much time and I saw so many inefficiencies and so much opportunity to increase productivity and cut red tape and all that good stuff. But yeah, I just don't see 'em. But I developed my thesis, to put it out there is to invest in underrepresented founders in consumer packaged goods and technology.

And the underrepresented founders aspect comes from the fact that women only receive less than 2% of VC funding, people of color. It's around 1% LGBTQ, it's way less than 1%, but hard to track because a lot of founders actually don't feel comfortable coming out to their investors. It's hard to know the real numbers there.

 And I just heard this stat the other day. Women, pre-pandemic were forming 29% of the new [00:09:00] companies that were coming out every year. That number has increased over 40% since the pandemic. So, there's so many people out there that don't have the network, don't have the resources, don't have that access to friends and family money. I wanna try and bring those ideas to light. And that's not to say that I haven't invested in white men. I absolutely have. And I lost my shirt on one. A couple others are doing okay. So, I'm happy with that. But it's really about, they fit other parts of my thesis.

And then the CPGI, I think that's like a little bit of a gateway drug for angels. I don't know if you'd agree. You know, I've invested a lot in drinks brands and there's, there's like food thing. It's something you can see and touch and in a store, or you can send a link to your friends to buy or you can gift it to people.

It's like an easy thing for anybody to understand because we're all massive consumers in the US. So, if you're using the product, I'm not a user of every single product that I've invested in every day, but [00:10:00] I could be if in a consumer good. I encourage angel investors to look at those a little bit 'cause it gets your feet wet. It's usually easier to understand than a really technical company like a space investment or space tech or even AI. If you don't know what you're doing or don't understand the problem they're solving, I don't know that I would recommend that.

And then the tech side, it's sort of tech light, you know it's a B2B SaaS companies. They're using AI, but they're solving a problem first. That's the other thing I look at is, there's so many AI companies that's the buzzword of the year or the last year and this year, and I don't expect that to go away.

But what I really think is important is to make sure that it's solving a problem using AI. It's not AI for the sake of AI, if that makes sense.

Andrew Kazlow: Have you found that publicly and specifically communicating this focus has driven more quality [00:11:00] deal flow for your portfolio over the last couple of years? And how do you interact with opportunities that are outside of this thesis? Because I think that's the tension of a lot of angels is, I don't wanna put out a specific thesis because, what if I find something interesting that's outside of that and they feel like, I don't wanna limit myself, right? The tension with specifying a couple of categories. How do you feel like that's played out in your situation?

Katie Dunn: I will say, it doesn't stop everyone and anyone from reaching out to me to ask me to invest in their company. 'Cause I have angel investor prominently. That's the first thing you see on my LinkedIn profile. So, I get dms like you would not believe from people all over the world. And, I've also limited my thesis to investing in the US.

I have invested outside of the US. It gets complicated and, I, you know, I have a three companies specifically right now, that one in Canada, one in Ireland, one in the UK. And it's just, I don't wanna [00:12:00] overcomplicate myself right now. But yes, everybody comes to me regardless, so I don't feel like I'm missing out on things.

And people know I'm an angel investor. They know I have connections with other investors. They're constantly asking me, can you make an intro? Or can you, do you know somebody else that it might fit their thesis? So, it has not limited me. I will say the cold reach outs. There's been one investment and I dug in, I had a ton of connections too that I have invested in. The cold outreach is a bit of a red flag. If you can't find a warm connection to me and get somebody to say, here, you should talk to this person because they fit your thesis, because. You can help them, because. I'm likely a no. And the reason why I have the thesis too is it gives me a fast reason to say no.

I think that founders getting a no [00:13:00] off the bat is, whether they believe this or not, is actually helping them. Because I can say it's not you, it's not your product, it's me that's the problem. That's the barrier. I can't be helpful for you. You know, I can't give you money because it's not gonna be good for you.

But I think a lot of founders, they think all they need is money. They actually need relationships. They actually need partnerships. They really need customers. So, for me it's about giving a reason to say no. I have a checklist that I go through before I even do a call with the founder, and that's, do they meet my thesis?

