#9 April 2023: SVB Crash and Rates Thrash
Your monthly filter for economic data & insights that matter.
A Note From the Scale Team
What a roller coaster of a month! We don't need to be the first ones to tell you that the VC environment reeled from the collapse of Silicon Valley Bank this month, and funding dipped accordingly, but we were lucky that our companies pulled through unharmed. Meanwhile, we successfully hosted Missouri Startup Weekend 2023 and loved getting to know the best up-and-coming founders in our state. We have also seen a growing number of early-stage founders, which aligns with the recent tech layoffs - YC had a 5x increase in late applications after the Q1 layoffs.
Founders, applications for Cohort IV close April 7th (11:59 PM PT); apply here
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The below is a bit tongue and cheek, but in all seriousness, that's where we are headed. Raising rates due to events-induced inflation (i.e., pandemic and war) is a recipe for disaster 💣
📈 Macro Trend Report
INFLATION | The Fed decided to raise rates 25 bps amongst mixed feelings after fall of SVB. From the outside, it's tough to see their logic behind raising rates in order to tame inflation when inflation is driven by the increase in energy prices. Food production, transportation, and war are not going to drop just because inflation is up, but despite these trends, we are starting to see some promising movement with consumer inflation as it dropped 70 bps from 6.3% in February to 5.6% in March.
BANKING | We certainly won't be the first ones to tell you about SVB (or the impact of their collapse on other startup banks), and we won't even pretend to provide a new perspective about what's next but we do want to extend support to all our friends and partners affected by the collapse.
Maybe the only good thing coming from the situation will be that the Fed may halt raise increases as a result of the uncertainty. 🤔
TAXES | It's almost tax season, and Biden announced his new tax rates with significant increases in capital gains and corporate taxes.
HOUSING | Is 3D printing housing, buildings, and structures the future? The US is soon to have the first 3D-printed hotel.
Our team has been diving into this space and there are some promising applications for printing affordable housing or commercial applications such as storage units.
AI | AI continues to take over the world with the release of the higher quality and more accurate GPT-4. Users were shocked to learn that tech giants, including Microsoft, Stripe, and DuoLingo have all confirmed that their programs run on GPT-4.
VENTURE CAPITAL | YC shocked the community when they announced they will not raise another continuity fund. Despite this news, they have always predicted the next big thing in VC, and we don't see that changing any time soon. Here are some of our favorite observations about the most recent cohort, and we can't wait to see these trends change the startup landscape this year.
Seed-stage valuations are up nearly 40% from Q1 2021. That's through all the turmoil of the prior 12 months, but growth stage valuations are moving in the opposite direction.
💰 Midwest Economics
While it's disappointing to see that, in 2022, the majority of VC dollars went to coastal companies, local efforts are still strong (and more importantly, successful)! Case in point, Drive Capital announced their Seed Program in 5 non-coastal cities.
Midwest teams may have already bowed out of the NCAA tournament, but you can still vote for your favorite city in the M25 Midwest Madness tourney on Twitter.
Two Columbia, MO-based Unicorn tech startups have cracked the Y Combinator top 25 private companies list. Columbia has to have the highest tech startup success rate per capita.
It was a rough month for Missouri stocks, but still outperforming the market over the last twelve months...
💰 Midwest Deals
It was a big month for Illinois-based startups!
Trading Card Scanner and Price Guide App Ludex Raises $8M in Seed Round. Investors Include NFL Athletes, Brian Urlacher and Cassius Marsh. (p.s. I'm totally using this for my childhood cards)
Check out all 91 deals we tracked here for almost $875M total!
🐄 Midwest vs. National Macro Trends
🧠 This Month's Recommendations
📚 What We’re Reading
Our society is on the cusp of a revolution that is going to create opportunities for unprecedented innovation and investment into the transformation of legacy industries such as manufacturing, supply chain, and logistics
Ben Evans' newest data-driven look at macro trends in the tech industry
Are these data points showing stability is on the horizon for VC markets, or do we still have lots of work to do?
Are you a founder who detests fundraising? You are not alone, and here are the people and products trying to make it easier.
🎧 What We’re Listening To
Jackie Reses, the new CEO for Lead Bank in Kansas City, MO, discusses negotiation, her amazing career, and what she thinks the future brings on 20VC [57 minutes]
📅 What We’re Doing
Connecting the Coasts to the Heartland Event featuring Steve Case is on April 4. We had to skip out this year because we are too busy finalizing Cohort IV!!
InvestMidwest is returning in just a few weeks on April 12 and 13, and we are supporting the efforts at Scale as a 2023 channel partner!
Following the Midwest Madness tournament (we won last year 🥳) -- it's looking like Bloomington, IN will win... who?
"What we did" was having a successful Missouri Startup Weekend with 50+ ideas pitched from entrepreneurs from over five states. Twelve teams competed for the grand prize, with All Hair Academy winning the grand prize of $7.5k, a ticket to Scale Cohort IV, free legal formation, and a month of brand design and PR. (Pics below)
🎮 Midwest Tech of the Month
How often have you heard your engineers say, "Jira is ruining this project" or "our UI team is out of sync with the backend team." Too often. After scaling BriteCore to hundreds of engineers, Founder Phil Reynolds had enough of the horrible project management processes, so he started DevStride. Instead of the typical kanban workflow, DevStride allows teams to link each project element and have an accurate status assessment.
🚀 Scale Portfolio Company Highlight of the Month
It's tax season, so it's only fitting to highlight CapGains (QSBS Expert). They have a tool to assess a company's eligibility for the "Qualified Small Business Stock" 100% capital gains tax exclusion in under an hour as opposed to the 40+ hours it takes a tax and/or legal professional. This team is monitoring portfolios of multiple multi-$B AUM funds for QSBS eligibility. If you have equity in a tech startup, we highly recommend contacting the CapGains team!
Honestly, this is one of the best posts (25 investor directories) that consolidates all the circulating investor directories 💰
Apply to pitch 16 leading investors here 🎬
Check out newly launched Scale VC Mentor Network with 100+ mentors 🦸🏽
A VC checklist for technical due diligence on AI startups 🤖
Have you ever heard a friend talk about how much they made from storage units? Here is a guide on how to 🏬
Resource page for founders we made here 📒
Top AI tools to imbed into your workflows here 🤖
Build a financial plan for your next 24 months in under 30 minutes here 🤑
Why should you angel invest? 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. 😇
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