0:00:00 - (Greg Brown): It's not good enough to just be the best company in your co working space here in Charlotte. You're competing with that company in Raleigh for capital. You're competing with a company from Boston for capital. As an investor, I want to price the deal based on the risk profile when I'm deploying the capital, not in some future date. Super smart people articulated the story well, had a $250,000 paid pilot, put half a million of their own money into it, but they exited last year for $750 million.

0:00:29 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most 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 Greg Brown, administrator of the Charlotte angel fund, a 180 plus member angel community based in Charlotte, North Carolina that has deployed $15 million over three funds.

0:00:52 - (Andrew Kazlow): Greg brings more than five CFO roles and decades in venture capital to the table. And in this episode he breaks down why pre seed valuations have become such a math problem for angel groups, shares his framework for helping founders understand the deal pricing conversation from the investor side, and shares his story behind his fund's 20x return on Electrify, a drug delivery biotech that exited for $750 million.

0:01:20 - (Andrew Kazlow): I hope you enjoy learning from Greg as much as I. Greg, thank you for being with me today.

0:01:33 - (Greg Brown): Andrew, you're very welcome. I'm excited to do this.

0:01:35 - (Andrew Kazlow): Well, likewise, likewise. And I was. You and I were just chatting about this. I'm really excited because I think the way that you and your community have built your investment network is very different from how many investment communities form. And I'd love to just start with what are you excited about? Because I'm excited to be here and to be talking with you. But what are you excited about right now in the season?

0:01:59 - (Greg Brown): I'm excited about the startup community in Charlotte. It's vastly different than it was 15 years ago when I first set foot here. A lot going on within the community here, both in our group and more broadly and you know, sort of outside of that. Outside of the community or a part of the community really is our as our community gets more comfortable investing outside of the spaces that we know well, which is generally financial services and fintech in Charlotte. Right.

0:02:39 - (Greg Brown): We're the home of the banks and so that's as our members and others in the community, I've seen more willing to invest in things great companies like lucid bots here in Charlotte. That is in the robotic space, that's a stretch for some people in terms of, you know, being aligned with maybe where their careers have been and how they've, maybe how they've accumulated their capital.

0:03:06 - (Andrew Kazlow): I love it. Well, for those of us that are not super familiar with Charlotte and the broader Carolinas ecosystem, maybe walk me through kind of the overview of what are the things that your ecosystem is most well known for? Obviously you mentioned fintech, financial services. What are the other things that you would say Charlotte and the local ecosystem are particularly well known for in the startup world?

0:03:28 - (Greg Brown): Yeah. So Charlotte as a community to the, the dominant industry here is financial services. Right. You've got big presence from bank of America, Wells Fargo, Truest Ally, Lending Tree, whole bunch. And it's a financial services, real estate, private equity sort of community. So there isn't a big venture capital presence, you know, both historically and today. But you've got a bunch of private equity firms. Right. A lot of financial engineering that goes on.

0:04:06 - (Greg Brown): You know, we're a community, lots of finance and MBA types. We're desperate to spreadsheet your deal. Whether it's a biotech or anything else. We want to make a spreadsheet. Right. We don't have a lot of engineers or scientists in this community. There aren't a lot of, historically there's not a lot of product development, product build here in Charlotte. More of that goes on in the Triangle area, Raleigh, Durham.

0:04:31 - (Greg Brown): And so, you know, we end up for angel investors like Charlotte Angel Fund, we end up with a fair bit of our deal flow coming out of the Triangle area just because there's more technology innovation happening there than in the Charlotte community, even though Charlotte's a larger city.

0:04:54 - (Andrew Kazlow): Well, what's fascinating to me is the level of concentration that you all have been able to build in your investment portfolio that is local. So often I see angel communities form with this vision to invest local that sometimes outstrips the reality of the opportunity to do so. And then they have to really quickly go outside of their local community because there's just not enough local opportunity. But what's fascinating to me about Charlotte Angel Fund is that over a decade plus now you all have been extremely concentrated in local ecosystems, primarily in Charlotte and the Triangle area. Tell me more about like how have you been been able to be so diligent and rigorous to keep that regional focus? Because I so often see it quickly get lost in other communities.

0:05:48 - (Greg Brown): I'll start by saying, like most community based groups, our Charlotte Angel Fund is populated with a bunch of people who have affinity for Charlotte. Right. Hey, it'd be odd. Like everything else being equal, we're going to invest in a Charlotte based company. If we can do that, we go. My partner, Camille Cunningham, who works on the fund with me, she and I. The one place where we really work hard to overrepresent Charlotte is in what gets in front of our members.

