A Note From the Redbud VC Team

As we near the end of Q3, the economy feels like it’s on stilts with signs of stability with inflation while new jobs miss the mark and unemployment rises. Japan’s economy is also pulling down the global economy. The Fed is expected to drop rates in September, which could unlock a massive amount of housing supply that has been pent up over the last two years. It’s unknown how this will affect prices, but a guess is that they will remain somewhat stable. With an election on the horizon and ongoing conflicts overseas, it’s hard to predict what’s next. That said, the honeymoon season with AI continues and expands. Like any industry, there are good and bad opportunities, but our latest investment excites us about what is in store with AI — stay tuned for more details. 🤖 

Main Street Summit is right around the corner 🥂 

Join us on October 8th-10th for a unique VC/startup event in Columbia, MO (yes, Columbia is home of Mizzou but also the foundation for companies like Zapier, Carfax, EquipmentShare, Beyond Meat, Paytient, and many more).

🎟️ Grab your “VC + Startup” pass 👉️ here 

• Connect with 1k+ tech, SMB, and middle market business owners, VC and PE investors, and entrepreneurs

• Build your schedule with access to nearly 150 speakers

• Participate in wine and tequila tasting, group dinners, poker night, rooftop yoga, and more

  

Join our raffle for a chance to get a ticket or discount 🎰 

• Founders: Connect with potential customers and investors

• VCs: Connect with founders and LPs

• Anyone: Grow your network across PE, VC, buying businesses, and starting high-growth tech companies

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🥂

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Fears of a U.S. recession triggered a global market sell-off earlier this month, with Japanese stocks experiencing their steepest decline since the 1987 Black Monday crash.

The Federal Reserve's delayed response to economic warning signs is now under scrutiny as markets brace for potential further declines. It’s time for Jerome to turn on the money printers and decrease rates 💵 

🔥 Burning question of the month 🔥

📈 Macro Trend Report

• LAYOFFS | Another wave of layoffs pummeled Tech this month, with several big names making significant cuts. Techstars announced a 17% reduction in its global workforce and ended its partnership with J.P. Morgan. The news comes during a rough year for Techstars. Techstars’ now-former CEO, Maëlle Gavet, stepped down in May, and these layoffs also follow a 7% headcount reduction in January. Brave, the web browser and search startup, laid off 27 employees, or about 14% of its team. Over at General Motors, 1,000 software workers are being let go as the company shifts its focus to high-priority projects like its Super Cruise driver assistance system and AI exploration. And Intel isn’t far behind, cutting over 15% of its staff—around 15,000 employees—as part of a massive plan to reduce spending by $10 billion by 2025, following a disappointing earnings report. 🧑‍💼

• AI | Apple's long-awaited entry into the generative AI space generates mixed reactions. Unveiled with a focus on being "personalized, private, and practical," Apple aims to differentiate itself by emphasizing on-device processing and strict data privacy. However, as the initial AI hype cools, the market is becoming more discerning about the real value of these technologies. Investors are starting to question the long-term revenue potential of AI, especially with heavyweights like ChatGPT and Google Gemini, which aren’t making as many game-changing moves. At the same time, the conversation around AI safety has become increasingly polarized. While the tech industry once rallied around the goal of making AI safe, the term has now become a battleground for ideological debates, with some advocating for fewer restrictions and others pushing for more stringent guardrails to prevent bias and misinformation.

• VENTURE CAPITAL | The venture capital landscape is facing a little bit of a "Series A crunch." Historically, about 30% of startups would secure a Series A within two years, but that number has plummeted to just 15%, signaling tougher times ahead for early-stage companies. Round sizes at the Series A mark are all over the place; many seed-stage companies fail to graduate, and bridge rounds continue.
  😵‍💫. Meanwhile, the market's liquidity woes continue, with negative IRRs persisting for six consecutive quarters through the end of 2023. Although Q4 2023 finally saw a slight uptick in returns, it's too early to declare a rebound, especially with scarce exit opportunities. Despite these challenges, Q2 2024 brought a surprising increase in deal count and invested capital across most stages, except for the Series C rounds. Early-stage deals, particularly Series Seed and Series A, saw notable growth, with 182 deals, up from 135 in Q1 2024. However, mid-stage rounds weren't as fortunate, as Series B and C funding saw a significant drop in capital invested, pointing to a more selective environment as investors are getting picky

  • VALUATIONS | Flat and down rounds are at a decade-high, and step-up multiples for Series A to D+ are at decade-lows. All this said median early-stage valuations are up 29%, but without downmarket prices to defend this increase. Early-stage AI valuations are at a 23% premium to SaaS. In 2014, AI companies were 20% of unicorn deals, which rose to 42% in 2024. In addition, we are at a pace similar to that of producing new unicorns in 2018/2019.

    

    • NEW FUNDS ON THE BLOCK | With global VC fundraising on track for its worst performance since 2015, newer firms (ie. those that have launched fewer than four funds) are grappling with the most challenging environment in a decade. The first half of the year saw just 632 funds close, raising $80.5 billion, putting 2024 on pace for fewer than 1,300 new vehicles, a stark contrast to the record 4,000 funds in 2021. While established firms still manage to pull in large sums, emerging managers are being iced out of LP funds. Even though new funds may not be LP’s favorites, more founders are flocking to small funds for the right capital. Micro VCs are rapidly gaining traction, soaring in growth by over 120%. These smaller funds, typically managing less than $50M, are carving out a crucial niche by focusing on seed and early-stage startups, where they invest 70% of their capital.

