A Note From the Scale Team

Welcome to the first-ever Scale newsletter! We’re excited to bring you monthly updates about Scale companies and the state of tech startups and investing in the Midwest. - We've filtered through thousands of sources, so you don't have to. Enjoy🥂

🏉 Meet the Scale team here 

🏆 Scale portfolio → here

If you’re a fearless founder building between the coasts, join us in September ⬇️

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

Welp, this summarizes our current financial markets....

💰 Midwest Economics

• Investing in Missouri is still better even in a downturn, as Missouri stocks have outperformed the market over the last twelve months (LTM) & year to date (YTD)🤷🏽

• In 2022 so far, we've seen: 39 deals in Missouri, 610 in the Midwest, and 7,787 in the US. This year is still on pace to hit record funding without considering the bloated year in 2021 (Pitchbook NVCA Q2 2022)

• Missouri is on pace for its lowest share of VC funding in the last 17 years (Pitchbook NVCA Q2 2022)

💰 Midwest Deals

• Monolith, a clean energy company, raised $300M, the largest single investment in Nebraska history

• Scale Computing, building IT infrastructure products, based in Indianapolis, IN, raised a $55M

• Oracle closes $28B deal to buy Kansas City-based Cerner. WHATT!!

• Midwest deals we are tracking this month can be found here

🐄 Midwest Macro Trends

• Unemployment in Missouri continues to decline to a 10-yr. low of 2.8% compared to the national rate of 3.6% and 3.3% in the Midwest ✅

• Missouri’s Purchasing Manager Index has ducked below 50 at 49.5, which is lower than the national and Midwest indices 🔻

• Midwest Consumer Price Index rose to 9.5% compared to the national rate of 9.1% 🔺

📈 Macro Trend Report

• Inflation | We certainly won’t be the first to tell you about inflation; for some interesting data representations, we like this and this 💸

• GDP | The U.S. economy shrank 0.9% in Q2, following a 1.6% decline in Q1, while inflation rose to its highest since Q4 1981 at 8.6%. Employment remains unchanged, but for how long?

• Tech Employment | Companies that benefited and grew rapidly during the pandemic, continue to adjust to the market conditions this year. 420 tech startups have laid off ~60k employees in 2022 already 👨‍💻

• Housing | Even in places with historically available and affordable housing, surpluses are diminishing. BUT STILL, rent hits a record average of $5k per month in Manhattan. This is one of many reasons why founders should build in the Midwest 🏠

  • Watch out for the pullback in housing prices 😱

• Venture Capital | There is more dry powder in Venture Capital than ever, especially after the raises in 2021 and a potential record year in 2022 🏦

  • Q2 2022 was the lowest quarterly Angel deal count in the last 12 years, but Seed deals are on pace to reach close to 2021 levels. (Pitchbook NVCA)

  • Median valuations increased to the highest levels for Seed, early & late stage but dropped for Angel rounds

  • Median deal sizes increased for all categories but late stage

  • Deal count and value are still well above pre-pandemic levels

🧠 This Month's Recommendations

📚 What We’re Reading

• Why we love doing hard things 

• Come on, Missouri, where is our startup deal room? I guess Scale will build it but in all honesty, good work, Topeka

• Working from home is great, but nothing can replicate the collaboration, community, and creativity that comes from in-person work to jumpstart an early stage company

🎧 What We’re Listening To

• The value of storytelling to boost your company’s growth with Merci Grace form Lightspeed Ventures. [59 min]

• Scale's Brett Calhoun talks about Scale's model of investing in founders and attracting venture capital in the Midwest. [48 min]

• Emily Underwood, Professor of Law at UChicago Law School, discusses the state of entrepreneurship and excitement in tech in the Midwest. [38 min]

• How to stay optimistic when conditions change and how Rise of the Rest continues to support founders between the coasts. [45 min]

📅 What We’re Doing

• Amplify St. Louis (a 2-day startup summit) is being organized by our good friends Emily Hemingway and Melissa Grizzle. Event: 9/16-9/17

• Scale's Brett Calhoun is presenting at Venture Cafe St. Louis on August 25th on Venture Capital & Building Midwest Tech Startups (Mark your calendars, details soon)

• Getting ready for the TechCruch student pitch competition. Deadline: 9/18/22

• Scale Cohort III applications close on September 4th, and the cohort launches on September 26th

🎮 Midwest Tech of the Month

• May Mobility, a Michigan-based autonomous ride-hail, and shuttle startup, says it’s on pace to deploy its driverless shuttles by next year 🤯

🚀 Scale Portfolio Company Highlight of the Month

🛠️ Resources

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

• Useful website for founders here 🌐

• Need help with your deck, get to market, product, or cash burn model? Sign up here for a chance to win a 1-hour strategy session with our team ⛑️

• Finance Tip of the Month: The Qualified Small Business Stock 100% capital gains tax exclusion on the sale of your tech startup stock can be maximized if you start with an LLC and then convert to a C Corp after your first round of funding. (reach out to [email protected] if you want to dig deeper) 💡

  • Did you know that “Qualified Small Business Stock just missed the Build Back Better Act? Our portfolio company CapGains lobbied with Carta to keep it out

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. -> If you are interested in angel investing, then sign up here 😇

Huge thanks to Katie Campbell for her amazing work in helping me put this newsletter together👏🏼

All investing is subject to risk, including the possible loss of the money you invest. This Newsletter is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in it constitutes a solicitation, recommendation, endorsement, or offer by Scale or any third-party service