Ep. 47: How Karen Rands Connects Founders to Capital and Grew a Network of Thousands of Angel Investors, Part 1

Transcript

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Welcome to Scale Tales – the business storytelling podcast where entrepreneurs, executives and experts share firsthand accounts of those magical moments when they achieved something bigger than even they could have imagined.

I’m Alicia Butler Pierre and we’re about to embark on an interesting journey into the world of angel investing. You know the saying – money makes the world go round. Raising capital is a necessary ingredient in scaling. At this point, you probably know that there are so many options for raising capital outside of traditional bank loans. But how much do you know about angel investors? Do you know what they’re looking for? How to pitch to them? Where to find them?

Well, if you don’t know you’re about to find out. This next scale tale contains several stories rolled into one and it’s packed with so much information that we had to split it into two episodes. In the first part of this interview, you’ll discover some of the basics of angel investing and how, even if you’re never able to raise money that way, you can tap an unlikely resource to fund your next major project.

This is Ep. 47: How Karen Rands Connects Founders to Capital and Grew a Network of Thousands of Angel Investors, Part 1

Hello, I’m Karen Rands, founder and CEO of Kugarand Capital Holdings. I’m currently in the metro Atlanta area and this is my scale tale.

It all started in about 2014 when a client an early stage company, was thinking about raising capital, had come to me through Kugarand Capital Holdings. We offer consulting services and capital readiness and access to capital, and I ran an Angel Investor group at the time. As we would screen companies, they would come through and do a business plan review and talk about capital.

This guy wanted to raise capital so he could expand into other locations. His business was unique. I can’t even hardly imagine this far back with what we take for granted now with the way phones work with us and all that kind of stuff, but back then it was a big deal to use a voice response system to be able to press number three or say number three to get a certain function on your phone this guy’s name is Dave.

I think the company was CMax, but don’t quote me on that because it’s been a long time and when you hear the story, you’ll understand why you may not know who that company is now. They’re not out there as a company anymore.

So, he had invented his system and had figured out a pain point of apartment complexes was that if that they get a lot of phone calls from people asking about directions and setting appointments and then residents needed maintenance. They wanted to be able to call and get somebody to know about it so they would be out there first thing in the morning. And the way traditional apartment complexes had worked is that a receptionist or an agent would take the call for the appointment or the directions. Sometimes people couldn’t reach people because they needed to go out and show apartments.

So they had this one office service, but then they also needed to have these agents out there showing apartments. And they wanted to have the maintenance people be able to come in the morning and have a queue of things to go do that they didn’t spend an hour and a half going through listening to messages and trying to figure out what to get done. It could be get scheduled with an easy voice response, you know, garbage disposal broken, whatever it is and click and do all that.

I knew that it wasn’t a pure play tech that Angel Investors typically would want. One of the things about raising capital is that when you’re raising it, you really need to have this attitude that you now are married to your investors and so they have a say in everything, and how that gets done depends on the structure of how you raise the capital, but they have a say, you can’t just take their money and go do what you want, They’re not sugar daddies, as I say, They’re financial people that want to invest in your business.

And so he didn’t quite have the personality that was going to be receptive to people telling him what to do and holding him accountable and asking for quarterly reports and expecting regular conference calls and things like that.

He was a pure, go get them kind of an entrepreneur and had built up a pretty good business in the Atlanta area and some of his apartments were really big-name apartments in the area that had lots of different locations that were using it at 10 different properties and loved it. So as he went through the business plan and review and the consultation and I understood his business, I suggested that instead of raising capital, he uses a theory that oftentimes real estate developers use – that you get an anchor tenant, and then you cover your costs and you build out the rest.

So I said, why don’t you go to let’s say Cousins Properties and say, “Hey, where would you like to put this next? Where do you have a high growth area?” something along those lines. Raleigh or Charlotte, or, Jacksonville or Miami or, you know, someplace around the Southeast that was easy enough for him to get to by a car. So he started that where he reached out, they would commit to put it in place at their 5 properties so that he could go and recruit somebody to be the office manager and salesperson in that

location and then pay that person’s salary with whatever he was getting paid by this particular property.

And from that he expanded throughout the Southeast with multiple locations. He scaled to multiple locations using the paying power of his customer to be able to expand and cover his costs for expanding into those markets.

He didn’t have to wait 6 months till he got into revenue there, and then from that he came back about 4 years later, having sold the company for quite a bit of money and became an Angel Investor in my group, and that’s the best circular economy you can get is when, whether they’re raising capital or not, but when a company scales and when they exit, they decide they want to share in the success of other businesses. So that’s my scale tale of using your customers to scale your revenue and your operations.

