#14 September 2023: IPOs & Cash Flows
Your monthly filter for economic data & insights that matter.
A Note From the Redbud VC Team
Our first newsletter, officially Redbud VC - don’t worry, we’re still here to deliver the same well-crafted content and news to our readers, but we couldn’t be more excited about our name change 🌸 This month was packed full of economic shake-ups, from mortgage rates soaring to record highs and the potential of another rate hike; from a public viewpoint, the Fed’s rate decisions were already questionable to now having no underlying purpose. The summer public markets are finally heating up enough to help melt the near-frozen IPO market - which has investors gripping the edge of their seats. We can’t wait to see what shakes out, but in the meantime, we are keeping a close watch on how these market dynamics might impact various industries and investment opportunities throughout the rest of the year. 👀
We recently launched a Student Venture Studio in partnership with the University of Missouri System, which will be in the Griggs Innovators Nexus. Students, let’s make those tech dreams a reality 🐅 🧪 💻️
Redbud VC invests monetary ($50k-$150k) and social capital in early-stage tech founders. We’re excited to bring you monthly updates about Redbud VC, tech, and economics. - We've filtered thousands of sources for our 12k+ readers, so you don't have to. Enjoy🥂
It’s been a wild few months for investors as the scramble is on for startups to integrate GenAI into their products. Let’s just say we’re seeing a lot of industry crossover these days…😬
🔥 Burning question of the month 🔥
Did India actually land and deploy a rover on the Moon's southern polar region (the first to do so), or was it staged?
Tired of cooking or eating fast food or microwave dinners? Enter Redbud portfolio company Celcy, the first fully autonomous cooking appliance that cooks healthy meals at chef precision, from your smartphone. Stay tuned for the Kickstarter launch on September 12th at 8 a.m. CST.
App → Order → Freeze → Remote Start → Oven → Eat → No Dishes → Repeat
📈 Macro Trend Report
HOUSING | High rates and low supply is the narrative of the housing market these days, and it’s not going away. Mortgage rates saw a significant development as the average 30-year fixed mortgage rate surged to 7.48%, a peak not witnessed since 2000. This rise in mortgage rates adds to the challenge of housing affordability, which had already deteriorated beyond levels seen during the 2006 housing bubble. The housing situation for US home buyers becomes even more complex with resurging prices, putting an end to a five-month streak of year-over-year declines. The National Association of Realtors report highlighted that sales of existing homes, including various types of residences, fell short of expectations, experiencing a 2.2% drop from June to July. Comparatively, these sales were down 16.6% from the previous year. The total housing inventory registered at the end of July was 1.11 million units, down 14.6% from one year ago. Yikes. 😳
INTEREST RATES | The “who’s who” of leading economists and policymakers met at the Jackson Hole Economic Symposium to discuss the future of the global economy last week. Federal Reserve Chair Jerome Powell resisted the prevailing anticipation that the Fed is on the verge of declaring a triumph in its battle against inflation, stating that “2 percent is and will remain our inflation target.” Central bankers have taken the step of elevating interest rates to a range spanning from 5.25 to 5.5%, aiming to give the economy a quick cool-off. In the wake of last summer's peak at 9.1%, inflation has notably receded, as evidenced by a 3.2% uptick in the consumer price index for July compared to the preceding year. It’s clear the battle is not over yet, and the threat of the Fed raising interest rates again is certainly on the table 👀
IPO FILINGS | Tech IPO’s seem to be slowly but surely clawing back. E-commerce marketing company, Klaviyo filed for their IPO last week, sparking hope more IPOs could be on the horizon. Y Combinator's golden child, Instacart, also filed for their IPO last week, unveiling plans in their S-1 filing for Pepsi to purchase $175M worth of stock. In the last month, the IPO market has been buoyed by consumer spending, a decline in inflation, positive market activity related to artificial intelligence, and a brief pause in rate hikes by the Federal Reserve. The number of IPOs for the 18 months beginning January 2022 is lower than for any single year since 2016. Potential successful offerings from both Klaviyo and Instacart signal to the market that the IPO window is finally opening. 🤗
VENTURE CAPITAL | The SEC dropped some new regulatory obligations for registered private fund advisers, as well as a number of restraints or prohibitions on activities last week. The new rules shift power from private fund managers to LPs. They include restrictions on preferential terms that impact negotiations with LPs and will require fund managers to supply quarterly financial statements. The new rulings seek to bring more transparency into private fund negotiations. In addition, Pitchbook has helped settle the debate about whether predecessor funds produce consistent returns, but the data says they don’t. In other funding news, the seed stage’s summer may be cooling off a bit early. In Q2 2023, the median early-stage valuation step-up hit a near-decade low of 1.6x. Small checks are making a comeback this year as the lastest Carta data shows that checks under $25K make up nearly 60% of all checks into companies raising $250K or less and 30% of all checks into companies raising $1M on SAFEs!
Many investors follow the lead of Union Square Ventures when making decisions. Well, they recently announced they have cut the valuation of their 7 funds by 26%, which is the expected start of “a cascade” of lower valuations.
According to the latest data from Pitchbook, Unicorns are once again becoming elusive 🦄 July saw 3 new companies reach the $1 billion valuation - a stark comparison to the 67 that emerged back in December 2021.