0:06:21 - (Greg Brown): Right. So we'll, you know, we work hard at doing that and making sure that Charlotte startups get, get a place on the, on the platform. Right. And on the platform, me, they get a chance to make their pitch. From there, they have to earn the capital. Right. And so I tell Charlotte founders all the time, it's not good enough to just be the best company in your coworking space here in Charlotte, you're competing with that company in Raleigh for capital. You're competing with a company from Boston for capital.

0:06:55 - (Greg Brown): And you have to. The competition is brought over time. So we're now on Fund 3, investing, receiving members into and investing out of Fund 3. In Fund 3, roughly 30% of our portfolio is in Charlotte. About two thirds is North Carolina based, and then the other one third is outside. When we started, maybe 15% was in Charlotte. And the increase in that percentage that's from Charlotte really has to do with maturation in the local ecosystem.

0:07:32 - (Greg Brown): I don't think we're making investment decisions on any different criteria than we ever have. Right. But we're just seeing better quality coming out of Charlotte as the startup ecosystem has developed. Interesting, at least to me, is that we're now doing slightly fewer deals in North Carolina as a state. And I think I know the reason for that is as our networks have developed with other investors, with founders who are introducing us to other founders who they know, we're seeing more and more deal flow from outside of North Carolina.

0:08:08 - (Greg Brown): So while we're doing more in Charlotte, we're doing less out of North Carolina as a whole because we're seeing a higher quantity and quality of deal flow from outside the state.

0:08:21 - (Andrew Kazlow): Okay, so I have about seven follow up questions for you on this. Before I get to those, though, I would love if you could just take me back to kind of the origin for Charlotte Angel Fund. You're talking a lot about how much the community has grown over the last decade or so and that that's shaped the group's activity. But take me back to the moment when you decided to form this thing. What was that like?

0:08:46 - (Andrew Kazlow): Like, was there a moment that you were like, we should do this. Tell me the story.

0:08:50 - (Greg Brown): A piece of the story is that I have a background. I've been in a couple of venture capital firms in investing roles, have been around angel investing. And so I have a background in the administrative side of this, both participating in and in the administration of this type of activity. In 2013, I was introduced to a group of about 10 gentlemen, not gentlemen, individuals that weren't all male, who had been part of another investing group.

0:09:26 - (Greg Brown): That group was winding down, kind of getting to the end of their capital life, and just. And they. They. This group of 10 people wanted to continue the activity, but none of them wanted to be the face of it. They didn't want to put the administration or leadership into it. They just wanted to be participants. So I met them through a mutual acquaintance who knew that I had been involved in fund operations before and had done angel investing and so administratively would know how to do this.

0:10:03 - (Greg Brown): It was interesting to me. I think it's important. I really wanted there to be a vibrant, approachable angel investment group in the city where I live. I think that's an important thing for the ecosystem. Right. So I wanted that to take place. I enjoy the activity, and I was comfortable with handling the administration of it because of my background in some of those roles. And so those 10 individuals and I were the first members of Charlotte Angel Fund.

0:10:35 - (Greg Brown): We are now. We've now grown to. There are over 180 people who would say, I'm a Charlotte Angel Fund member, meaning they're an investor in one, two, or all three of our funds. We've deployed a total of $15 million over time, which is a meaningful number. I would love it if the number was 150 million, but 15 million is meaningful. Right. And so that is sort of how, you know, how Charlotte Angel Fund came to be and how we've developed over the dozen years or so that we've been at this.

0:11:12 - (Andrew Kazlow): Greg, what's so fun to me about that story is that it's sort of the inverse from the typical story of how I hear angel groups form, which is there's one really energetic visionary that's like, we need this group to exist, and they start it and. And then they figure out how to build it as they're flying it. They have very limited administrative or operational expertise, so to speak. And so it's a lot of volunteer work and kind of cobbled together from an operational standpoint. But this is almost the inverse of that, where you were like, yeah, I believe in this vision, and you came in with that kind of operational expertise at the behest of a community that wanted to exist.

0:11:55 - (Andrew Kazlow): Independently. So it's really, really fun to hear just this origin because it's so different from how most communities form.

0:12:01 - (Greg Brown): I think that's true. And I think what you describe, I agree with what you've stated. I think it's why. So I believe that the majority of individuals who have had an experience with a group of angel investors would say that maybe that experience didn't meet their expectations. And I think that has nothing to do with the investment outcomes. People who engage in angel investing understand that their capital's at risk and the most likely outcome of any one investment is that they're going to lose all their money. Right.

0:12:41 - (Greg Brown): That's what it is. I think the frustration and the unpleasant experiences that I hear about have more to do with sort of how the fund's organized. How does the administration of it go? Like, I can accept the fact that I might lose my capital. I can't accept the fact that the fund can't keep track of my capital account. Right. And so, as you know, you're in this business, right, doing the backend stuff is it's not simple and it needs to be done well.