Without anyone else meddling in your business.

Without anybody else meddling in your business.

This is interesting because Karen’s scale tale doesn’t involve her primary work in connecting Angel Investors to entrepreneurs. Her funding advice to Dave moved him away from traditional, restrictive angel investment so that he could still be the boss and not have others, as we said earlier, meddle in his business. It made me wonder, was selling his company the main driver of Dave wanting to raise money?

Yes. Oh, sure, I mean, part of the reason why an entrepreneur raises capital or doesn’t if they’re intending to scale is to exit, right? You want to exit rich. It wasn’t like a $100 million dollar company, but it was big enough to set him up for a while and he was able to invest in other businesses. I think that’s the main reason for intending to scale, unless you’re trying to create a generational business. But the value of doing it the way he did it
was that a lot of times companies think they have to go and incur all the costs and set up a location someplace and then catch up and they’re doing the same business where they had to start from scratch, not recognizing that they have a built-up resource within their customers or their partners in different areas and where they can go and using that as a way to cover the basic operating expenses.

Part of the scaling is that you have to have an operation that allows you to leave it from a day to day. I’m a big fan of the Cash Flow Quadrant. Part of the right side of the quadrant is creating a business has operations and systems that can run without you or a good manager, right?

If the company requires that owner/operator to be there because they’re the one that sells, they’re the one that does all the whatever the stuff is that generates the revenue, then they get bought for a customer list or something, not for their actual business operation.

Karen touched on something critical for all founders seeking an exit: building business infrastructure. What is business infrastructure? It’s a system for creating a foundation that links the people, processes and technologies that allow the business to scale without the founder’s daily involvement. 

We’ll include more resources for you to learn about business infrastructure in this episode’s show notes but for now, let’s go back to basics. Karen mentioned several terms that, honestly,
I thought I understood like “compassionate capitalist.” Turns out I was mixing that term with “conscious capitalist.” And…this is why I asked her to give us a short funding dictionary or glossary.

OK, let me first clarify this is compassionate capitalist. The fundamental difference is that conscious capitalist is how businesses treat their employees, their vendors, their customers, their community in such a way that they contribute to the community, they contribute to the wellness of their lives they wanna make sure that their employees are healthy and well and happy and, committed to the job because they know that they are valued as part of that company.

Same with their customers, same with their vendors, same with the community. Compassionate capitalist is more, focused towards the angel that we’re gonna talk about. So it’s a person that decides that the way they intend to make money as a capitalist, cause, you know, capitalist is all about buying and selling and making money and the United States in particular is very much a capitalist society.

And so compassionate side of that…the long definition is people that put time, money, knowledge, resources into entrepreneurial endeavors to bring innovation to the market and create jobs and wealth for all those involved.

And that’s a lot of words. What does that really mean? Well, it means that they’re investing in a company that they’re passionate about. They’re passionate about either the founder because that founder is somebody that they see has real potential to do this, has a great vision for the future and the way they’re gonna get it may change because a lot of times businesses pivot to meet the goals and how they’re gonna get to market and who the target market is, but mostly the problem that they’re solving, they’re passionate about.

So the company is solving a problem that the investor is passionate about that they believe they can make money in, right, by backing that entrepreneur and so…

Okay, so that explains the difference between a conscious capitalist and a compassionate capitalist. But what about Angel Investors? 

The real fundamental difference is that an Angel Investor is stroking a check out of their checking account, right? It’s their personal money that they’re investing, even if they’re in an angel group, they’re combining their money with other angels, other investors for a total amount that goes into the company under whatever the special terms might be for that or along with their regular offering memorandum that they have. The original term “angel investing” came from way, way, way, way back in the early 1900s in New York.

You may see this if you go to a theatre and there’s brochures, the Playbill and on the back, they usually have angels, because back then, it was the wealthy that would support the arts.

They were investing in the arts because it was good for the community, it was good for the uplifting of all the people that they had access to art, theatre and different things like that to enrich the mind and so that’s the origin of it. The rules that govern angel investing as accredited investors now were formed after the Great Depression and the collapse of the stock market in the 1930s was intended for the industrialists that were investing in each other’s businesses you know, the Rockefellers and the DuPonts and the Gettys.

They were all investing in each other’s businesses, and they didn’t want the government involved in that, they wanted to be able to just do it the way they wanted to do it. And that’s why they set the threshold for who can invest and who can’t invest and who can raise capital and who can’t and who can you raise capital from. That got turned upside down in 2012 with the JOBS Act.

