A Note From the Redbud VC Team

It’s hard to escape the news of Elon Musk these days. From the election to xAI’s valuation, SpaceX’s engineering feats, and Cybercabs, it’s pretty clear it’s Elon’s world. While the news of the future persists, reality has hit the housing and job markets as lowering interest rates are luring buyers back into the market, and tech layoffs are continuing to dip. All good things for the economy heading into November. On the VC side, investors are disappearing, and those who are deploying capital seem to be all-in on AI, with 41% of deals done in the first half of 2024 being AI companies. Many are making boom or bust bets on what the future of AI looks like, but not us! We’re actively looking for our last few investments of the year, so if you’re ready to pitch and are not just adding AI to your name to raise a $40B valuation, let us know here!

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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How many VCs dressed up like VCs for Halloween? 👻 🎃 

🔥 Burning question of the month 🔥

📈 Macro Trend Report

• HOUSING | Mortgage rates were cooling down, increasing new-build constructors cutting deals and Americans increasing their appetite for new builds. The rate of new home sales in August (relative to the start of 2014) was up more than 65%, while existing home sales are down 21% over the same time frame, dropping from a rate of 4.9M a decade ago. Existing home sales are still outpacing new ones, but those rates have slowed. In September, previously owned home sales slowed to a seasonally adjusted annual rate of just 3.84M, the lowest reading in 14 years. That said, rates have been slightly volatile as we near the election, with rates rising in October, but rates are estimated to drop 50 basis points are more by end of year.

• AI | OpenAI is pushing forward despite its leadership and computing challenges. In a recent Reddit AMA, CEO Sam Altman acknowledged that limited computing capacity has hindered the company’s ability to release new products at the pace it would like. Altman said OpenAI has been collaborating with Broadcom on developing a custom AI chip, potentially set for release by 2026. There was some good news for the company this month as they launched ChatGPT Search, a refined version of the SearchGPT prototype previewed this summer. That’s right; finally, someone is competing with Google in search 🔍 OpenAI also introduced a browser extension that allows users to set ChatGPT Search as the default search engine in Chrome. Over at Google, CEO Sundar Pichai revealed that AI systems now contribute over 25% of the codebase for new products. This code, while generated by AI, remains under human supervision, with programmers managing and refining these AI-driven contributions.

• VENTURE CAPITAL | Investors aren’t investing. Oh, and they’re disappearing from the market as a whole. In 2023, there were 15,303 unique investors who participated in at least one deal. That number has dropped to 11,425 in 2024. 25% of last year’s active investors are “taking a break” from new investments. The slowdown in capital deployment is also leading to GPs adjusting their fundraising plans: 13% of GPs aren’t planning to raise another fund, and another 27% have delayed their fundraising plans.

  • AI DEALMAKING | It’s no secret that VCs love AI. So much so that 41% of U.S. VC investments in the first half of 2024 went to AI companies. While there may be enough AI deals to go around, their valuations are telling a different story. Conversational AI startup Sierra just raised $175M in a funding round led by Greenoaks Capital, giving it a $4.5B valuation. Then there's Perplexity, which reportedly secured between $10-20M from SoftBank at a $3B valuation in June and is now in talks to nearly triple that to around $8B. xAI is also eyeing a new funding round that could push its valuation to about $45B. Having recently closed a $6B round at a $24B valuation in May, if xAI rises to $45B, it would mean its value has almost doubled in just five months, potentially making it the 9th most valuable VC-backed startup in the market.

  • 10 YEARS TOO SHORT? | The standard 10-year lifecycle for venture capital funds has been a solid framework for aligning general partners GPs and LPs, but things are shifting. For the most part, there hasn't been a compelling reason or sufficient data to justify straying from the standard; however, unicorns are changing that. Unicorns now make up two-thirds of the U.S. market value for VC-backed firms. This creates some urgency for unicorns to exit and pay back investors. A staggering 40% of unicorns have been sitting in VC portfolios for at least 9 years. 😳While the median time from investment to exit has held steady at around 4.9 years since 2010, that figure doesn't tell the whole story; many of these exits are on the smaller side. For exits over $500M, the holding period has crept up to 9.1 years in 2023. The lack of exiting unicorns coupled with longer holding times has led to 54.7% of VC funds from the '90s to 2008 not managing to distribute their full value by the end of year 10. It’s clear the gap is growing from the 10-year expectations and has LPs asking, “Is 10 years too short”?

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

💰 Micro Trends

• HALLOWEEKEND | Instacart’s Halloween survey shows that America is all in on spooky season, with 76% of people ready to celebrate and a festive 25% calling it their absolute favorite holiday. And, of course, Halloween means candy, costumes, and trick-or-treating. This year, half of Americans plan to dive into Halloween candy, and almost as many 46% are on deck to hand it out to eager trick-or-treaters. Meanwhile, 31% are gearing up to dress in costume, and 23% will be out trick-or-treating themselves. Instacart also sees a last-minute candy craze, with 21% of candy orders placed on October 31st!