0:13:22 - (Greg Brown): And the truth is, the amount of work that it takes is the same for a $5 million pool of capital as it is for a $500 million pool of capital. Right. It's just. It's an order of magnitude or two different in terms of the dollars that are involved, but the work to do it well is the same. And I think that's where a lot of groups have challenges and maybe come up short of member expectations. Well, I love that.

0:13:51 - (Andrew Kazlow): And I think I see that on display in how transparent you all are. Many communities are hesitant to be transparent about their performance. And a lot of that is because, one, it's not a fund, it's a blend of a bunch of individual investments that don't flow through a single entity. So it's really difficult to track and stay organized. In your case, since everything has been a fund from the beginning, you've got this well organized structure that can report performance.

0:14:24 - (Andrew Kazlow): And one of the things I really want to ask you about is you recently put out this letter to Community, is what you call it, where you literally publish the funds, all of the funds performance to date, shared some really interesting stats on where the companies are located, how they're doing. This is all publicly available, so we'll include a link to the show Notes. But tell me about this report. What prompted you to just share this with the world and what's the reception been since you did Put it out.

0:14:55 - (Greg Brown): First of all, I think being a good community member requires transparency. Right. And it's one of the. I think many angel groups don't talk about their results. And I sort of don't know why. Like, it's not a huge competitive thing or like it's not like I'm trying to run a venture capital firm and get a billion dollars under management and make a bunch of money off management fees. Right. This isn't. That's not your plan.

0:15:27 - (Greg Brown): That's not my deal. It's not my end game. I think it's important. I think it's important for founders to understand the investor perspective. And so that was an audience that I had in mind when I was publishing this. Some of it was I wanted to publish and perhaps try and influence others that are investing in this space and that we at times co invest with. And it. And admittedly it was. It's easier to be transparent when you're sort of your numbers are ahead of the median.

0:16:04 - (Greg Brown): Right. And you sort of like, hey, I have good numbers. It's easy for me to talk about this.

0:16:07 - (Andrew Kazlow): That's so true.

0:16:08 - (Greg Brown): And we've been fortunate to have some success. So it was easy for me to talk about. But I also tried to, in that piece, talk about what I see as some problems in the space right now and in this sector. And I worry that as a whole, angel investors aren't achieving the overall return on capital that's going to be necessary for this activity to continue at the pace that I would like to see.

0:16:40 - (Andrew Kazlow): Say more about that.

0:16:41 - (Greg Brown): Yeah. So I think that fund. I have a. I have a fundamental belief that. Let's talk about pre seed investors. So if you're investing pre seed, that you should. If you invest really early in a company that exits for $50 million, I think that should be an outcome. The reward for that should be a financial outcome that positively influences the overall return of the fund. Right. First of all, creating something with $50 million worth of value is hard.

0:17:17 - (Greg Brown): Right. There aren't going to be a lot of those outcomes, let's say, for my fund, and I think this is a fair benchmark, let's say you're trying to produce a 2.5x return on capital, just cash on cash, multiple over time. Okay. So if I'm trying to do that, and let's say that my average pre seed deal today is raising on a Safe with a $10 million valuation cap, something like that. Right. So let's say I go into that deal, no discount.

0:17:54 - (Greg Brown): Yeah. So the YC safe 10 billion valuation cap post, you know, 10 million post money cap, no discount. I'm in that deal, right? And let's say that over time, you know, the company, they're not just going to do their pre seed round and exit for 50 million bucks. So there's going to be some dilution along the way, probably meaningful. And so you know, let's say, I don't know, at exit, maybe there's been dilution to where my, my stake in the company has been cut in half from where it was when I first invested.

0:18:29 - (Greg Brown): Right? Every company is going to have its own story. But let's say it's, let's say so now if my equity interest has been cut in half through dilution, I'm now effectively in this deal at 20 million valuation status 10 it exits for 50. I have a 2.5 cash on cash return. So that doesn't negatively impact my fund because I'm trying to do 2.5x overall. But it also is not a contributor to an over the, over the benchmark performance.

0:19:02 - (Greg Brown): Right. Despite the fact that I think a $50 million outcome is really, really hard to achieve, I believe that pre seed investors overall, that needs to be a 5x return on capital sort of a thing, right? To have given the distribution of angel investment outcomes on a deal by deal basis. If that $50 million outcome, if I'm doing pre seed deals, if that isn't doing 5x, if that's not a deal where I'd be telling my neighbors about this awesome deal I was in versus. Yeah, it took ten years. I got two and a half times my money. Like it's probably about the S and P, right?