So that’s kind of the Angel Investor world and it’s sort of still based off of income as an accredited investor because certain ways that companies raise capital, it’s limited to certain incomes, it’s called accredited investor, and I’ll define that for you and then I’ll do the venture capital.

So accredited investor is somebody makes $200,000 in earned income and has done that for the last three years and a good expectation they will continue to do it for the next three years, at least that basic amount or combined income of a household of $300,000. So the threshold is pretty small, or a million dollars in assets that is not your primary residence.

So 401ks, you know, whatever assets, other real estate and so that’s the definition and it hasn’t really changed a lot for many, many decades. They went up a little bit in the 80s but that’s pretty much it. Angel Investors are very private and so they don’t like when they have to disclose their income and earnings and stuff like that.

Some of them you can just sign a piece of paper saying you self-certify. Other ones require you to provide all of your financial records or get a third party to vouch that you’re an accredited investor if you don’t want to disclose that.

Okay, so Angel Investors invest their own money in other businesses that are solving problems at scale that they’re passionate about. How are they different from VCs or Venture Capitalists?

A Venture Capitalist is typically somebody who’s the face of a venture capital fund. Venture Capital funds are a pool of Angel Investor money, super high net worth money, family offices, sometimes it’s corporations that have retirement funds and they’ll put some of their retirement fund into a Venture Capital fund. State governments will do some of that because they know that it’s going back into the companies being invested in their state.

It’s usually somebody who has a extreme track record of picking deals as an Angel Investor and sometimes when they’re picking the deals as an Angel Investor, they drag along other investors with them.

There’s a term called a fundless manager, and that’s where somebody will make investments and they have a buddy network of people that will invest in whatever they say invest in and eventually they get around to saying, well, let me just pool your money so I know what kind of money I’m working with

They usually set it up where the amount that they raise is going to dictate the kind of companies in the stage that they invest in because just the nature of the volume of investments, and they typically have a call for capital. So they’ll have a lifespan of a fund that’s say 3 years and let’s just use $100 million but they’ll raise $50 million in the first year with a call for capital for the next $50 million or $100 million and then they may have more if they want to do follow-on investments. Sometimes there’s this term called “white powder” where they’ll set money aside.

I don’t know why they call it white powder, I have no idea where that came from.

Yeah, my mind is going in so many places.

Alicia: “Hey Janet!

Gladys: Hey Alicia! What’s up?

Alicia: Well, there’s something that’s been troubling me. You know, I was chatting with a founder the other day, and he said, ‘I feel like I’m building the plane while flying it.’ Have you ever felt that way?”

Gladys: “Oh, absolutely! Fast growth can feel like total chaos—stuff falling through the cracks, everyone scrambling.”

Alicia: “Exactly! That’s why I’m so passionate about what we do at Equilibria. We give founders of fast-growing companies the tools they need to document and improve their key processes so scaling doesn’t feel like a disaster.” 

Gladys: “So basically, you guys turn the chaos into flow?”

Alicia: “Yeah, that’s a good way of putting it. Imagine your team working in sync, operations running smoothly, and growth feeling exciting instead of exhausting. That’s what Equilibria is all about. I just wish more people knew about us!” 

Gladys: “Well, where can they go?”

Alicia: “I thought you’d never ask. Head over to EQBsystems.com. Seriously, if you’re ready to stop the chaos and start flowing, EQBsystems.com is the place to go. Because growth should feel good.” 

When people in the news talk about, Oh VCs aren’t investing. There’s so much white powder. Well, it’s the money that they’ve set aside. Which is why you have to have a glossary when you’re get started in this stuff because they got these terms like, a hockey stick, there’s a lot of winter in venture capital.

They got the white powder, they got the financial forecast of a hockey stick. They don’t like hockey sticks. Anyway, they put money to work. They have a thesis of what they’re intending to invest in if it’s a big fund. The reason why you have a pipeline of Angel Investor to VC is because Angel Investors, since they typically are writing out of their own checkbook, they’re writing smaller checks.

The average national average is $25k, but a lot of times in reality when they’re in these groups, they’re putting $10k in a deal and it’s 20 of them putting $10k in, so it’s $200,000 and so they’re writing smaller checks. So, by the nature of that, that’s going to be at that seed stage when a company is figuring things out and their value is really low and $200,000 on a $2 million valuation gets you 10% of the company.

They don’t have a working product with revenue. The minimum bar of VCs is a million dollars in reoccurring annual revenue. And as sort of a baseline and with probably a valuation of at least $10 million maybe $20 or $30 million because they want to put like $5 million or $10 million to work. Well, you can’t put $10 million to work in a company that’s only worth $10 million right?