Do they have experience? Is it somebody that I really think I can help? What are they looking for? Like I have all these reasons to say no. Is the check size the right number? Is the valuation in the right area? Like all these things.

And if I can't say no to any one of those things, then I'll do a call with the founder. But there's other ways I can help founders. [00:14:00] I actually help founders with their fundraising strategy. So, getting clear on their communication, building their confidence around this.

What is the process? This process is not intuitive on how you do this. It's not something you're born knowing, and unless you've been through it, you don't know what you don't know. And investors are very savvy. For the most part, they've got a way that they wanna work with people.

They've got the process down. So if you don't know how that works, you have so many opportunities to lose their attention and then potentially lose their check. So, knowing how to play the game is more than half the battle. And coming across confidently, being able to communicate your vision quickly, being really direct, showing the value, hitting all the points that somebody wants to see, all of that, putting that together in a fancy package.

I help founders do that so that they can be more successful in the connections that they make.

Andrew Kazlow: It's interesting, Katie, you're talking about this almost implicit [00:15:00] decision making framework you use where there's a line item in there that is, can I add material value to this entrepreneur's journey? And if the answer is no, even if it's an appealing deal, what I'm hearing, you can tell me if you see it differently, but what I'm hearing is you're likely to pass, even if it's an interesting opportunity, unless you can specifically add value.

Will you say more about why that is?

Katie Dunn: Well, I should say, there's been some that I have done and it's been smaller checks. I know I'm not gonna be a customer. I don't necessarily have partnerships that I can help with. But know, I've talked about this in the past. I know founders are so focused on money.

They think money can solve every problem. What I have learned in my experience. In my corporate career, from my corporate career through the angel investing and all the other investing I've done, it's not about the money. It's about the relationships, and it's about the people that can help you or maybe it's the technology. There's always a person in the loop that's gonna help you solve a problem.[00:16:00] 

So, I wanna be there. For that, I wanna be there to help solve that problem. So the company that failed this past year was a beverage and supplement company. Amazing founder. Incredible founder. Has a really successful other business that he is never taken any investment for.

But this one, it just failed. There's a lot of things that went wrong and couldn't get traction on or money spent in the wrong places. The thing I love about him so much is he was very honest about all of that and spoke very candidly about all that, super transparent.

Another thing I really look for in a founder, but I really wish he had come to me earlier because he dissolved the company and I think that he could have sold it at some price. I think there was some other avenues that he could have explored, and if he had come to me earlier, I could have said, Hey, just talk to these people. Let's see if there's something salvageable here. And I don't know what would've happened, but good [00:17:00] investors can support their founders if they know what problems they're having. So, I always encourage every founder to do investor updates via email and if you are an investor and you're not getting them, you should demand them, frankly.

And saying the way it should be laid out from the founder perspective is starting out with, the wins they've had, the metrics that they're measuring and what those look like, whether it's growth, revenue, customer acquisition, reduction in margins, whatever those things are. Just a brief update financially on how the company's doing.

But then there should always be a set of asks, and they should say, I need help with X, Y, and Z very specifically. I need introductions to distributed partners. I need introductions to new manufacturing opportunities. I need introductions to more customers in this industry, whatever it might be.

Put those specific asks. And then here's the other [00:18:00] key, when get that help, you thank those people in the next letter. And you put their names and you say, so and so help me with this. And then people, the other investors and other advisors and other people that are getting these emails, their egos are gonna be hit and they're gonna be like, I wanna be in that next one and I wanna be thanked in the next one.

So, I'm more likely to help the person next time if I think I can be helpful. I don't wanna just be a checkbook. It makes you feel like so transactional, and not, it doesn't make me feel good. What makes me feel good is helping the founder I helped yesterday by having a post go viral about our company like that.

That's a better feeling than writing a $2,500 check.

