A Note From the Redbud VC Team

Memorial Day weekend has ended, which means it’s officially summer; WOW, time flies. ☀️ While we’ve been getting some sun at both Camp Hustle and Capital Camp, the team has been heads down working on meeting the best founders at the early stages, working on the re-launch of The Junction, planning for the RMG Summit in NYC on June 13, partnering with the Main Street Summit team to add a VC/startup event track October 8-10, and closed three deals in May — Biography Health, Reactiv, and a stealth proptech.

We were following many big headlines this month; from the release of OpenAI’s GPT-4o to the sudden departure of Techstars CEO Maëlle Gavet, there’s been lots to talk about. On the venture side, valuations have presented a mixed picture for investors, with top-line valuations growing across all stages but not much higher from previous rounds. It seems like big rounds from AI companies are helping to boost some of those valuation numbers, but we are staying open-minded as we continue to invest in exceptional talent across the US/Canada who tell us which trends to invest in 🫰 

10 days until the inagural RMG Summit 🥳

We're thrilled to partner with MetaProp and Gateway South to kick off the first-ever RMG Summit for 125+ Founders, Investors, and Professionals in the Built Environment. 🏗. We’re creating a pathway linking individuals in the built environment—from construction and real estate to clean tech—from Middle America to the Coasts. Over 45 VCs, 30+ top industry professionals, and 60+ founders from the US and Canada are already signed up. Request to join here to raise/invest or sell/buy.

• Date: June 13th from 3-6:30 pm, followed by an exclusive VIP dinner at 7 pm— (30 invites)

• Where: 74 Wythe Ave Brooklyn, NY 11249, and dinner right down the street at a private location

• Schedule: One-on-one matchmaking, group networking, four vetted pitches, and an exclusive dinner

Redbud VC invests monetary ($50k-$150k) and social capital in early-stage tech founders. We bring monthly Redbud VC, tech, and economics updates. - We've filtered thousands of sources for our 14k+ readers, so you don't have to. Enjoy🥂

📣 Pitch Us  | 🏆 Redbud Portfolio

🦸🏽 Become a Mentor | 🏉 Meet the Team 

😎 Join talent network | 🛣️ The Junction community

The famed Gamestop kitty man, the Roaring Kitty, is back. Which hedge fund will he take down this time? If you haven’t yet, watch his movie Dumb Money; it’s superb 👌 

Did anyone else watch Palmer Luckey’s (Founder of Anduril) speech at the All In Summit last year? Yikes, what a roast. It was resurfaced on X the previous week. FYI, Jason Calacanis was an angel investor in Uber, in case you didn’t know 🚗 

🔥 Burning question of the month 🔥

Longevity tech has been heating up in 2024, with companies like BrainBridge coming out of stealth. Longevity tech has only raised $12.5B since 2015, less than half what was invested in construction tech for comparison. This is generally because it takes a lifetime to know if the tech works, who is waiting…

📈 Macro Trend Report

• FINTECH | Fintech has experienced quite a tumultuous year, marked by numerous mergers, acquisitions, and layoffs. The effects are rippling across the sector and are hitting BAAS providers especially hard. Synapse, a leading BAAS provider, raised over $50M in venture capital during its lifetime, including a $33M Series B round in 2019 led by a16z, and struggled to stay afloat in 2023. Synapse's difficulties culminated in layoffs and a Chapter 11 bankruptcy filing in April, with hopes of selling its assets for $9.7M to TabaPay. However, TabaPay has backed out of the deal. Synapse is now on the brink of being forced into Chapter 7 liquidation, which would mean a complete shutdown and the sale of its remaining assets. The fallout from Synapse's bankruptcy is being felt across the fintech landscape. Numerous other fintech companies and their customers are bearing the brunt of Synapse's bankruptcy. Copper had to discontinue its banking deposit accounts and debit cards abruptly, and Mainvest, a fintech lender to restaurant businesses, is shutting down. 🏦 Not all Fintechs are suffering. The sector’s newest unicorn, Altruist, just raised a $169M Series E at a valuation of over $1.5B. Altruist recorded 550% year-over-year revenue growth in 2023 and is one of the growth stage Fintechs that hasn’t taken a downround. 🚀