0:19:43 - (Greg Brown): So I didn't get hurt being in this, but it wasn't like, oh my God, let me tell you about this windfall I had, right? I worry for the category of angel investors as a whole because of, for that reason because I think that those type of exits aren't being adequately rewarded. And the other side of it is, I think therefore it's going to lead to, I think it leads to some founders who are worthy of backing, not getting backed, who maybe their outcome is reasonable to think that they could exit for 30 to 50 million.

0:20:29 - (Greg Brown): But that deal's gotta be appropriately priced. It can't be at the median of what the Carta data says that pre seed deals are. Right? Those deals are worthy of getting funded. They're just a lot of them in market at a price where on the investor side it's hard to make the math work.

0:20:47 - (Andrew Kazlow): It's interesting to hear you describe all this because we've talked at length on the show about the craziness that is pre seed seed pricing and how just disjointed that can be. Where right now like series B ish is particularly cheap, quote unquote, relatively speaking, which I had Peter Walker on the show recently to talk about a lot of this. Where do you think this change started? Because the sense I have is that it wasn't this way, you know, a decade ago when you were getting into this, but that over time it's just creeped up and up and up and up. When did this happen? Why do you think this change has happened to make pre sage so unapproachable.

0:21:30 - (Greg Brown): I'll sort of. Well, I'll take you through the continuum. When we started Charlotte Angel Fund, the standard ask was, you know, convertible note with a $3 million cap. I would say that was like middle of the bell curve, what people were coming in and pitching. Then it moved to five. Now it's probably 10. Right. Part of it is there are larger magnitude outcome opportunities out there. Right. It's easier to exit. There are more exits for a billion or more now than there were 10 years ago.

0:22:02 - (Greg Brown): I believe that. Right here's a challenge. So you have to ask yourself, if you're sitting in a community based angel investment group, do I feel like I'm going to and do I feel like I'm going to have reasonable opportunity to consistently access deals that are in the, let's say the top decile? Right. The answer for most groups is going to be no, right? No, I probably am not. First of all, some of those top decile deals are never going to raise angel capital.

0:22:37 - (Greg Brown): Founders have that capital already available to them, whatever. They're not going to show up at Charlotte angel funded pitch. Right. And so, okay, you got to be realistic about what deal flow you think you're going to be able to access. So there's more chatter than there used to be about. I think founders are more worried than ever about predatory investors and losing control and lots of stuff like that. Right. Because it's easier for those stories to disseminate when you've got online platforms to be able to post those on.

0:23:13 - (Greg Brown): Versus I guess, 25 years ago, if you wanted to share a founder horror story, you had to do so at some sort of in person local meetup. Right now you can just post it on LinkedIn about, you know, I, I built a company, it had a $500 million exit and I didn't get anything

0:23:30 - (Andrew Kazlow): well, and they're fun to read too. Like, I was just on LinkedIn and ton of comments about VC horror stories. Like, that's interesting. I want to hear the tea.

0:23:37 - (Greg Brown): It is interesting. You know, I do think to myself, well, if, if you had to, if you went through 600 million of capital to get a $500 million exit, really, how much should you get? Right? Your value creation, I guess, was negative 100 million. So what are you entitled to at that point? And so I think founders are more worried about it. I think there are more and more people in the ecosystem telling them, Don't give your company away, don't do this, don't do that.

0:24:16 - (Greg Brown): Y Combinator has gotten, it certainly pushed some of this. But again, that math works for them because of, because they are shopping in the top decile of deal flow. Right? And so, okay, they can just have their standard deal be a safe at whatever post money, and that's going to produce a certain profile of return for them versus if we just invested in 20 pre seed startups from the Carolinas at, you know, 20 million post money safes, just all of them. Right? We'll do 20. We'll do. We'll do the best 20 deals we can access, put money into all Those at a 20 million post money safe at pre Seed, I'm confident that we'd have less than a 1x cash on cash return.

0:25:13 - (Andrew Kazlow): A quick note before we continue the conversation. Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve angel networks. My team handles things like initial screening, social media, newsletter prep, platform management, and a whole lot more. The kinds of things that either aren't getting done or shouldn't be done by busy community leaders.

0:25:35 - (Andrew Kazlow): If that sounds interesting to you, send me a note. Now back to it. Okay, so, Greg, what's walk me through your playbook for having this conversation with a founder? Because everyone hates negotiating. It's like a universal human thing. But to be a good steward of the fund that you're managing in the community, you have to walk through this reality with founders, particularly local ones coming out of Charlotte and the Triangle area. Like, how do you have this conversation with founders? And like, yeah, I'll stop there. I have another question afterwards. But like, walk me through what that conversation looks like and how to do it.