💰 Micro Trends
US CREDIT RATING | Fitch announced that they would downgrade U.S. government debt's rating from AAA to AA+, a strangely timed and shocking announcement. This move arrives amidst a summer brimming with positive economic news, compelling both the Federal Reserve and many players on Wall Street to abandon extreme recession predictions. The US’s long-term debt problem has improved as Congress struck a deal to avert a looming debt ceiling crisis, and the country's economic performance has exceeded expectations. Treasury Secretary Janet Yellen issued a statement vehemently disagreeing with Fitch's decision, and the Dow Jones Industrial Average fell more than 300 points. Goldman Sachs bluntly remarked that the downgrade lacked fresh fiscal insights, noting that Fitch's projections echoed their own. This downgrade further distances the U.S. from a select cluster of nations that retain the pristine AAA rating, but seems to be nothing more than a slap on the wrist for “a steady deterioration in standards of governance over the last 20 years”
SOFT BANK FAILURES | Shares of Better.com are getting beaten into the ground as the digital mortgage company finally concluded its long-anticipated SPAC merger, stepping into the public market for the first time. Maybe it’s karma from when the CEO fired 900 people on Zoom with no warning in 2021, but we can only assume 🤷♀️ The struggles of Better.com are the latest in a pattern of “deaths” for SoftBank-backed firms. Last week, a cluster of Wall Street funds that extended loans to WeWork is now considering the possibility of filing for bankruptcy just 4 years after their IPO disaster and 2 years following their actual IPO. Additional deaths include FTX's highly publicized implosion towards the end of 2022, and Kabbage's Chapter 11 filing, triggered by the mishandling of a substantial number of Paycheck Protection Program (PPP) loans. Underlining these difficulties, SoftBank's Vision Fund division has reported an unprecedented loss of 5.3 trillion Japanese yen, equivalent to around $39 billion, for the fiscal year concluding on March 31. 💀
STARTUP CITY RANKINGS | Our friends at M25 launched the annual Midwest Startup City Rankings and compared some of the top cities on a national scale. Of course, Columbia, MO moved up in the rankings for the 3rd consecutive year ⬆️ In addition, Columbia-based EquipmentShare had the largest funding round of $290M, which was over 3% of all Midwest fundings in the last twelve months. On a national scale, Chicago ranks #2 behind LA (not including SF, NYC, and Boston).
🎉 Redbud VC Portfolio Praises
💰 Flyover Deals
Holy moly, what a month! 275 flyover deals for a whopping >$4B in funding we tracked here.
🐄 Flyover vs. National Macro Trends
Current national unemployment is beating expert estimates for 2023 that show an anticipated jump to 5.1% by the end of the year. The Midwest is helping to beat those expectations and bring down averages 💪
🧠 This Month's Recommendations
📚 What We’re Reading
Brett Calhoun’s article in Techcrunch: The startup landscape has shifted dramatically: Accelerators must adapt or fade away (Warning: Hot takes ahead 🔥)
12 ideas on the best founders and companies to back from Don Valentine, Founder of Sequoia. One of his points, “ we don’t spend time wondering where people went to school,” resonates with us, but unfortunately, it’s arguably the most notable factor in receiving an institutional check.
For all the Swifites and Economic Analysts out there, here’s the $1B economic impact of The Era’s Tour 💖
Earth? No! Space is the next cybersecurity frontier 🪐
🎧 What We’re Listening To
From Managing a Lil Ceasers to founding Politico and Axios - listen to the incredible story of Jim VandeHei on How I Built This. [1 hour 23 min] 🍕
Feed your ears with episodes of Wall Street Breakfast - here’s one of our recent faves on the state of the housing market 🏡 [6 min]
Wartime vs. Peacetime: Ben Horowitz on Leadership on the a16z podcast [35 min]
📆 What We’re Doing
Still coming down from the post-event sadness of Rally Innovation being over! We had an amazing time chatting with founders, investors, and corporates and listening to stellar speakers and pitches 🌆
🎮 Flyover Picks of the Month
📍NYC → STL, MO
Bringing affordable and effective care to underserved patients suffering from chronic skin conditions, starting with acne. Get on-demand virtual dermatology care and prescriptions at home.
Smartplan empowers office landlords with a digital marketing platform that creates flexible, tenant-driven office layouts by capturing their business and spatial needs, while touring a space in real-time.
🚀 Redbud Portfolio Company Highlight of the Month
Meet Pave, our latest Redbud VC investment! Pave’s platform offers AI-powered analytics and scoring solutions that provide consumer cash flow insights to banks, credit unions, fintechs, and debt capital providers to serve their customers with more equitable financial products! The founding team has built three startups together, and the Redbud team is excited to be a part of the fourth! 💰
Tik Tok Tips 🎶
Thinking about building a community? Maybe it’s an online community or one surrounding your startup; either way, check out this Twitter thread. 👯
Target BIG or small markets first? Peter Thiel talks about why the later is better 🤏
The 5 keys 🔑 to scaling your startup - there’s definitely more than 5, but this is a good start
Get your idea out there! Drop a reply to this tweet; you never know if a potential customer, partner, or investor may see it 👀
🚨Missouri Founders🚨 - See if your startup qualifies for funding from Missouri Technology Corporation’s IDEA Fund here 💰️
His first startup sold to Facebook and 2nd to Discord; checkout how Nikita Bier was able to hack incredibly fast growth 📈
Building a pitch deck truly is an art; it’s all about learning how to paint the best picture possible for your investors 🎨
Angels? Unicorns? There are lots of names for different stakeholders in “startupland” - check out how to attract some angels here 😇
How much should I pay my first tech hires? Look no further than this article about compensation for your founding engineering team
Founders - Take a peek at data room templates, advice, and lessons galore in this Medium article 🗄️
Check out the Redbud VC Mentor Network with 100+ mentors 🦸🏽
Resource page for founders we made here 📒
🤝 Collaborate with funds & founders in our Flyover Tech community
💼 Redbud job openings --> here
The information provided in this newsletter is intended for general understanding and educational purposes only, not as a guide to investment decisions. The authors, publishers, and distributors of this newsletter are not licensed financial advisors and are not providing financial advice or investment advisory services.3