• AI | OpenAI unveiled its newest model, GPT-4o, this month. The GPT-4o model boasts faster response times and a remarkable ability to comprehend commands across voice, text, and images as well as translate speech between 50 languages. However, the launch of GPT-4o has not been without controversy. OpenAI recently announced the removal of "Sky," one of the voices integrated into the model, after users pointed out its uncanny resemblance to Scarlett Johansson's AI character in the movie "Her." 🧍🏼‍♀️In response, Johansson released a statement indicating that she has hired legal counsel to investigate how the voice was developed. Despite OpenAI's assertion that the voice was not based on Johansson's, it came with receipts - disclosing that the company had previously approached her about using her voice for the model. The quality of AI voice models has rapidly increased over the past 18 months, leading to many issues not just with Johansson. This month, the FCC proposed a $6 million fine for the scammer who used voice-cloning tech to impersonate President Biden in a series of illegal robocalls during a New Hampshire primary election.

  • GOOGLE AI SUMMARIES | Last week, Google announced the rollout of AI-generated summaries as the default experience for US-based search and quickly rolled it back in. The new summaries went viral and faced significant backlash from the glaring errors. The summaries shared dangerously incorrect advice on what to do if bitten by a rattlesnake. Google seemed to have lots of trouble with data about U.S. presidents - incorrectly stating the number of presidents and repeating conspiracy theories like that former President Obama is Muslim. In another example, Google's summary suggested using glue to keep cheese on pizza - seemingly taken from a Reddit post. 🍕

  • xAI | xAI - Elon Musk's 10-month-old OpenAI competitor raised $6B at a pre-money valuation of $18B. Last weekend, xAI was raising $3B at a $15B pre-money valuation, and terms were changed due to high investor interest. Let’s see what the terms are this week 😂

• VENTURE CAPITAL | The current state of start-up valuations is a little bit blurry 🔎 At the median, top-line valuations have shown a quarter-over-quarter uptick across all stages, a positive trend. However, these figures are lower than the companies' previous valuations. Pre-seed and seed-stage deals have continued to raise at heightened valuations, driven by the increase in round size, with median figures at $900,000 and $3.1 million, respectively - the highest on record. It makes sense; at the early stages, investors want their portfolio companies to have 18-24+ months of runway triggered by the uncertainty/difficulty of Series A fundraising. In contrast, early- and late-stage AI companies see valuations far outpacing those in other sectors, with median valuations above $70M for early-stage companies and around $100M for late-stage companies. Despite these high valuations in certain segments, the broader venture capital landscape is experiencing an increase in flat and down rounds, now comprising 27.4% of all deals, the highest proportion in a decade.

• Thoughts —> An ongoing discussion in VC is whether to be price-sensitive. There are pros and cons to this. An investor may lose a deal because of price sensitivity, and at the end of the day, if that company is a fund returner, the investor will look silly, having passed due to price. That said, if a Pre-Seed valuation is $10M vs. $5M, it would imply the company would need a 2x outcome for the investor based on the same check size, so $2B vs. $1B. Valuation opinions change based on a firm’s portfolio construction. For example, a multi-stage firm doesn’t care about the price of a Pre-Seed round because they’re expecting to lead future rounds and maintain ownership, and the Pre-Seed check is immaterial. On the flip side, founders need to decide if they want an investor who will roll up their sleeves or if you’re just a drop-in-the-bucket investment that could become a later-stage deal flow. Pre-Seed-only funds will be more thoughtful, diligent, and supportive of their Pre-Seed investments. Generally speaking, experienced operators know what a fair price is and will have reasonable expectations that are a win-win for them and their investor prospects.