0:26:11 - (Greg Brown): Well, first of all, it's very hard. And it's hard because any conversation to the founder feels like you're negotiating with them. Right? And there are some. So. So it's hard to Say hey look, I'm, I, first of all I try to acknowledge that what I'm about to say is going to may feel to you like I'm negotiating with you. I am. What I'm really trying to do is have you understand the founder math side because I, or the investor math side because I think that's going to benefit you generally in your capital raise and you know, ultimately. So let's, you know, and I use the $50 million example, right. And the, the math I walked through with you.

0:26:58 - (Greg Brown): And first of all, let's acknowledge creating some again creating something with $50 million of value going from startup to I sold this thing for 50 million. That's an amazing outcome. Right. And everybody who signed up for that journey super early, like whether they're employees, the founder, the investors, whatever, that should be a financially rewarding experience for that entire group. It should be.

0:27:26 - (Greg Brown): And so let's walk through the math like you know, there's one here, the company locally. So they were trying to raise on a $20 million post money safe, you know, typical pre seed profile company. I'm like look, so even if you have no dilution going forward, that's your $50 million exit, which is amazing, is 2.5x our money. That is a neutral overall influence on the return for our fund. Right now let's think about, let's list all the companies that we can think of from Charlotte that exited for more than $50 million in the last 10 years.

0:28:12 - (Andrew Kazlow): For fun, could you give me a couple. I would love to hear that list if you have it on hand.

0:28:17 - (Greg Brown): Oh, I mean, sure. So there have been like, there's a company called Passport here locally Passport Parking that I mean they're in the middle of their deal but Pacer has been over that. You map anything you had? Well, you had a big company at like Avid Exchange was a big one. They ended up with an ipo. So they're big companies. But the point, the point is you get to about 10 and you're done, right? And that's sort of okay, let's say that's 10 over, you know, 10 over 10 years.

0:28:56 - (Greg Brown): So one company that pops up in Charlotte once, one company that is formed in this space, it's sort of, of, let's say what we think of as a startup community is going to exit for 50 million. Now half of those, honestly half of those is investor or we probably can't access because they're multi time founders and so maybe they do the angel round themselves. They're not going to raise 500,000 or a million from anybody. They just do that because they exited their last thing at good money. And so they're just not going to bring other people onto the cap table at that point.

0:29:32 - (Greg Brown): So try to be transparent with the founder about. And like, look, you need to understand, Mr. Founder, that other investors are. This math is going through their head while they're talking to you about your deal. They may not verbalize it in the way that I'm doing at the moment, but it's going through their head. Right. And that's what they're thinking. When you say 20 million, post money on the safe.

0:29:56 - (Greg Brown): And when you say things like, well, you know, we don't really want to price the deal yet, whatever, I'm like, hey, let me as an investor, I want to price the deal based on the risk profile when I'm deploying the capital, not in some future date. Sure, I understand why you would like to price it later when the risk profile and the value of the company are in a different place. But that's not like, shouldn't my capital be priced at the point in time when I'm taking the risk?

0:30:29 - (Greg Brown): It's hard to argue with that notion. No, you should, you should price your capital in some, in some future state. Right. Because who would do that? Who would, who would knowingly go into that business? I'm going to deploy capital and we'll, I'm going to lend money and then we're going to price it based on some future date when you're more credit worthy and therefore worthy of a lower interest rate. Right.

0:30:58 - (Greg Brown): You wouldn't do that as a lender. And so, you know, try to have that conversation, try to be transparent about it. Most of the time it lands pretty well, I would say. Right. Sometimes it's just, hey, you sort of have to part with, you know, we're not the right partners for one another. That's okay too.

0:31:25 - (Andrew Kazlow): I think what makes this so tricky is the two things. One is the asymmetric nature of this whole thing. Everyone, I think that there's a general understanding of the basic portfolio theory. And of course every founder thinks, well, I'm going to be one of those 10, obviously. And so this is a steal. I can basically convince myself that that's the case at any price. And then on the investor side, the same tension is there, the same pull is there of like, okay, well, instead of thinking about it as tactically as you are, it's like, could this turn into a 10 or 50 or 100x if I think the answer is yes, then it kind of doesn't matter to me. And so you have this whole pool of people that are taking that asymmetric kind of idea, writing the check and moving on, which I think is probably part of what's pushing up the standard valuation levels at this earliest stage, which has been really interesting to observe alongside you. I haven't been doing it as long, but just in the few years that I've been in this space, kind of seeing that just as more people are getting excited about very early stage investing, it's naturally pulled the averages and medians upward, which has just created some unique challenges.

0:32:41 - (Greg Brown): Yeah. Pricing and value. And it feels, not just feel, it is so personal for the founder. Right. Like, this is, you know, you're, you're telling. It feels like, hey, I'm, I'm having this conversation with you, Ms. Founder, because I view you as not as worthy or as talented as somebody else. Right. I mean, it's hard and sometimes, hey, it's not that. Like, I'm having this conversation with pretty much every founder you can think of at this stage.

