A Note From the Scale Team

🚀 Exciting news from Scale VC; we closed a $5M Fund II to support over 30 startups and build a few ourselves! [Share the love here] Over the past 22 months, we've had an insanely fun journey building Scale, full of learning and incredible experiences. The best part, though, has been the fantastic people we've met along the way. Despite the environment, we're doubling down on early-stage founders who thrive in downturns and build with first principles. In fact, we invested in six companies this quarter and kicked off our Spring 2023 batch on May 1st [stay tuned for the companies].

Scale VC invests monetary ($50k-$150k) and social capital in early-stage tech founders. We’re excited to bring you monthly updates about Scale, tech, and economics. - We've filtered thousands of sources, so you don't have to. Enjoy🥂

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Back at it again with the failed banks. First Republic Bank is the second-largest bank to fail, bringing total failed bank AUM above $500B in 2023. 🔥 Hot take 🔥 First Republic Bank won't be the last failed bank headline we see this year. 👀

📈 Macro Trend Report

• ENERGY | The recent LNG (imported from UAE) trade between the Chinese National Oil Company (CNOOC) and France's Total Energies is not just an international relations fiasco waiting to happen. Still, it reflects a concerted effort from China to establish the yuan as an international currency and weaken the dollar. Despite predictions that these moves could increase worldwide inflation, a drop in the energy sector CPI has led to some stability.

• SPACE | Big news from SpaceX this month as their first Starship launched and flew for about four minutes after liftoff. Even though the rocket didn't make it into space, SpaceX also announced the successful launch of a satellite operating on a 5G cellular network - the first of its kind with the goal of global Internet of Things (IoT) adoption.

  • All this space stuff is cool, but starting this summer, four volunteers will live in a locked box to mimic life on Mars for ONE WHOLE YEAR. Are we the only ones screaming internally about this plan?? 😱

• AI | More tech giants are getting into the AI battleground. When Microsoft shocked the community with a massive investment into OpenAI last month, Amazon quickly followed. Importantly, VCs are not committing to AI products but rather focusing on finding the best individual founders.

  • AI doesn't always have to be serious though: this is a fun use for AI! 🤪

• VENTURE CAPITAL | While deal count and valuations (especially late stage) are tanking, Q1 2023 deal count remains above 2020 numbers. As fundraising momentum is coming to a halt, there has been a rapid shift toward micro-funds (<$50M) to compensate, and GPs are doubling down on their fund commitments to show LPs they're willing to share the risk. An unfortunate decline in exits has made it hard for these emerging fund managers to prove themselves. However, the smart ones are still writing checks - we expect these to be the great operators and advisors who, despite the turbulence, will still outperform.

  • 73% of unicorns were formed between 2021-2022 with a massive drop off in 2023. Only 18 active unicorns were formed in 2023, compared to the 929 in 2021 and 2022.

  • All venture round sizes are down 8%-53% since Q1 2019 (pre-pandemic), except Seed rounds which are up 41%. That said, all rounds of pre-money valuations have been down since Q1 2022, but volume has declined at a higher pace. This makes sense, given the slowed velocity of investing. That said, Pre-Seed valuations continue to rise due to the appetite for multi-stage funds growing their allocations for early-stage as the growth stage is a blood bath.

💰 Micro Economics

🎉 A HUGE congratulations to our friends at EquipmentShare as they announced their $290M Series E funding and $750M bond offering, raising a total of $1.04B this month. Even more exciting is that they accomplished this by sticking to first principles and their founder-led scaling process.

• The University of Missouri partners with Scale VC to start an on-campus accelerator supported by unicorn founders as well as leads an anchor investment in Scale VC's Fund II.

• Is the St. Louis tech community back on the growth trend since it flat-lined from the pandemic? It sure seems like it after STL Tech Week, where over 5k founders and investors came together to support the community, including big names like the founder of Square and World Wide Technology [shoutout to Emily Hemingway for an excellent job]. They're also 16th in the country for talent migration and attracting companies like Scale.ai and other defense tech companies housed in the new Globe Building, which has the largest SCIF in the US.

