A Note From the Scale VC Team

☀️ Happy Summer, everyone! The end of this month marks the halfway point of 2023… scary. We locked in our first six investments ($600k deployed) out of Fund II and are well on our way to starting/incubating a company. From single parents to students, technical engineers to self-proclaimed farm kids, we met founders from all walks of life, and we cannot wait to see what they build. If you’re interested in capital + working with world-class operators, Pitch Us here.

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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🦸🏽 Become a Scale VC Mentor | 📣 Pitch Us for an investment

😎 Join our talent network | 🛩️ Flyover Tech community

The House passed the debt ceiling bill last night, which suspends the debt ceiling through January 1, 2025. We all know Jerome Powell is waiting to unleash the digital printer again 💳️ That said, we won’t have the worst recession in history.

📈 Macro Trend Report

• EMPLOYMENT | One of the “Godfathers of AI” stepped down from his role at Google while : announced that they are reducing their workforce by 20%. Maybe this new availability of founders will jumpstart some tremendous new tech companies and can take advantage of programs like Microsoft’s new incubator program: Pegasus. That said, the layoffs in the broader tech market have started to cool, nudging to a six-month low.

• AI | ChatGPT has attracted millions of users since its release in November, and the underlying tech has fueled a new generation of startups and is completely revitalizing current industries. Studying how these startups will impact funding ecosystems will inform founders and investors alike to help us understand current and future funding trends.

• VENTURE CAPITAL | Q1 2023 has seen a lack of available capital affecting all stages of the venture ecosystem leading to a 25% decrease in median deal size of late-stage rounds to reach the lowest point since Q2 of 2017. Additionally, pre-money valuations dropped significantly and even the best IPOs are below their first-day prices. As a result - or maybe a cause - there has been a shift in power from fund managers to investors, with LPs gaining an upper hand in negotiations.

  • Union Square Ventures, arguably the best-performing VC fund of all time, has reported an IRR of 33-59% in its last four funds. Their strategy has been disciplined with keeping their funds under $1B, which speaks to the ability to provide investors with solid returns by not over raising. Historical VC performance agrees with this, showing micro VCs like Scale VC outperform the market.

• According to Midas List, LinkedIn and Twitter are used less than 20% and 35% by Midas List investors regularly. There is even a correlation with lower Twitter usage for the top 10. That said, emerging managers must be active on social to build their brand reputation, whereas top investors either gained brand reputation from joining a top firm or have years of building it.

💰 Micro Economics

🎉 We've always been proud to be from flyover country - we're so excited that everyone else is seeing it, too!

• Through Q4 2022, PE and VC are generating lower returns and lagging behind their 10-year averages. Dive into the data here

• Woah, Missouri is getting absolutely thrashed by the broader market 🫣 

Need a press release? Our friends at Zapier just launched an automated press release tool 💪🏼

💰 Flyover Deals

• Detroit-based UVeye announced a $100 million fundraise to support sales and manufacturing of their automatic vehicle inspection platform.

• Two Chicago-based startups raised big funding rounds with Obie [landlord insurance] and Hallow [faith-based mobile app] pulling in $25.5M and $50M, respectively.

• Mycocycle, a Chicago biotech company using fungi to transform waste into raw materials, announced a $2.2 million seed round.

• Biotech investors NewLimit announced their Series A to work on epigenetics and aging.

• Check out all 84 deals we tracked here for $210M total!

🐄 Flyover 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 3.4% ✅

• Thanks to decreasing gasoline prices, the Midwest Consumer Price Index was steady at 4.9% this month to be equal to the national rate for the first time in months ✅

🧠 This Month's Recommendations

📚 What We’re Reading

• At Scale VC, we've always been a fan of SAFEs, so we're excited that they're catching on.

• Founders get worried about their monthly burn rate often for good reason. How big a piece of the success puzzle is burn rate, and how can you optimize? 

• The state of private markets is in flux. Prefer to read about it OR look at the data.

• Is AI getting ready to help us read each other’s thoughts? Maybe 😲

• CAC payback periods are critical to scaling a startup and reaching the magic rule of 40. Founders, make sure you are tracking and benchmarking this.

🎧 What We’re Listening To

• Tune into why financial models are needed at Seed, why multi-stage firms destroyed Seed, and who wins and loses in the next ten years of venture with Adam Besvinick, Founding Partner at Looking Glass Capital [44 min]

• Check out Brett chatting about what makes Scale VC founders the best [35 min]

• If you’ve ever been really curious about how to build GPT language models, this video is for you! [2 hours]

📅 What We’re Doing

• Capital Camp was last month, but it was so awesome we are still talking about it.

• Launching our first monthly happy hour “Symposium” for founders, funders, and friends on June 8th — join the waitlist for future happy hours.

• Checking out the new Midwest Co-Founder match week, our friends at M25 recently launched.

• Jack Zerby, Head of Design at Gumroad, will run a pitch deck design workshop with our Flyover Tech community on June 7th.

🎮 Flyover Tech of the Month

Powered by AI and an industry-specific knowledge graph, Chicago-based Zengines speeds systems migrations with a data conversion platform that accelerates conversions, reduces effort, and frees your team up to focus on the business.

🚀 Scale Portfolio Company Highlight of the Month

Passtur is building the first autonomous food & beverage manufacturing network to bring consumers the food factories of the future. As part of our first cohort, we’ve watched them grow, hire, and raise $2.3M so far. Most have launched their first facility which is helping many emerging beverage brands scale!

🛠️ Resources

• Find dozens of active investors on this thread 🧑‍💻 

• Any first-time founders with a board? Here are insights to manage it 🧓 

• Reach out to Ben Lang, founder of Notion, who is actively writing checks 🫰 

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

• 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.