Andrew Kazlow: And Katie, I think you're hitting on something that is just so fundamental to what it means to be an angel investor. Like a bank is a great source of just pure capital, right? Go get a line of credit, go get an investment. That's the way to do that if we're not looking for any extra support, but an angel investor is at its highest and best [00:19:00] use a source of a little bit of capital, but mostly everything else that you just described. All the secret sauce, all the experience, the network, the connections. I see the exact same thing, so many founders misunderstand that, and I love that you're highlighting that and that you've almost got that as a screening kind of framework for you when you evaluate deals.

Katie Dunn: Yeah, but Andrew, I will say, bank, after I've worked for many banks and financial institutions over my career, the power of relationships there is just as important. I have seen so many borrowers, that's what we called them, as people I lent money to, get special treatment on deals because they were clients of the bank for so many years. So, don't sleep on your banking relationship either.

I think a lot of this stuff comes down to, as a founder, your ability to build relationships with your customers, with your partners, with your investors, whatever it might be, and then your ability to tell that story and how, tell the story of [00:20:00] yourself and your company in an effective way to push all of those relationships forward and get what you want.

Andrew Kazlow: So I'm seeing some themes here and I want to pivot to asking you a little bit more about your due diligence process for these early stage deals. You hold yourself out as a diligence expert. You are obviously in the real estate world for a long time, and you've got a a way more robust mental model for what does due diligence mean than most of us probably do. Talk me through your diligence process for the average early stage deal, because if I'm writing a check for $2,500, okay, yeah, that's maybe a material dollar amount for my portfolio. Maybe it's a 25 grand, maybe it's 250 grand, whatever range we're at, if I'm an angel allocating a very small portion of my investible dollars towards these deals, it's hard to allocate a lot of time to do a quote unquote robust diligence process. So talk me through how think about due diligence, where you start and where you end, and how [00:21:00] you define what is enough information to make a decision.

Katie Dunn: That's a really good point, I really like that you brought up the monetary amount, because I think that the amount of money that you invest should kind of equate to the amount of due diligence you do if you are writing a smaller check, don't expect to have 75 meetings with the founder digging into their birth certificate.

That's not fair. It's not right. It has to have a level there. So, I want to say that first and foremost, but the very first thing I do always comes down to the founder. 

100%! 

I invest very early stage. I've invested pre-product, pre-service, even pre-name for certain things.

So, the only thing I have to go on in those situations is the person. Believing in that person and their ability to execute is everything. So, I look to what is their expertise been in, in the past. For example, the very first, significant investment that I did [00:22:00] is in, a spirits company called Outcast Brands.

We have two spirits, Blood Monkey Gin, and Two Shores rum. Blood Monkey Gin is available in the US. Blood Monkey and Two Shores are available in many countries around the world, in Europe and Africa, but Two Shores isn't in the US. But that founder, who's an exceptional founder, had spent 20 years in beer, spirits, and marketing.

So he had the connections. He has the expertise. He knows what works. He knows about branding, he knows how something's gonna look on a shelf. Like all of these details that was the specific reason why I went with him and I invested in him because that stuff, if you look now, everybody's got a tequila brand.

Every celebrity has a tequila brand. There's so many spirits things out there. But if you don't understand the core elements of selling a spirit, which is very difficult to do, especially in the US with a three tier distribution system, you're never gonna [00:23:00] make it. So, that's a big thing. And understanding the person behind, have they executed? What have their results been in the past?

The founder that I was just telling you about, the SPV, she was the third employee at LOLA, the fifth employee at CHIEF. And at CHIEF, she grew the membership from 2,000 to 20,000. So, she knows how to execute. And that's what's really, at the end of the day, everyone has an idea. I have 75,000 ideas. I'm sure you have a thousand ideas of businesses that should exist or could exist.

I had the idea of this company Loop, which is the personal CRM. I had the idea, but I didn't execute on it. Caroline did. So that's where the difference comes in. And always the first thing I look at. The second thing that I look at is the financials. I know that's a unique thing or it's more unique than I expected it to be in the angel investment world because it's how I think, I think in Excel. you know, I built models my whole career and that's [00:24:00] really.

