A Note From the Scale Team

Congratulations to our hometown, Columbia, MO for being staying in the top 100 on Livability's best places to live in America list! We were also excited to see so many of our Midwestern neighbors in the top 10. Not only is is a great place to live, but CoMo was also named a top Midwestern city for small business growth! We can't wait to watch these cities supercharge technology growth and development for the whole country.

🏉 Meet the Scale team here 

🏆 Scale portfolio (TBD on Cohort III) → here

+ we added one more company 😬

🤝 Collaborate with top funds & founders in our Flyover Tech community (Join here)

If only it was that easy 🤠

💰 Midwest Economics

• September saw the Missouri Technology Corporation, a public-private partnership led by the Governor's office to grow entrepreneurship in the region, published a new Catalyzing Innovation Report. Key takeaways include:

  • small businesses are consistently creating jobs in the state

  • compared to other states, Missouri is lagging in small business funding

  • grant programs to support entrepreneurs and small businesses launched

• The US Department of Commerce "Build to Scale" grants totaling $47M were announced this month, with 13 of the 51 recipients located in the Midwest.

• Missouri public companies bring in a massive return of 11.53% this month. In addition, they continue to outperform the broader market over the last year and year to date + are in the green in this down year!!! Is it time to start throwing money at Missouri stocks? 🤑

💰 Midwest Deals

• yWhales, a St. Louis based, Web3 startup raised $5M on an $80M valuation

• St. Louis based Sheer Logistics received an undisclosed investment from logistics titans

• PubMatic, a Cincinnati AI digital media company that came out of Ocean, Brandery was acquired in a $45M deal

• Next-generation biomagnetic imaging startup Genetesis announced a $17.5M series C round and upcoming clinical trials partnership

• Wisconsin-based survey platform for local governments, Polco Inc., raised $14M mostly from Midwest based investors

• Tractor Zoom, an auction marketing and equipment pricing company for agriculture announced a $5M series A round

• Idea Fund of La Crosse raised their second fund to support Wisconsin startups

• Check out the 65 deals we tracked this month here.

• Missouri tech startups are on pace to have a record-low percentage of VC funding and the Midwest is sitting around average. (PitchBook NVCA Venture Monitor Q3 2022)

🐄 Midwest Macro Trends

• Unemployment in Missouri continues to decline to a 10-yr. low of 2.4% compared to the national rate of 3.5% and 3.4% in the Midwest ✅

• Missouri’s Purchasing Manager Index increased to 50.4 but remained well below the national and Midwest indices 🔻

  • Finally back above 50, we hope this upward trend continues!

• Midwest Consumer Price Index rose to 8.6% compared to the national rate of 8.2% 🔺

📈 Macro Trend Report

• INFLATION | US inflation continues to linger at high rates (8.2%) in September and remains higher than our competitive countries (e.g., China, Japan, India, etc.). There is no expectation for inflation to improve anytime soon, as high energy prices and supply chain issues continue to drive downstream goods and services issues.

• TECH EMPLOYMENT | Tech startup layoffs doubled between September and October as did hiring freezes. With inflation rising largely due to energy prices, it's not surprising that a bulk of layoffs in 2022 have been seen in the food and transportation industries.

• HOUSING | As housing markets begin to move toward a "difficult correction," there remains volatility. We like this interactive map to visualize changes in our communities over the past few years. Even as some regions seem to be crashing, markets still see home values significantly up from pre-pandemic levels.

• VENTURE CAPITAL | We knew it was coming...but it's finally here. Q3 saw massive decreases in venture funding deployment to the anomaly of 2021 (53% decrease year over year and 33% quarter over quarter). While dry powder remains high enough to save startups, we may still see a slowing rate at which VCs choose to deploy capital over the next year. We should be ready for continued low valuations, fewer exit opportunities, and a potential increase in down rounds. That said, there is still a lot of optimism for early-stage investing.

• Angel deals and deal value is on pace to be at a record low over the last 10 years but combined with Seed deals and deal value, it is still much higher than pre-pandemic levels. (PitchBook NVCA Venture Monitor Q3 2022)

🧠 This Month's Recommendations

📚 What We’re Reading

• Even though VCs are excited about AI, VCs don't have to worry about being replaced - at least any time soon and why emerging managers are a good choice in downturns

• A lesson on contract terms, how investors use them, and how founders can use them to their advantage

• Did we over eat on software?? And how we can make it work for us

• We all know there have been supply chain issues this year, but did you know low water levels in the Mississippi river are contributing?

🎧 What We’re Listening To

• Big tech news this week summarized here with All In

• Co-founder Jai Malik discusses rebuilding the American industrial base on The Realignment

• A super helpful episode about how to grow your user/employee base 

📅 What We’re Doing

• Join us at the Mid X Midwest in KC to network with early-stage tech founders and VCs in our region

• Iowa Angel Investor Summit in Des Moines is bringing education about angel investing to Iowa: 11/18

• Our team is putting on the first Flyover Tech Speaker Series, starting with Daniel Fetner, GP at Alpaca (apply here)

🎮 Midwest Tech of the Month

• Columbia, MO-based Hallway has built the highest-precision machine learning-based motion capture system that can be used by anyone with a webcam to bring your digital avatar to life.

🚀 Scale Portfolio Company Highlight of the Month

goodhouse, modern home management for homeowners, has expanded from Columbia to Lake of the Ozarks, Jefferson City, and Macon, Missouri. They've had 300% month-over-month user growth and are now managing over 160 happy homes.

🛠️ Resources

• Have trouble forecasting your dilution? Find our handy Cap Table + Dilution Calculator here with instructions here📒 

• Useful website for founders here 🌐

• Check out the new VC & Angel Investing operating system here 🖥

• Finance Tip of the Month: It's imperative for early-stage tech founders to build a thoughtful cash burn forecast that is 18-24 months and is based upon i) get-to-market strategy/customer acquisition strategy (i.e. inbound, outbound, partnerships, etc.), ii) hiring and expense needs based on "i," and iii) revenue expectations based on "i & ii." Based on the expectations in the model, founders will be able to understand what level of capital they need to raise. Try out this model we made here 💡

Why should you angel invest or invest in VC funds? Because Venture Capital is the sexiest asset class that improves society while producing outsized returns, duh. Also, venture returns have proven to outperform public equities during a recession. -> If you are interested in angel investing, then sign up here 😇

Huge thanks to Katie Campbell and Will VanAlstine for their help putting this newsletter together! 👏