#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

Scale invests monetary and social capital in early-stage tech founders strengthened by struggle. We’re excited to bring you monthly updates about Scale, tech, and micro and macroeconomics. - We've filtered through thousands of sources, so you don't have to. Enjoy🥂

“First-principles with building a company don’t stop after the early customer and product discovery but extend through the entire life cycle of a company. You are always innovating for the customer, not the investor. A symptom of customer innovation is a strong ROI to your investors. We started DevStride for this reason; to help engineering teams stick to the first principles.”

Phil Reynolds, Founder of DevStride and BriteCore and Advisor at Scale VC
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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.

  • 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.

chart, line chart

💰 Midwest Economics

💰 Midwest Deals

🐄 Midwest vs. National Macro Trends

  • Unemployment in Missouri remains low at 2.6%, well below the national average of 3.6% and the Midwestern average of 3.5% ✅

  • Thanks to decreasing gasoline prices, the Midwest Consumer Price Index dropped to 5.6% compared to the national rate of 6.0% 

🧠 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

📅 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!

🛠️ Resources

  • 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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