It's easy for me to look at things and pick it out, and I know how to analyze things across a few years or month and look at trends and all that stuff. I think a lot of angels and founders, frankly, finance is not their expertise. So they get scared about it, and they're not sure what to look at and how to look at things.

We know that these founders, especially early stage, you're developing a proforma. You're developing a forecast that's really all guesses. And I know that, and every investor should know that these are guesses. But what I like to look at are the assumptions that are being made that tells me how the founder thinks.

So, what are you expecting your margins to be in two years versus today? Show me how you're gonna get the inventory levels up. How are you gonna take care of that inventory? Where's it gonna go? What co-packers are you working with that are going to give you better deals?

It's all of those kinds of things. What's your expectations on hiring people, salespeople, marketing [00:25:00] people? What's your advertising spend gonna be? You know, all of those kinds of things. How are you gonna reach your customers? What's your customer acquisition cost going from today in three years?

What are you expecting it to be? So, just making sure if those things make sense to me or seem relatively achievable, then I'm like, okay, this person seems to have a plan and understand how they're gonna execute to it, that can tell me a lot. If they're insane and crazy and saying, oh, I'm gonna be profitable in one year and I'm gonna have a million dollars in NOI, net operating income after year one because I'm gonna put this on social and it's gonna go viral,

I don't know about that, right? So, it's a little bit of a trick of figuring out the insights of how the founder's brain works and it might tell me how they might execute it. Showing me a little bit about their plan on execution that is deeper than just the go-to market strategy.

Andrew Kazlow: So Katie, what I'm hearing you say is, the financial model is also founder diligence because you're looking at the financial model, not to look at the financial model. You're looking at the financial [00:26:00] model to understand what are their plans, have they planned? What are their assumptions, what are their expectations? What's the crystal ball for how they're thinking about the next few years, which is what I am investing in as I'm considering capital deployment, like back to the dollars, there are dollars changing hands here. If this is a closed deal, and so my dollars are gonna go towards achieving these assumptions.

And that's what you're looking at, not really the actual numbers on the page.

Katie Dunn: Exactly. Yeah. I haven't thought about it in that exact way, but yes, a hundred percent. I tell founders to think about, like if you're raising, say that you're an early stage company raising $500,000.

You're talking to me as an angel and say, I write $25,000 checks. Think about if you had my check tomorrow, what are you gonna do with it? How are you gonna spend it? What's the return on the investment gonna be? So, that's a question I ask of founders often. If I wrote a check to you, what would you do with it tomorrow?

And if they have an answer and, you know, it's always about, [00:27:00] you always wanna break up the amount, the $500,000 in this example. You wanna break that up into a few buckets. How are you gonna spend that money? What are the returns gonna be? But if you can even break it down further for the investor and say,

if you gave me that check tomorrow, I would do X, Y, and Z with it and you can expect to see growth of A, because I got that check so much faster and I was able to execute on this plan faster than if it came a month from now or two months from now. It's always thinking about what's the return gonna be for the company on that money that I invest.

Andrew Kazlow: So say more about how you finalize a decision. Like, okay, you've been talking to a founder. You've a little bit of time with their model. Average check for you, whatever average means. How do you make a decision, basically? Like I'm sure back in your commercial real estate days, you had very specific, thorough kind of decision making frameworks. It must meet all these criteria, ta ta [00:28:00] ta ta ta, doesn't meet it so we're out or it looks good, so let's go. How do you finalize a decision? Because I think this is something that many angels struggle with is. I like it, but I don't, I'm not ready to say yes, but I also don't wanna say no yet. And so things can kind of drag on and drag on.

And angels have a terrible reputation for not being quick with their decision making. So say more about how you kind of process that last mile of some diligence. How do we decide if this should continue or not?

Katie Dunn: Yeah, that's a good question. It is an issue with angels that I'm gonna be totally honest, I have fallen victim to that too. The thing for me is if I don't, if I can't, don't feel like I can make a decision what the conclusion I've come to is, it's a no. 'Cause it should be a heck yes. 