  • BIG ROUNDS | Despite a downturn in late-stage deal flow, some big rounds of capital have closed this month! Wayve, a startup developing self-learning autonomous driving systems, has closed a $1.05B Series C round to advance its "eyes on" assisted driving and "eyes off" fully automated driving technologies and other AI-assisted automotive applications. Similarly, Steve Wozniak's space data startup, Privateer, raised $56.5M and acquired analytics firm Orbital Insight to enhance its space data offerings with advanced mapping and intelligence services. 🌊

  • FUNDRAISING DOWNTURN | According to a recent Pitchbook report, the venture fundraising environment has already peaked and isn’t expected to recover until the end of the decade. In 2021, AUM for VC funds surged by 58%, reaching $3.8T. Moving into 2024, VC firms are projected to raise less than $200B, a 48% decline from 2021 levels. Fundraising growth is expected to slow to an annual rate of just 2.9% through 2028, notably less than half the rate of other private capital strategies like private equity and real assets funds. Despite these conditions, large funds have continued to raise substantial capital. Leaders like Andreessen Horowitz and General Catalyst closed $6B, respectively. Conversely, firms like Valar Ventures, founded by Peter Thiel, have faced more difficulties, with Valar raising a $300M fund, half the size of its previous one. 😳 That said, there is increased optimism for VC funding, and M&A deal-making has started to pick up

💰 Micro Trends

• TICKETMASTER | The DOJ and a coalition of U.S. state attorneys generals filed a lawsuit against Live Nation Entertainment this month on antitrust grounds. The case centers on Live Nation's expansive and, frankly, monopolistic control over the live events market. Live Nation manages over 400 artists, owns or operates 260 concert venues, and, through its subsidiary Ticketmaster, dominates more than 80% of the major concert ticketing market. The suit alleges that this extensive control has stifled competition and innovation in the industry, resulting in higher prices and fewer choices for consumers. The controversy over Live Nation's dominance was spotlighted following the chaotic ticket sales for Taylor Swift's Eras Tour in 2022. The ticketing debacle, which left many fans frustrated and empty-handed, led to a Senate Judiciary Committee hearing to address the widespread concerns about Live Nation's market power and its impact on consumers. Seems like a market ripe for disruption… 👀

• YC | Analyzing the data from YC’s startup directory reveals what most already know: AI is at the forefront. An astonishing 64% of the 2024 Winter batch included “AI” or “AI-related” tags in their profiles. YC’s broader definition indicates that “at least 50%” of the batch is building around AI in some capacity. While many of these startups aren’t pushing the boundaries of AI, they are strategically incorporating AI elements into their products. Not only is the 2024 Winter Batch focused on AI, but the founders are building earlier than ever. Of the 2024 Winter batch - 52% of the founders entered the program with only an idea, 77% had no revenue, and 1% of the applicants were offered a spot in the batch. 🤖

📰 Middle America Headline of the Month

The Missouri Technology Corporation (MTC) has hit a big milestone this month! MTC’s IDEA Fund has invested over $50 million in nearly 160 tech startups across Missouri. Read the full highlight below ⤵️

💰 Flyover Deals

After two months of lots of Series A & B rounds, the pre-seed and seed deal flow is picking up 🚀

• Check out the 263 flyover deals for over $2.3B in funding we tracked here

• Early-stage startups based in Chicago saw lots of funding this month

  • Fleetpulse raised an $11M Seed Round 🚚 

  • Logistics tech startup Cargado closed a $6.8M Seed led by Primary Ventures

  • Mycocycle wrapped up a $3.6M Seed extension ♻️

  • Unicorn, an app for wine & spirit traders, closed a $5.8M round

  • Continuum raised a $1.7M Pre-Seed

• Lexington-based PayHOA closed a $27.5M Series A

• Sift Healthcare, an AI health payment solutions company based in Milwaukee closed a $20M Series B 