And it depends on the size of the fund. If it’s a boutique fund that’s like maybe $30 million, they might do $3 million, sometimes they finish out angel rounds or they’re the beginning of the Series A round and so they come in to invest.

They can’t manage a portfolio of 30 companies that they’ve invested in in the first two years, right? So they have to do larger checks based on the size. Let’s say they keep 25% as dry powder and it was that $100 million fund, that’s $75 million. So they’ll say that they have a range of $5 to $20 million of what they invest and that’s really so that they can manage the portfolio because they want to be active on board seats.

They want to be helping them scale so that they can get the next round of capital or march or walk or have a line of sight to how they’re going to get to exit when they reach that multi $100 million dollar evaluation that warrants an exit or through acquisition or IPO.

It’s a good thing Karen provided this short glossary of investor terms for us so that we can better understand the scale tale she shared. If you’ve ever tried to raise funding for your project or idea, then you know how daunting it can be especially if your product or service does not involve technology. Why do so many Angel Investors and VCs alike gravitate toward technology? Is technology the only thing they have a passion for or a belief that it can solve problems at scale?

Well, typically it’s software, and the reason for that is because there’s such a low cost of sales with that or cost of goods when they look at how much bang they get for their buck.

And Karen has examples as proof of this.

Like a consumer game. When it was first going, man, you can raise capital like that. When cloud-based computing first came out and SaaS was a new thing. Kind of like the way AI is now. It’s a new technology transformation and so the Angels jump on those bandwagons and start putting it out there, but they usually like tech because typically there’s not an ongoing high cost associated with generating the sales.

They see an ability for a company to scale. If you sell a product, a widget, you don’t have an annual recurring revenue and so they always ask what’s the ARR and that’s because they see it as a compounding revenue, more customers you get, and they ask these questions like what’s the lifecycle of your customer or the life value of your customer. The second rule kind of comes in on what they know, right? This is the thing they never check off on a box.

They’ll pivot and they’ll invest in something you never expected them to invest in because of how it hit them emotionally. So bottom line, when you’re raising money from Angel Investors is that you’ve got to have all the check boxes for the objective side of it – that you know who your market is, how you’re gonna sell it, how you’re gonna make the money, how you’re gonna put the register, how long it takes, how much money you need, blah, blah, blah, all that stuff, right?

And then the final decision comes down to an emotional decision that an Angel Investor makes because they’re looking at many deals, and when they have to decide between Company A and Company B, it’s going to be an emotion if, all things being equal, it looks like I can make money on both of them. It looks like my ROI or my internal rate of return is gonna be about the same it meets my criteria.

Typically they start with a criteria, and if the company doesn’t make that criteria, they don’t even get to that final A/B decision, right? So it meets their criteria and then they decide. And then I’ll give you an, an example of that.

This concludes part one of our two-part interview with Karen Rands. I know, I know, I know…shame on us for leaving you with a cliffhanger. But we’ll be back, I promise. In fact, part two of Karen’s scale tale will be our first episode in 2026 – just in time for those New Year’s financial resolutions you may make and those strategic plans you might be ready to implement.

In the meantime, think about some of the terms Karen explained in the business investor world: Angel Investor, accredited investor, and Venture Capitalist. You can learn more about what these terms mean for you and the project or business you need funded in her two books. Links to those are available in this episode’s show notes and at ScaleTalesPodcast.com. 

Believe it or not, there’s so much more that Karen will share with you in part two of this interview, including information like this…

“Instead of a midlife crisis of getting a sports car or having an affair or quitting your job to start a business. Go out and put your money to work investing in businesses that you’re passionate and help those entrepreneurs that really, really, really wanna work those 70 hours a week to build something because they’re passionate and help them do that because you can replace money, you can’t replace the time.”

Make sure you subscribe to the Scale Tales podcast so that you don’t miss when part two becomes available. As always, there will be even more resources that we’ll share as well as a recap of key lessons learned in part two. Thank you for listening! If you learned something valuable from this episode, please leave us a five-star rating and review wherever you’re listening.

I’m Alicia Butler Pierre and I produced and narrated this episode. Additional ad voiceover by Gladys Jimenez. Audio editing by Olanrewaju Adeyemo. Music production and original score by Sabor! Music Enterprises. Video editing by Gladiola Films. Hashim Tale designed this episode’s cover artwork and created the show notes.

You’ve been listening to Scale Tales, a podcast by Equilibria, Inc.