0:33:19 - (Greg Brown): And there are a lot of them on the front end where they want to pitch to our group. And I get the dynamic, hey, I'm throwing out a price, we can negotiate it later, all that sort of stuff. And I'm trying to be a good steward of their time and ours and say, look, if you. What I'm telling you is I don't think I'm doing you a favor if I let you stand in front of our group and pitch your company with that as the ask, because they're going to forget about all the amazing things about your company and they're just going to say, they're going to think, no way, we can't do that.

0:34:01 - (Greg Brown): And we're also, to a degree, so we're not lead investors. Our check size isn't typically putting us in that position. So we're sort of price takers. So it's not like we're going to be able to negotiate this thing. Maybe the deal, maybe the deal changes over the time, over the course of our engagement with the company as they get more market feedback and all that. And so. But I can't, I certainly can't bank on, oh, this deal's going to get 50% cheaper.

0:34:31 - (Greg Brown): Right. If that's what it would take for it to be reasonable for us. It's not a good use of their time or ours to let them pitch to our group. Right. Like, where's it going to go?

0:34:43 - (Andrew Kazlow): I'm curious in these conversations, Greg, what else do you find founders, particularly local founders, given the group's emphasis on Triangle and Charlotte based founders, what else do you find founders struggle to understand or not follow as well about kind of the investor perspective that you have to do a lot of education around? Because I think, and just a nuance like, I think part of what's interesting about this is the.

0:35:10 - (Andrew Kazlow): We hear a lot about what the tone is like and what the conversations are like in the founder EcoSystem in Tier 1 Startup Land, Boston and New York and in the Valley. But in these emerging ecosystems, we get a lot less insight into the thinking on founders in general. So I'm just really curious what you're seeing.

0:35:31 - (Greg Brown): I think a lot of it is. So first of all, founders, they vary, I'll say on what criteria investors make decisions. Right. So I. The term pivot in business is well known. Right. So companies start aimed at a certain thing and then the market influence, you know, they get market feedback and they make a 20 degree turn or a 90 degree turn or 180. Right. I don't. And so I think what we as founders are really looking for is someone who's generally pointed in the right direction and we have.

0:36:14 - (Greg Brown): And someone who we have confidence in to recognize the need. To recognize the need to course correct and execute that course correction when the market gives them the feedback. Right. So it's not like I don't want to see a demo of your product in your pitch. Right. Like, I don't, you know, showing, you know, showing screenshots aren't necessarily, you know, just convince me that you have this general vision.

0:36:47 - (Greg Brown): You're like, I'm, I'm running at something of reasonable size. You know, I'm open to the notion that I might not be right. Right. Because if you're not open to the notion that you could be incorrect, you will never pivot. Right. You would just run straight ahead forever.

0:37:06 - (Andrew Kazlow): So you don't want to HEAR A hundred percent conviction. You want to hear like 85% conviction with appetite to learn.

0:37:12 - (Greg Brown): Yeah. Because you get like I want you to. I want somebody who can see it and I want somebody who can articulate the story really well. And you've got to be a good storyteller when you think about all the, all the different constituents that you have to get on board with you to be successful. I need employees, right. I need them to want to be part of this team. I need customers, I need investors. You've got to be able to articulate the story and the vision for whatever you're doing in a way that has people say, man, I want to be a part of that.

0:37:45 - (Greg Brown): And so storytelling, not in a like web of lies sort of way, but. And that's, you know, that's a. We struggle with that one. We recently had a due diligence session with a company where I am like, not just I large group of people who are really fascinated by this product, the market. They're after all that sort of thing. They do not have the ability to tell the story. Right. You know, and so I just can't imagine when you say, man, I love the idea about this. Whatever.

0:38:25 - (Greg Brown): I can't imagine working for or buying anything from this company. Right. Just because I just can't imagine an engagement with them that would lead to that. Well, that technology better be able to sell itself then. Right. And there just aren't. That doesn't happen often.

0:38:44 - (Andrew Kazlow): This is so good. So, okay, what does storytelling mean? Because I think that if I'm a founder hearing this or I'm an investor and thinking like, oh, I'm working with this founder and they're maybe struggling with this. But like, what does that mean to Greg?

0:38:58 - (Greg Brown): That means the ability to articulate what you're doing. In a way, a layperson's gotta be able to understand it. Right. So I don't have to be an electrical engineer to understand what you're the big picture of what your company's doing. Right. At the end of a Charlotte angel fund meeting. What I want is an effective pitch is one where when I go home and have dinner with my wife and she says, tell me about the companies you saw tonight.