• St. Louis-based FinLocker completed a $17M Series B 

• Niobium, a Dayton-based custom silicon provider, raised a $5.5M Seed Round

• Minneapolis-based Pelvital closed a $5M Seed led by Boomerang Ventures

• In Ohio

  • Trace raised a $2M Pre-Seed, and Aropha raised a $1M Seed Round

🐄 Middle America vs. National Macro Trends

• Unemployment in Missouri rose slightly this month, keeping at 3.3%, but still well below the steady national average of 3.8% and below the Midwestern average of 3.9% ✅

• The Midwest Consumer Price Index is on the rise this month at 3.5% this month, just below the national rate of 3.6% ✅ 

  

🧠 This Month's Recommendations

📚 What We’re Reading

• The unspoken skill of finesse - many successful founders, operators, and investors have finesse, but what is it really? 

• Mercury’s profile with Carolynn Levy, the inventor of the SAFE

• No one truly knows how AI systems work - a new discovery could change that 📦

🎧 What We’re Listening To

• Stanford Professor and Author Ilya Strebulaev was a guest on the Full Rachet Podcast this month. We’re fans of Ilya’s research around unicorn companies seeded outside the coasts and founder backgrounds, so much so we bought his new book The Venture Mindset [54 min]

• Do VCs add value? The founder of Rippling and Zenefits and a Partner from SAX Capital debate [70 min]

• a16z GP David Haber talks with Marty Chavez, vice chairman and partner at Sixth Street Partners, about the magical promises and regulatory pitfalls of AI on the a16z Podcast [35 min]

• Mirit Lugassi, Investor at Lacona Capital, talks all things intentional investing at the early stages on the Unlocking Venture Capital Podcast [24 min]

📆 What We’re Doing

• Get ready for the upcoming RMG Summit on June 13 in NYC, hosted by Redbud VC, MetaProp, and Gateway South 🏗️ 

• We are also prepping for the new VC/Startup track Redbud VC, and Mercato Partners are adding to the Main Street Summit Oct. 8-10th 🏢 

• Maria hosted the first Soapbox Dinner Series for young VCs - check out the recap here 🍽

• Brett spent 4 days in Saratoga, CA, at Camp Hustle - connecting with emerging managers, LPs, and angels 🏕️ 

• Maria spent 3 days in DC at the Beyond Silicon Valley Summit hosted by Revolution’s Rise of the Rest Seed Fund 🌳 

• Finally, Brett was at Capital Camp this month, a leading event for alternative asset managers worldwide put on by our friends at Permanent Equity and in Columbia 🥾 

🪝 Outside the Main Hubs: Picks of the Month

🚀 Redbud Portfolio Company Highlights

Trially CEO Kyle McAllister sat down for an exclusive Q&A with Digital Health KC. Kyle talks about his journey in founding Trially, what it’s like building a startup in the Midwest, and how Trially is accelerating breakthroughs in healthcare.

Read the full Q&A below ⤵️

🛠️ Resources

• Founders - Check out the YC Seed Guide for everything you need to know about fundraising early

• 💲Building financial models is not easy → check out these easy-to-use templates and guides

• Hiring from 5 to 50, here's the ultimate guide on how to make critical early hires

• 📚 Every First-Time (And Failed) Entrepreneur Needs to Read 

• The Controversial Truth about Tech Debt

• The Founder Led Sales & Early Stage Go-to-Market Handbook 

• 83(b) elections are confusing, and Carta is here to walk founders through them 🥳

• When should I raise funding?

• Master The Terms Of Valuation & Win Funding On Your Terms

• Just raise funding? Here’s how to write the ✨ perfect ✨ investor update (with templates ofc!)

• Run a tight fundraising process with the help of these Notion templates for tracking investors, financials, and deck help!

• A quick review of what VC’s are evaluating at the pre-seed and seed

• Resource page for founders we made here 📒

Follow our Medium and Latest 🔖

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.s