      

💰 Micro Trends

• NVIDIA EARNINGS | All eyes were on Nvidia as the company released its highly anticipated Q2 earnings. Nvidia has been the best-performing stock in the S&P 500 this year, soaring 159% year-to-date, and these earnings are shaping up to be another major event. The hype is so intense that Nvidia's earnings have practically become a spectacle, complete with options market bets suggesting a possible 10% swing in the stock and even an earnings watch party in New York City. The day prior to the earnings call, more people searched for "Nvidia" on Google than for Donald Trump, Kamala Harris, or Taylor Swift. Nvidia has taken the crown as Wall Street’s most traded stock, outpacing even Tesla, which it dethroned earlier this year. In the last 50 trading sessions, $40 billion worth of Nvidia stock changed hands daily - nearly double what Tesla is trading.

• TELEGRAM TEA | Hitting a billion users doesn’t always guarantee mainstream fame - just ask Telegram. The platform’s founder, Pavel Durov, recently made headlines after his arrest in Paris tied to a broad investigation into serious crimes on Telegram, from child sexual abuse material to drug trafficking. With 950 million monthly users, Telegram has quietly outpaced Twitter, Snapchat, and Pinterest since its 2013 debut. While many use it just as a messaging app, others are drawn to Durov’s hands-off approach to content moderation, making Telegram a hotspot for everything from underground markets to a haven for those deplatformed elsewhere. This hands-off approach, which earned Telegram the moniker "the world’s most important app," also made Durov’s arrest seem almost inevitable. Despite the controversies and accusations, Telegram’s growth is unstoppable, with its tiny team of about 50 full-time employees managing an impressive 19 million users per person.

Check out The VC List to search over 18k investors by 🪜 stage, 🔮 thesis, and 🌎️ geo

📰 Middle America Headline of the Month

M25 released its 8th annual Midwest Startup City rankings. St. Louis has tanked to 9th place from 4th in 2018, with Kansas City close behind at 11th. Will KC soon take over as the top tech city in Missouri? Chicago maintains its position as the top startup city in the Midwest.

💰 Flyover Deals

Lots of big Series A & B rounds closed across the Midwest this month 🚀

• Check out the 238 flyover deals for over $2.1B in funding we tracked here, down 52% MoM

• Chicago-based Model Op closed a $10M Series B 

• St. Louis-based Intramotev raised a $14.4M Round to retrofit a new era of growth for the rail industry. 🚂

• Power to Hydrogen, a Columbus-based clean energy startup, closed a $18M Series A

• Spineology closed a $25M Series A  

• Chicago-based definite closed a $4.5M Seed Round 🤖

• Grid Status, a Chicago-based energy data solution, closed an $8M Seed Round 

🐄 Middle America vs. National Macro Trends

• Unemployment in Missouri rose this month to 3.7%, but well below the National Average of 4.1% and is also steadily increasing ✅

• The Midwest Consumer Price Index rose slightly this month at 3.4%, below the national rate of 3.7% ✅ 

  

🧠 This Month's Recommendations

📚 What We’re Reading

• Gong’s Path to Product-Market Fit - Why This $7B Company Still Works With Design Partners

• An attempt to understand Peter Thiel

• Mistral AI CEO Arthur Mensch on Microsoft, Regulation, and Europe’s AI Ecosystem

🎧 What We’re Listening To

• Lee Jacobs, Founder & Managing Partner of Long Journey, shares his journey from early investments and his experience with AngelList to co-founding Long Journey [51 min]

• Scott Gorlick sits down on the 20VC podcast to talk about his experience as employee #99 at Uber. Over 6 years, Scott built Uber in Atlanta and helped the company scale from 10 cities to $10B in revenue. [41 min]

• Communicating the Future: Defining where we want AI to take us on the Think Fast, Talk Smart podcast from Stanford GSB [22 min]

📆 What We’re Doing

• Catch us at the M25 Summit in Chicago next week 🏙

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

  • Passes here https://www.mainstreetsummit.com/venture 

• We just got back from a wonderful week in Indy at Rally! Shoutout to all of the wonderful investors and founders we connected with over the week! ⤵️

🪝Outside Main Hubs: Picks of the Month

🚀 Redbud Highlights

We introduced two new team members to Redbud this month 🎉

• Kate Hannik - MBA Associate

• Bruno Ostarcevic - Venture Partner

Join us in welcoming both Kate and Bruno to the team and read more about thier journey to Redbud below ⤵️

🛠️ Resources

• Marc Andreessen on how to hire the best people

• The complete guide on How to Interview and Hire ML/AI Engineers (one of our favorite reads on hiring out there)

• Ono of the largest VC lists with over 18k investors 🫰 

• Founder who 120 VCs—he closed $2.7M in 5 weeks with demand for $5M+. Here's his step-by-step guide to close a round. 💰

• 📊 All-In-One Startup Metrics Guide - What to track, when and why

• What’s the best way for founders to meet and pitch angel investors? Here’s a basic overview with tips on how to find and pitch to angel investors. 👼🏼

• The ultimate Sales + Marketing playbook

• The Best Fundraising Advice video series from Bill Trenchard

• 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

• Resource page for founders we made here 📒

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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