• This Houston company is building rocket engines, but they aren't for rockets; they're for passenger airplanes. Supersonic, commercial flight might be closer than we think, and we love to dream about how many people might come to the Midwest if they could get anywhere in an hour...

• 2023 has been an excellent year for entering the broader public markets, as investors are seeing record returns on an annualized basis. That said, Missouri stocks have taken a hit this year but are bouncing back after a good month in April.

Tired of your calendar tools? Our friends built the Calendar.com Chrome extension that our team uses to schedule 100+ meetings a month 💪🏼

💰 Midwest Deals

• Robotic sprinkler system Irrigreen announced a $15M seed raise for their Minnesota-based company to make watering your lawn more efficient and eco-friendly.

• DeepHow, the Michigan-based AI company that turns technical know-how into smart, how-to training videos, has closed $14M in Series A funding

• Chicago-based Bixby announced a $5.5M Series A raise to develop their credit and loan information platform

• Another Chicago-based company raising $5.5M, Aqua, announced seed funding to bring their plant-based seafood products to market.

• SentiAR, an augmented reality technology company bringing holographic 3D modeling of surgical procedures to physicians, based in St. Louis announced an $8.5M Series B.

• Check out all 66 deals we tracked here for $825M total!

🐄 Midwest vs. National Macro Trends

• Unemployment in Missouri remains low at 2.5%, well below the national average of 3.5% and the Midwestern average of 3.5% ✅

• Thanks to decreasing gasoline prices, the Midwest Consumer Price Index dropped to 4.9% but neared the national rate of 5.0% for the first time in months✅

🧠 This Month's Recommendations

📚 What We’re Reading

• We saw cell phones grow to giant sizes and then shrink, is GPT the next thing that needs to get smaller to get better? Sam Altman thinks so

• Public and private company valuations are coming down to reality, but have VC-backed startup valuations always been inflated?

• The best way to learn how to be a great founder is from other founders.

• While decreasing VC dollars is a depressing trend that continues this year, the data shows that investors and founders are far from giving up

🎧 What We’re Listening To

• Dive into the transformative impact that AI is having on the world of online creation and self-representation -- like our company, Hallway:) [39 min]

• We're nerdy, so we love hearing about VC fundraising best practices, LP management, and LPACs, whew... with Meghan Reynolds, Partner at Altimer [53 min]

• Learn the ground floor insights of product-led sales from the expert Elena Verna, CMO at Miro [76 min]

📅 What We’re Doing

• Chicago Venture Summit is coming; and this year the theme is food. If you know food innovators or investors, they're the only ones who get to go. 5/3-4. 

• Women's Entrepreneurship Week (WeWmke) is bringing female entrepreneurs in Milwaukee together to celebrate their contributions to the city. 5/8-12.

• ScaleUp, 1871's signature event to help you learn to grow and lead a company in today's rapidly changing tech ecosystem, returns for a jam-packed day of programming. 5/10

• Midcontinent Venture Summit hosted by our friends at Cortado Ventures, gathering of founders, innovators, investors, and business leaders across the region. 5/10

🎮 Midwest Tech of the Month

Everyone loves sushi, right? 🍣 Aqua Cultured Foods, based in Chicago, has developed the first whole-muscle cut sushi-quality seafood alternatives created using microbial fermentation. Are cultured meats the future of culinary arts?

🚀 Scale Portfolio Company Highlight of the Month

HoundDog is one of the fastest-growing Scale VC portfolio companies, serving over 500 businesses and thousands of contractors. They automate insurance verification and tracking for contractors' P&C insurance. This allows brokers to kick back and relax while they receive automated real-time client data and companies to lose the insurance tracking and verification spreadsheets.

🛠️ Resources

• A guide to understanding how Y-Combinator views business models 📖

• Map out your product economics to entire business valuation in one spreadsheet 🧮

• 25 investor directories that consolidate all the circulating investor directories, but if you don't like that one, here's another 💰

• Check out newly launched Scale VC Mentor Network with 100+ mentors 🦸🏽

• Resource page for founders we made here 📒

Keep up with our Medium content here 🔖

 💼 Scale job openings --> here