A Note From the Scale VC Team

It’s been one year of delivering a well-crafted newsletter into 12k+ subscribers’ inboxes — wow, time flies… In addition, Summer is almost over as we enter August. Founders, take your calls ASAP because it sounds like the broader VC market is taking the month off, but not us 😉 The outlook of the US economy appears to be taking a soft landing with positive results with inflation, employment, and consumer spending. That said, it still feels like the Oval Office and the Fed are playing Jenga with the economy, dragging out the student debt relief and expecting another rate hike in 2023. In addition, stabilizing increased remote work, rate hikes, and vacancy rates could implode the commercial real estate market. We’ve seen the light, but more obstacles exist before the economy before we are out of the storm.

Scale VC invests monetary ($50k-$150k) and social capital in early-stage tech founders. We’re excited to bring you monthly updates about Scale VC, tech, and economics. - We've filtered thousands of sources for our 12k+ readers, so you don't have to. Enjoy🥂

🏉 Meet the Scale Team and Mentors | 🏆 Scale Portfolio

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

😎 Join our talent network | 🛩️ Flyover Tech community

The results are in…Barbie beat Oppenheimer at the box office with a record $155 million debut weekend. The two films secured $235.5 million in a single weekend, representing the fourth highest-selling box office opening in HISTORY — AMC lives on 📽️ 

Besides the box office wins, the Barbenheimer craze has sparked a slew of memes on Instagram, TikTok, and Twitter/X. Despite the current bearish macroeconomic conditions of venture capital 😵‍💫, we’re squeezing in a laugh or two thanks to Barbenhiemer (and the Barbie AI Selfie Generator)

🔥 Burning question of the month 🔥 

🛑 After shenanigans with Newchip, the decline of OnDeck, and the abundance of new funds, people are questioning whether accelerators will make it and are worth it. In a recent Pitchbook study, five leading accelerators received a net promoter score of 47.6%, and Y Combinator was the only fund with consistently strong returns.

📈 Macro Trend Report

• REAL ESTATE | Commercial real estate vacancy rates are up nearly 6% from 11.4% in Q4 2019 to 17.1% in Q2 2023. The increase in vacancy is costing real estate operators billions in rents and even more in value. A driver for vacancies is due to remote work, with office attendance stabilizing at 30% below pre-pandemic levels. In addition, remote workers are fleeing dense and expensive metro areas for accessible and affordable urban areas. Housing demand remains high as the supply shrinks, maintaining appreciation. Although deals are still being made, property technology investing has plummeted, with the annualized volume of investing at 50% or higher decreases from the last five years. EquipmentShare alone accounted for over 10% of the proptech funding in the first half of 2023.

• EMPLOYMENT | Once again, tech layoffs are slowing but not stopping. That said, it was the fewest tech layoffs since September 2022. Microsoft announced another round of 250+ cuts, and Videogame maker Niantic, the developer of Pokémon Go, is cutting 25% of its workforce. Crunchbase CEO Jager McConnell announced on Linkedin a list of employees who were let go in their “strategic restructuring.” The chatter of unionizing is in full swing, with Google’s contract staff launching a union campaign this week, and LGBTQIA+ dating app Grindr had 100 workers sign union cards as tech layoffs continue. In addition, the national unemployment rate improved in July from June. 🌩

• AI | The White House announced Seven leading A.I. companies have agreed to voluntary safeguards on the technology’s development as International governments and US states grapple with how to navigate the safety of AI. AI usage in the workplace continues to be on an upswing as companies like TechCrunch used OpenAI to drive their SEO strategy, and Pi, an AI Personal Assistant created by Inflection AI, closed a hot $1.3B in funding. 🔥

  • All this said, while everyone is talking about AI, they’re sleeping on the hardware applications of it. Check out Boston Dynamics’ progress with their Black Mirror-like robot.