• TESLA TAXIS | At Tesla’s much-anticipated robotaxi event, CEO Elon Musk revealed the Cybercab, the company’s first fully driverless vehicle prototype. 🚕 Designed as a sleek, silver coupe with butterfly doors, the Cybercab aims to be Tesla’s most affordable self-driving car, with Musk noting a target price below $30,000 and ambitions for high-volume production. The Cybercab was not the only technology teased at Tesla’s event; Musk also introduced a “Robovan,” an autonomous van capable of carrying up to 20 passengers or shifting to handle cargo. Musk also showcased updates on Tesla’s Optimus humanoid robot, sharing that development is advancing with a projected price between $20,000 and $30,000. Tesla’s stock dropped 9% the following morning after the event since the real use of any of these technologies is years away (Cybercab coming in 2027).

• CANVA CRAZE | Canva’s IPO buzz is heating up as the company’s valuation soared to $49B this month, a 23% jump from last year. With 200M monthly active users, $2.5B in annualized revenue, and 95% of Fortune 500 companies on the platform, Canva’s momentum is hard to miss. Much of this growth comes on the heels of a significant price hike for Canva Teams, announced in early September. Subscribers on legacy plans are facing a 300% increase, with the cost for a five-person plan rising from $119.99 to $500 annually. On the product side, Canva rolled out enhancements to its developer platform, adding premium app access for Pro users, a translation tool, improved app discovery, and expanded API features. Since launching the developer platform in June, developers have created over 300 apps that have collectively been used over 1B times. 🎨

📰 Middle America Headline of the Month

Chicago-based ARCH Venture Partners announced the closing of their 13th fund this month. ARCH Venture Fund XIII is a $3B fund to support the founding and growth of early-stage biotechnology companies. 🧪

💰 Flyover Deals

This was the month of the small Series A round in flyover country 🚀

• Check out the 239 flyover deals for over $2B in funding we tracked here, down 2% MoM

• Some big rounds in Chicago closed this month!

  • Bitnomial closed a $25M Series C led by Ripple

  • Chicago-based Pathos AI raises $62M to fuel drug development 💊 

• Hummingbirds closed a $6M Seed Round to move into 20 new cities in 2025

• Cold closed a $2.65M Seed Round to help companies tackle sustainability reporting requirements

• Chicago-based Azura closed a $6.9M Seed Round

• 🤖 Columbus-based Path Robotics closed a $100M funding round co-led by Drive Capital

• Deerfield-based Logik.io raised $25M Series B

• Shiratonics raised an oversubscribed $66M Series B 

• St. Louis startups also took home their fair share of capital this month 🚀

  • WarrCloud raised $20M in Series B funding

  • BizzyCar closed a $15M growth round 

  • Capacity “accidentally” raised a $26M Series D 

🐄 Middle America vs. National Macro Trends

• Unemployment in Missouri rose this month to 3.9%, but well below the National Average of 4.1% ✅

• The Midwest Consumer Price Index remained unchanged this month at 3.5%, below the national rate of 3.8% ✅ 

  

🧠 This Month's Recommendations

📚 What We’re Reading

• Tesla WTF

• Writes and write nots

• How AI will create more successful founders

🎧 What We’re Listening To

• The “wrong” moves that built a giant with DoorDash Co-Founder Tony Xu [53 mins] 🍔

• Keith Rabois, Logan Bartlett, Kevin Ryan, and Zach Weinberg share about the first venture investment into OpenAI on the Turpentine VC podcast [1 hr 17 mins]

• Building a Unicorn in 3 years with Andrew Mason, Co-Founder of Groupon [1 hr 15 min] 🦄

📆 What We’re Doing

• Thanks to our friends at Bluestien Ventures and JP Morgan for hosting emerging female investors from Chicago at the Lip Lab this month 💄

• We’re gearing up to attend MidxMidwest in Kansas City hosted by Flyover Capital on November 14th!

• We had a blast in Columbia at the Main Street Summit. We co-hosted the Venture and Startup Track with our friends at Mercato Partners.

🪝Outside Main Hubs: Picks of the Month

🚀 Redbud Highlights

Congratulations to Redbud portfolio company Reactiv on the announcement of their $5M Seed Round with participation from Bonfire VC, Foxe Capital, Anthemis, Daher Capital, and Alumni Ventures. 🎉

Reactiv is tackling the stagnation in mobile commerce with Reactiv Clips (apps you don’t have to download to use), a suite of developer and AI tools to make building an app fast and without compromises. 📲

Read the official spread in Forbes below ⤵️

Redbud VC Accelerator portfolio company Brownstone.live has been approved by San Francisco to launch 30 sleeping pods in SF’s bank building downtown for $700 per month, increasing access to housing 🏘️ 

🛠️ Resources

• Need some examples? Check out these 50 pitch deck examples from successful fintech startups

• ➡️ +200 Non-VC Funding Sources for SaaS Founders

• Thinking of rasing some capital? Here’s the Due Diligence Checklist every founder should see  👀

• YC's essential startup advice

• Brian Chesky on when to hire 🧍🏼‍♀️

• Metrics 101: What VCs look at while evaluating startups

• Get started to build an outbound sales motion with these 130 SaaS Cold Email Templates

• 🤖 Why code is no longer a moat

• A list of low/no code tools to get your company off the ground 🚀

• 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)

• One 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

• 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