0:39:25 - (Greg Brown): That I can utter a three sentence description of a company. Right. Whatever. Oh, they're sort of doing, you know, it's a backup navigation. It's a GPS backup navigation system that's super important because autonomous. Think about autonomous vehicles. If the GPS goes down, you can't just have them wandering around. There's gotta be a backup system. Right? Okay, now that's. I didn't give you anything about technically how that works or whatever, but I was able to walk away from it saying, huh, that seems like it might be a pretty important thing.

0:39:58 - (Greg Brown): And then why, you know, what is it conceptually? What are they doing? Why is it important? Right. Why does this thing need to exist? That's it. So there's not like, I don't view that as. The founder doesn't have. They don't have to be wizards about how they articulate their financial model. Right.

0:40:20 - (Andrew Kazlow): You said it earlier. Please, please, let, let us do that for you. That's.

0:40:23 - (Greg Brown): That is spreadsheet things, right? Like, you know, sometimes when somebody comes to pitch for our group and you know, sometimes. And hey, I'm guilty of this too, right? But sometimes where they coming up, man, the spreadsheet didn't make sense. Whatever. Like, there are millions of people who can fix that spreadsheet there. But the ability to build something and sell it, those are the magical things, right?

0:40:49 - (Greg Brown): We can spreadsheet it. That's no big deal. But to conceive of a product, build it and sell it, that's magical stuff. I can't do any. I would be a dismal person to do that. I'm too grounded in what exists in the world today. Right? So if you say, Greg, I want you to imagine the world where gravity doesn't exist. Hang on. I know gravity exists. It's going to continue to exist. I can't. But it's the people who are able to think outside the box that are going to create these things. So I'm a much better idea evaluator than I am an idea creator.

0:41:30 - (Andrew Kazlow): Okay, So I want to invite you then into a fun storytelling thought exercise here. So let's assume that I'm listening to this and I'm somewhere in the Midwest. I want to start and grow a community similar to this. I'm listening to Greg, and I think, man, that's pretty cool. My community should have a group like this. Given the current environment in which we live, summer 2026, what advice would you give this person? And maybe said differently, if you're in this person's shoes, say it's similar size kind of composition to Charlotte.

0:42:05 - (Andrew Kazlow): Where would you start if you were them?

0:42:07 - (Greg Brown): You're building a marketplace, right? You're building a capital side to the marketplace, and then you've got to attract founders to that marketplace who are seeking the capital. And so I think you've got to start on getting some minimum viable capital side population before founders. As a founder, if you have no members of your angel group, obviously I'm not going to come a bitch, so

0:42:34 - (Andrew Kazlow): I need to go find my 10.

0:42:35 - (Greg Brown): You got to find your 10 to get started and say, hey, look, here's what this is. Here's why it's important, here's why. And maybe it's 10 people who are presently active as individual angel investors. But why it might be important. Why functioning as a group might be important, why being visible is important. And it's important it's not. I think it's important for the community in terms of having a place that an identified group that founders can approach.

0:43:03 - (Greg Brown): It's also important for those investors, like, if you're a thoracic surgeon doing angel investing. If I meet any individual angel, my. My first question is always like, from where are you getting deal flow? If you're a thoracic surgeon, like, I know you don't have a website that says, you know, looking for capital, and

0:43:21 - (Andrew Kazlow): if you do, it's probably unreadable because you're a medical professional in way too much detail.

0:43:26 - (Greg Brown): It's going to be a bunch of, well, this guy, you know, like how you've invested in 10 companies. Tell me how you met them, right? This guy, you know, I know the. I know the founder's mother from church and, you know, whatever. It's a bunch of random occurrence, right? Instead of any sort of organized approach to how does deal flow come in, how do we look at it? And so you've got to create something that's approachable.

0:43:53 - (Greg Brown): So if I were me in Topeka, Kansas, and I wanted to start this, I would try and find some folks who were active locally because there are certainly angel investors in Topeka, I'm sure, right? And say, hey, I think it would be good for us and for the community if we formed, formally, created some sort of group founders could approach. I think we'd have better outcomes. We could, by being visible, I think we could grow our investor side of the community.

0:44:28 - (Greg Brown): Right. Others would see the activity, be aware of it, say, hey, maybe I'd like to be a part of that and really create the community side of it. Right? Versus we're a bunch of, you know, we get together once a month, we break some bread together at our meetings. We talk about things. Yeah, build that investor side community first.

0:44:50 - (Andrew Kazlow): Any mistakes that you have made that you would encourage them to avoid in this startup process, because building these groups is hard. It's just so much work. I've talked to enough people on the show. You're like, yes. And then the actual execution becomes ridiculously overwhelming.