It should be, I think this product needs to exist in the world and I think this is the right person to take this product into the world. 

There's one company I really, really, really love. I didn't invest in their last round, but I still help them with a [00:29:00] bunch of stuff and I'm keeping a watch on them.

I say to a lot of founders, you know what, it's not for me right now, but keep me on your investor update list. I really try to give people firm answers because I know they don't get 'em. And that's one thing I do too in my LinkedIn. I know these founders are reaching out, desperate for money, desperate for help, and they get, you're too early for us.

Or it's a not right now. I try to give them really specific reasons because I want them to understand what they can either: A. Do to improve for the next time, or B. Give them set goals of like, what I would need to see in order to write a check the next time. And founders take all of this stuff so to heart.

I've seen it from the founders that I work with. They will change their entire pitch because they talked to one investor. I actually saw one company, great founder, really, really, really exceptional, super bright, coded the whole thing herself. She had one conversation with one investor [00:30:00] who told her she should employ blockchain and she changed the entire company. Entire company,

an entire model. What she was building was working and I don't know that it's working anymore. And it's hard, even though I'd been working with the founder for, I think nine months at that point and said, wait, wait, wait. No, no, no, no, no. Don't, don't do this just because this one person said it. It's hard to change their mind if they think that person's right over you.

I've seen it firsthand. I wanna be respectful of founders. You have to think about, like as an angel, these founders are really impressionable and really desperate for help. So be respectful of them. A "no" is being respectful, it really is. It just lets them move on. They don't have to keep emailing you or calling you or DMing you.

That takes time and effort and they have their hopes up. Let them move on and, that's really what, like I said, I think I look at it like, if it's not a heck yes, then it has to be a no.

Andrew Kazlow: [00:31:00] It is such a hard thing to say no with grace. And there's so many memes out there about, you know, there's no good deed that goes unpunished, right? Giving that feedback is really difficult and it's a thankless thing in a lot of cases. I have had several guests in the past talk about what you're saying though, and that is that saying a no with grace and giving good feedback. That like, you have no idea what that founder is gonna do over the next 5, 10, 20 years. And so the way that a response is communicated sets up a brand for you as an investor and establishes the tone for the relationship with that individual who just might shut down their current thing, start the next thing and go on to do incredibly.

And so I love the importance you're placing on giving the no with some color instead of, 

Katie Dunn: Yeah. 

Andrew Kazlow: not yet.

Katie Dunn: I use my thesis for that all the time, because one of the biggest obstacles I have is that I don't have all the money in the world to give to these people. I only have a certain amount of [00:32:00] money that I'm allocating to this. If I had all the money in the world, yes, I would give money to way more founders.

My thesis would be much broader. But right now, I use it as a way to say, no, it's not you, it's me. Before this I was responding to a couple dms and I probably said that three times in a row. It's not you, it's me.

I don't want you to take this personally. I'm just not the right person for you. It doesn't fit my thesis. You don't fit because of this reason exactly. That kind of thing, so that they understand. Okay, great. Don't waste your time. I'm happy to help. I could get on a call with you and talk about some strategies or some other things, or give you some feedback on your business model or your pitch or whatever it might be, but I'm just not gonna be the person to write the check.

Andrew Kazlow: Katie, I'd love to spend probably the rest of our time together on

peeling back the onion a little bit on the underrepresented founder and how as a capital allocator as an investor to [00:33:00] assess that opportunity. So you've worked with a number of founders kinda supporting their journey. You've also invested in a number of underrepresented founders given your thesis. For the average angel who is sympathetic and interested in supporting that thesis, but maybe doesn't specialize in like working with underrepresented folks, talk me through some of the common misconceptions, misunderstandings that you see investors have about the underrepresented founder, and how you would advise or encourage an angel interested in this category to engage well?

Katie Dunn: The big misconception, or a big thing I hear a lot is, well, I just don't see deals from women or people of color. Maybe you're not looking in the right place. There's a lot of groups out there that specialize in that. If you're looking for deal flow from underrepresented founders ping me, I've got tons of it.

