J A Note From the Redbud VC Team

Summer is heating up, and so is deal flow! 🥵 The team here at Redbud is on a roll, having deployed capital into two companies in June (Fair and stealth proptech), bringing our total to five new portfolio companies this quarter. We also started a company in the proptech space; stay tuned as we come out of stealth 🥷 We hosted the RMG Summit in NYC and are now planning the VC and Startup Track at the Main Street Summit October 8th-10th (more below). This month, big headlines from Pitchbook reveal that 13% of venture firms don't plan to raise another fund, even as large blue-chip firms continue to secure hefty amounts of capital, with Kleiner Perkins joining the list by closing a $2 billion fund. AI safety concerns are rising as two key members of OpenAI left this month. Meanwhile, the housing market remains in a slump, with the Fed estimating a shortage of four to seven million homes across the United States. Despite this, most Americans prefer to work from home, with 35% stating they like to work from home at least twice a week, even amidst significant pushback from corporations.

Introducing the VC/Startup Track at MSS 2024

We are excited to announce our collaboration with Mercato Partners to create an exceptional experience for startup founders, investors, and aspiring entrepreneurs at Main Street Summit 2024 with a VC/Startup Track starting October 8th to 10th

Grab your pass 👉️ 🎟️ https://www.mainstreetsummit.com/venture 

• Access highly curated speaker sessions and panel discussions, including the founders of Zapier, EquipmentShare, C2FO, Summersalt, Beam Benefits, and leading investors from Narya, Banana Capital, Hyde Park VP, and a16z.

• Unlock exclusive meals, tastings, live music, and interactive activities.

• Connect with 1k+ business owners, investors, and entrepreneurs on-site and filter/export connections in the MSS app.
  

  Check out the full Press Release!

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

It was a wild first month of summer across politics, international warfare, the economy, and hurricanes, so why not get a little carried with the memes 🤷 

🔥 Burning question of the month 🔥

📈 Macro Trend Report

• HOUSING | The US housing market took quite a hit in 2023 and early 2024 as the Fed raised interest rates to over 9%. While inflation has slightly cooled in the middle of this year, wage growth is still struggling to keep pace with home price inflation, keeping buying a house out of reach for millions of Americans. In 2023, a typical home in America cost buyers 4.9x the median income. That’s a more than 50% increase from the 3.1x price-to-income ratio averaged in 1990 and only slightly below the record figure set in 2022. Home prices have surged by 47% since the start of 2020 and doubled since 2010, while new home construction has fallen to a 4-year low. The increase in price increases the downpayment or the percentage not paying 20% down, further burdening buyers with PMI. That said, many are betting big on innovation in construction tech to help combat the housing shortages. Zacua Ventures launched a $56M fund dedicated to construction tech earlier this year, and we’re bullish on the next generation of companies building in the space. 💪

• AI | There are LOTS of lingering questions about AI safety following OpenAI's recent restructuring of its safety team. Jan Leike, who previously led OpenAI's "super alignment" efforts alongside Ilya Sutskever, has left the company. In an interview earlier this month, Leike mentioned reaching a "breaking point" with OpenAI's leadership, criticizing their focus on "shiny products" over safety. This internal rift stems from Altman's ousting as CEO last year and has tarnished OpenAI's reputation as a champion of AI safety. However, challenges to AI safety extend beyond OpenAI's internal struggles. “Developers of large language models are increasingly compelled to prioritize short-term challenges and competitive pressures over long-term safety considerations.” OpenAI faces tough competition from Meta and Google as they launch their models. Competition is also arising from large companies building thier own models, like Goldman Sachs, which is rolling out its first generative artificial intelligence tool for code generation to thousands of developers by the end of this month.

• VENTURE CAPITAL | While many VC firms are struggling to plan for upcoming raises, the brand-name funds have been busy collecting capital allocations. Adding its name to the list of fresh fundraises is Kleiner Perkins, which announced a $2B capital close that will be split across two funds. Kleiner Perkins joins other blue-chip firms that have raised significant amounts this year, such as Andreessen Horowitz with $7.2B and General Catalyst with $6B. Meanwhile, as the LP pullback continues, 13% of GPs don't plan to raise another fund. Many LPs made bets on emerging managers between 2019 and 2021, but there's been a significant pullback from these GP commitments today. In 2023, 38% of VCs disappeared from deal-making, amounting to around 3,000 firms that stopped actively making deals. It doesn’t seem like funds are fairing much better in 2024 😢 

  • PARTER PARTINGS | Several GPs have departed from major venture firms this month. Vic Singh, who spent the last 15 years at Eniac Ventures, announced his new firm. Amanda Robinson, a former partner at Cowboy Ventures, is raising her own seed fund. These two are the latest to join the partner exodus that started in April when a trio of industry veterans - Christina Shen of a16z, Ethan Kurzweil of Bessemer, and Mark Goldberg of Index Ventures left their firms to co-found a new venture fund together. So, why are all these established partners leaving established firms? According to Pitchbook, some VCs at multi-stage firms are frustrated with these organizations' increasing size and hierarchical nature coupled with an unforgiving fundraising landscape. Only time will tell how these established partners from blue-chip funds fare as emerging managers.