0:45:08 - (Greg Brown): The meeting must be at the same location and on the same schedule, Whether it's monthly, quarterly, whatever. Like, do not deviate. At first I thought, hey, it might be cool for people to see. Like, we could meet at this business one month and this business in another month and all that sort of thing. And okay, sounds great. When you're the fund administrator and a bunch of people are calling you. I forgot, where are we meeting tonight? Where do we park?

0:45:38 - (Greg Brown): Like what? Like, you know, how does it work? You don't know. You don't know what the AV setup is at this place and all that sort of thing. Like that's a, do not do that. Same place, same time, people know where to go, they know how to park there. You know how to set up like the whole thing that needs to work. You gotta do the backend stuff. Right? Like the simple again. I firmly believe the angel investor will accept loss of their capital, high risk thing. We pick the like, hey, we bet on something, it didn't work out, whatever. That's understandable if you can't keep track of my capital account.

0:46:25 - (Greg Brown): Every time I get financial information from the fund, it doesn't make sense to me. There are obvious errors like, hey, I put 50,000 into that deal. How come it's not showing up here on my statement kind of stuff. These things really run on trust. They really do. Our group isn't audited. I don't know that any groups like ours are audited. And so a lot of it is trust both in the human beings who are administering the thing and in the quality of the work that they're going to do. Right. In sort of overseeing.

0:47:02 - (Greg Brown): So sort of the rigor of it. You've got to invest in the rigor and that whether that means time, money, whatever, like you've got to, you've got to have some mechanism to do that. Well, versus, you know, feeling like you're going to figure that out along the way.

0:47:22 - (Andrew Kazlow): So Greg, tell me more about this big amazing exit that you mentioned earlier.

0:47:27 - (Greg Brown): Yeah, so we had, we had the good fortune of being early investors in a company by the name of Electrify. It is a, it's a Boston based company. One of the co founders happens to be a native of Charlotte, so friends with one of the members of the fund. So that's how we, this thing ever came under our radar. We invested in that company early on. Convertible note, $8 million valuation cap. We invested and it's a pharmaceutical formulation. Technology is what they were developing.

0:48:03 - (Greg Brown): But it's interesting. So I'll tell you about the attributes of this company. When we invested, you'd be like, oh my God, I can't believe you got into that deal with an $8 million valuation cap. They already had a $250,000 paid pilot with a pharmaceutical company. The founders put in over half million dollars of their own capital. This is some technology coming out of MIT that basically allows you can either get injections or you can get infusion if you're not taking a pill.

0:48:44 - (Greg Brown): Right. And you would rather get an injection. But there are some substances that have to be administered via infusion. Like, you know, you, you imagine people going in and, you know, getting their chemotherapy in some sort of infusion center. Right. There's some physics and chemistry involved in what compounds can be delivered via a needle versus infusion. Right. Their technology allows more, a wider variety of drugs to be injected rather than infusion.

0:49:17 - (Greg Brown): Better for patients, better for the system, all that. Right. So some technology that was originally developed for aerospace because it had, you know, their aerospace are trying to reduce friction. Right. And drag. And so some of that they were able to apply. So super smart people articulated the story well, had a $250,000 paid pilot, put half million of their own money into it, and you know, sure, we'll go along for the ride, right.

0:49:44 - (Greg Brown): Had the opportunity invest over, you know, at a few different milestones, a few different funding rounds. Long story, you know, I'm not going to say short because I've, you know, gone on a little bit, but they exited last year for $750 million. And so that is now a couple

0:50:07 - (Andrew Kazlow): x on the 50 that you were.

0:50:08 - (Greg Brown): There was dilution over time. Yeah, about 20x on our first money. Right. And so what I think is important for the community to understand is so 20x on our money, so we're in good shape from a DPI point of view and that kind of stuff. But because that's one of 20 portfolio companies. Right. And so therefore it's not like we're sitting at 10x on our fund. Right. And so I think one of the. I think that story is meaningful in terms of illustrating that, look, we had this amazing outcome and I can't with any degree of certainty say that we'll replicate that in the remainder of Charlotte Angel Fund's existence. Maybe we will. I hope we will.

0:51:04 - (Greg Brown): 750 million is a big number. Right. And yet it's not like, oh my God, they all made 10x their money on that fund. And so those $50 million exits need to be productive for the math of the overall fund to work.

0:51:26 - (Andrew Kazlow): Well, I think that is a perfect spot to end. Greg, thank you for joining me today, walking us through such a thoughtful breakdown of the math realities of operating in this space. I look forward very much to our next conversation. And I'll have to make a trip out to Charlotte soon.

0:51:44 - (Greg Brown): Great. Thanks for having me here. I appreciate what you. You're doing.

0:51:50 - (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. Subscribe today@thediligentobserver.com.