I put out an email at least quarterly that has deal flow that I see of founders that I've worked with or invested in [00:34:00] personally. You can find whatever you're looking for today. So that's not, I, I Just don't buy that excuse. If you're just sitting back and deals are coming to you and you're writing small checks and you don't, and it's just haphazard, fine, that's fine.

But if you're actually actively looking for something specific, you can find it and it's out there. The other thing I see a lot of is the way that people speak to underrepresented founders, and there's a lot of studies about this, they get preventative questions. A woman might get asked, how many kids she has or is she planning on getting pregnant?

Where as a man never gets questioned on kids or whatever because he's the man and that's, he's supposed to work and run the company. And the woman, he's got a wife at home to take care of all. Everything else, but the wife can't have the company. You know, I encourage people to have a set of questions, and I'm not saying you can't go off the cuff and you shouldn't go off the cuff because everything should be a conversation and relationship building and trust building and transparency and all that.

But understanding that [00:35:00] women, first of all, outperform men that there's studies on that, including all the way from CEOs. Female CEOs get higher returns and of public companies get higher returns than their male counterparts. There's so many studies that women are more prepared.

They're have the risks buttoned off more, whereas men just might wing it a little bit more. I think it's just a wiring thing and it's okay, but that's part of why I invest in women in particular because the stats show me they're gonna get a higher return. So, just seeking it out and thinking about how you ask the questions.

Would you ask that of a man? Would you ask that of a white person? Would you ask that of somebody that is different from the other person? Understand the person behind it and try to take the blinders off. 

Andrew Kazlow: Can I interrupt and just ask, could you give some examples? 'cause I know you've worked with so many founders, women founders, underrepresented groups. Gimme some real examples of stories, things that you have just seen founders really [00:36:00] struggle with that an investor, maybe an offhand comment or something that they did without thinking twice about it, which was just, dramatically impactful to an entrepreneur.

Could you give a couple examples of that?

Katie Dunn: For sure. So, I have one founder I invested in who has a B2B SaaS business that incorporates AI. It's a RegTech company. She's been in the space for 20 years. She is considered an expert in regulatory areas. When she was raising a second round, she had a 2 or 3-year-old at the time of raising her second round, and she had a male investor who was going to write a million dollar check say to her, I will only write this check if you sign something saying you will not get pregnant in the next five years.

He also, I had introduced her to a couple of women in my network who had been in risk management for very significant banks, two women in particular that had run risk management for two banks. Very prominent banks. They were both looking at writing checks. But they were [00:37:00] gonna be smaller, and possibly doing some advisory stuff, introductions, those kinds of things.

This investor told the founder, that's dumb money. Dumb money was the term that he used. These women were more successful than that investor could ever dream to be. So, I mean, there's examples right there. It's that one founder. I've had other founders tell me stories of being scammed by investors where there's one story, this is horrible.

So female founder, male investor who was at a VC, and told the founder, I've gotten the clearance. We're gonna give you a million dollar check. And then abruptly, he leaves that VC, and says, I'm gonna start my own fund, so I'm gonna write the check for my own fund. And they became really good friends.

And there was this relationship, they traveled together. He took on trips, they did all these things together. And he would put her in front of LPs that he was raising the fund for showing like, this is my first check. This is the type of founder I [00:38:00] wanna invest in.

This is great. And he took all those LP checks. And ran with him. He was a total scam artist and totally took advantage of her. There are so many stories like this that are out there of these situations of just bad actors and not giving the respect. I had one founder, one founder tell me, female founder that a male investor told her, if you get a male co-founder, I will invest. These are all facts. It's just horrible. So, no wonder we get angels and even some VCs get bad reputations because there are a lot of bad actors out there. And that's the case in every industry, right?

What I tell founders and angels, frankly, you've got to use your gut when forming these relationships. These relationships are like a marriage. You need to have trust, you need to have transparency. You need to have a solid foundation because they're long term. They're 5 to 7 to 10 to 15 years before you're gonna get an exit.