  • AI DEALFLOW | Over the past two quarters, early-stage deals in generative AI have taken a nosedive, plummeting 76% from their peak in Q3 2023. Investors seem to be playing it “safer” after the initial gold rush in the sector. VC investments in pre-seed and seed-stage startups fell to just $123M in Q1 2024, pennies compared to the $518M peak in Q3 2023. Part of the caution stems from OpenAI dropping its GPT store and offering freebies like code completion and document analysis. This move has made loads of startups irrelevant, forcing investors to tread carefully before deploying capital in [insert company name] .ai

💰 Micro Trends

• CHIPOTLE | Chipotle has been caught in a portion-size media firestorm. Customers on social media have accused Chipotle of skimping on food portions, leading them to film employees as they build their burrito bowls. 🌯 Chipotle's CEO addressed the issue this month, stating that portions haven't gotten smaller and that if people want more, they can always ask. An analyst at Wells Fargo ordered the same Chipotle bowl 75 times at 8 locations across New York City to validate portion sizes for himself. He found that some locations served bowls that weighed 33% more than others, with some bowls topping out at 27 ounces and others at a skimpy 14 ounces. One question remains…‘Did he use his meal credits from the bank to buy the bowls?’ 🔎

• WFH | Despite the MAJOR push to return to the office, about 35% of all employed people in the US still spend part of their workday at home. The desire to work from home is strong, with many Americans hoping to work remotely at least 2 days a week. The WFH shift has significantly impacted commercial real estate, with Moody's predicting that a quarter of US offices will be empty by 2026. The commercial real estate sector pressures are weighing heavily on REITs and other real estate-exposed stocks. However, the outlook isn't entirely bleak. Moody's expects vacancy rates to stabilize as redundant offices are demolished or repurposed into warehouses and residential properties.

📰 Middle America Headline of the Month

Indianapolis-based VC firm and studio High Alpha closed their $125M Fund IV this month! High Alpha is focused on building upon the firm’s distinct strategy with a focus on the future of enterprise SaaS. High Alpha IV surpassed its fundraising target of $110M. Congrats to the High Alpha team!

💰 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 295 flyover deals for over $2.3B in funding we tracked here

• Chicago-based Formic Technologies raised $27M Series A with participation from Lux Capital and FJ Labs

• Workbox, a Chicago-based co-working company, closed a $17.5M Series A

• Ohio had a bunch of Seed and Series A rounds close this month 💰

• Columbus-based Prescribe FIT raised a $4.8M Series A 

  • Cleveland-based OnStation raised a $8.5M Series A 

  • Cincinnati-based Vurvey raised a $2M Seed Round, Taiga raised a $1.5M Seed Round, and LunchTable raised a $2.4M Seed Round

• Minneapolis-based Pear Commerce closed a $10M Series A led by stage2capital

• FreshX, a Chicago-based food and bev logistics company, completed a $1M Pre-Seed Round

• Chicago-based nutrad closed a $1.2M Seed Round

• Strands based in Chicago raised a $3M Pre-Seed Round 

• Letter AI closed an oversubscribed $2.7M Seed Round led by YC

• Indianapolis-based LiminalAI closed a $5M Seed Round led by Craft Ventures

🐄 Middle America vs. National Macro Trends

• Unemployment in Missouri rose this month to 3.5%, but well below the National Average of 4.0% ✅

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

  

🧠 This Month's Recommendations

📚 What We’re Reading

• Why most companies will face a “bet the company” decision even if it’s not a conscious choice

• Anthropic CEO Dario Amodei on Being an Underdog, AI Safety, and Economic Inequality

• Why It's Hard for Small Venture Funds to "Play the Game on the Field" in AI Investing

• Accel turns to rural India in the hunt for future unicorns 🦄

• Watching 👀: 2 min PMF advice

🎧 What We’re Listening To

• Katelin Holloway of Seven Seven Six on the Full Rachet Podcast talks about questions every investor should ask, teasing out characteristics of generational founders and recruiting lessons from 1000+ interviews. [53 min] 💭 

• The youngest unicorn founder raised $126M in three rounds over six months, but it wasn’t all up and to the right [61 min]

• Raising $128M across 3 rounds in 6 months - big lessons and insights from Samir Vasavada, Founder of Vise on 20VC [60 min]

• The State of AI with Ben Horowitz and Marc Andreessen [1hr 30min]

📆 What We’re Doing

• We put 150+ construction/real estate founders, investors, and industry execs from over a dozen states and three countries in the same room for >3 hours in NYC for the RMG Summit (www.rmgsummit.com) 🏗🗽 As you can imagine, it was a smashing success. Check out Brett’s recap here

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

🪝 Outside the Main Hubs: Picks of the Month

🚀 Redbud Portfolio Company Highlights

Introducing our latest investment - Reactiv, an automated mobile app development platform for brands and developers that removes the friction in building, launching, and managing an app with an end-to-end AI-powered tool. Reactiv eliminates the high costs and long timelines of custom app development, allowing brands to create App Clips that can be accessed through ads, links, messages, QR codes, or NFC tags, bypassing the download requirement.

Check out why we Invested in Reactiv below ⤵️

🛠️ Resources

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

• 10 Free tools to build the basics of your startup 💪

• 💲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