So [00:39:00] making sure you've got the basis of it now, communication is strong. Are able to call them whenever, reach out for help, celebrate the wins too. It's not just all about the bad stuff, be there to celebrate as well. You've gotta have that there. And if it doesn't feel good from the start, it's gonna feel way worse down the road.

Andrew Kazlow: Well, I think that's certainly an excellent point. I mean, it's the same as interviewing for a role, right? You only get so much information. and you've gotta, You kind of have to draw out macro implications from small signals and flags. Oh, they, they showed up a few minutes late to a meeting or they made this weird offhand comment right upfront, this is their best behavior and schedule that out over a couple years, things could change.

Katie Dunn: Yep. Yep. And I've learned that the hard way with a couple of my deals for sure. The one thing I have really tuned into is my gut on these things.  

Andrew Kazlow: Katie, I feel like with [00:40:00] underrepresented founders in investing in this space. Thinking about kind of, those that aren't focused in this space but sympathetic or interested. I feel like there's this like nervousness almost. Maybe you see this, maybe you don't. I feel like there's this nervousness and kind of like hesitancy of not wanting to offend, not wanting to do anything wrong, not wanting to step on toes. What encouragement would you have for the angel who's interested in getting more plugged in and supporting underrepresented female founders? How do they start?

Katie Dunn: I think putting yourself out there and talking to other people that invest as an angel investor, your network and your reputation are the two most important things. So that your network is what's gonna bring you deal flow. So start talking to people, look at people, look at companies and see who invested in them. And look at female founders and who wrote checks and then reach out to those people and say, I know you invested in so-and-so. Are you, uh, is that something you do often? Do you have good deal flow [00:41:00] from these people, or from female founders? Or do you have resources that have it? So looking at other people that are actively writing checks, as an angel, you can join different, like Citrine Angels is an angel group that invests in women Gaingels invest in LGBTQ company founders, those kinds of things. You can find those specific angel groups that invest in specific types of founders, or they have a specific thesis. So looking for other angels that invest in the same types of things as you.

That's how most of my deal flow comes to me. I, you know, there's a couple other angels that run SPVs a lot that I've done a couple deals with. My partner that I did this one, SPV, she and I have a very similar thesis. So we've done a bunch of deals together and like finding those people that, 'cause it can be a lonely journey if it's just you making the decision.

Like, I wanna talk to other angels, what do you think? Or what did you see? How long have you known the founder? Like it's, it, It's [00:42:00] important to be able to bounce things off of other people. Like you're alluding to the commercial real estate. When I was underwriting commercial real estate deals, the decision was not mine.

It was a committee and depending on the loan amount, there were deals that had to go to the president of the bank, 'cause I was doing deals that were over a billion dollars in total loan amount. We were just taking a small piece because that's what banks do. You syndicate.

It's kind of a similar thing to doing investing in a founder for larger rounds when there's a bunch of different people involved. But those were all done by committee and I had to prove it out to everybody else. So there are times that I miss that aspect of it. But I've figured out a network of, oh, okay, this person knows about this.

I can call them and ask them, what do you think about this? What would be your gut? Have you seen this deal? Are you gonna invest in it? What do you think? I have to tell you, there's been a lot of times that's heavily influenced me because I trust those people. So finding the network, I'm not part of a specific angel [00:43:00] group, but that's a great way to get deal flow and a great way to move your own thesis forward, and evolve it, and then stick to it if this is something you just kind of wanna do on the side. I think part of me is like I was, did so much by committee in my corporate world, I don't want anyone telling me what to do anymore.

So that's partly why I make my own decisions and write my own checks, but I'm definitely heavily influenced by my network and who else is coming onto the cap table.

Andrew Kazlow: I love it. Well, Katie, this has been fantastic. We will wrap things up there. All of Katie's contact information will be in the show notes. Katie, thanks for your time today and I look forward to our next conversation.

Katie Dunn: Thanks so much, Andrew. I loved being on. It was a great conversation.

Andrew Kazlow: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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