• VENTURE CAPITAL | It’s been a month FULL of Partner shakeups at Top Firms. Mid-month Sequoia Captial saw the exit of 5 long-standing partners. Flexport founder Ryan Peters joined Founder’s Fund, and gaming CEO Victor Lazarte joined Benchmark. Pre-money valuations rose in Q2 of 2023, and the momentum looks like it will continue into Q3. Startup investment into US cap tables on Carta rose in Q2, in fact, $3B higher the Q1 (Queue: “We are so back” commentary). Thus far, for every quarter in 2023, the U.S. market saw just over 4,000 deals being closed, and the total value of funding rounds settled around the $40 billion to $45 billion range, according to data from PitchBook and NVCA. Sadly, these numbers aren’t close to the 2021 and 2022 records, but we remain cautiously optimistic. 🙂

  • Regardless of what happens in the market, Seed stage valuations continue increasing. The Seed stage is up 63% pre-pandemic and 6% from 2022 to 2023, rising over the last decade. On the other hand, being a growth-stage investor was a tough time, but valuations are cooling for fresh investments.

💰 Micro Trends

• CEO STEPDOWNS | CEO step-downs seem to be coming at us left and right these days. Earlier this month, Kering quietly announced in a 3rd paragraph of a memo that Gucci CEO, Marco Bizzarri, who has led the company since 2015, will be stepping down as the company is ready for a new direction. Video tech giant Vimeo announced CEO Anjali Sud is stepping down to “pursue other opportunities.” OnlyFans CEO Ami Gan took to Twitter to share she will be stepping down to start her venture, Hoxton Projects, despite the company generating $2.5B in revenue in 2022 and paying out $10B to creators over her three-year tenure.

• VC FUND DOWNTURN | Numerous notable VC funds have decided to shut down operations of fund segments entirely. For example, Sequoia Capital is axing its crypto fund and downsizing, Y Combinator is shutting down its late-stage fund and downsized, Fractal is shutting down its venture studio, and Anthemis Group and Backstage Capital are downsizing. In addition, notable funds like Tiger Global, TCV, and Insight Partners have cut their fundraising targets by 50-90%. One driver could be that pre-2016 vintages have returned 40-240% more capital than post-2016 vintages.

• M&A | Mergers and acquisitions activity is on par with pre-pandemic levels but down from activity in 2022. That said, EV/EBITDA and EV/Revenue multiples are 50% or less than public company multiples.

• STOCK | Albemarle Corporation (ALB), Charlotte, North Carolina

  • Profile: Price $208 (52-week range: $171-$335) / Market Cap $24.4B / 1.56 Beta / 6.67 PE ratio

  • Company: Global developer, manufacturer, and marketer of specialty chemicals, including being the largest provider of lithium for electric vehicles.

  • Pros: Revenue is up 2x from 2021 to 2022 and Q2 2022 to Q2 2023. Gross Profit is up 3x from Q2 2022 to Q2 2023. EV market is expected to triple by 2030.

  • Cons: Chilean government is looking to nationalize its lithium operations, a significant source of ALB’s lithium.

We are pumped to partner with Bullpen, who has done a phenomenal job supporting our portfolio companies. Bullpen designs major-league brand, web, and product experiences for SaaS companies. As a startup founder, you must get quality at-bats with your customers and stakeholders. Whether it’s a pitch to investors, a sales call to an ideal client, or a new feature release, it needs to be a quality interaction with a polished look and feel. Bullpen removes the bloat from the design and development process and positions you to win in your market. 🚀

💰 Flyover Deals

• Check out the 160 flyover deals totaling >$1B in funding we tracked here.

• Chicago-based Quiller closed a $1.2M Seed round to revolutionize online political campaign fundraising.

• Hubly Surgical, a Lisle, Illinois-based medical device company, raised an oversubscribed $3M Seed round following FDA clearance.

• Practice Axis is taking the headache out of the intake. The St. Louis-based startup closed a $580k Pre-Seed.

• Indianapolis-based Bountiful closed a seed round led by High Alpha and Arcadian Ventures for an undisclosed amount.

• The Twin Cities saw a plethora of HealthTech & MedTech deals this month🏥 ⤵

  • Herself Health closed a $26M Series A to continue to advance primary care for women who are 65+

  • Neurotype Inc. completed the latest tranche in their $850K Seed round to advance the development of a portable brain-sensing tool

  • Sarcio, a startup creating cartilage re-generation technology, closed a $600k Seed.

  • Medical device company Laplace Interventional closed an oversubscribed $13M Series B, co-led by ShangBay Capital and Features Capital
    

🐄 Flyover vs. National Macro Trends

Promising trends with employment and inflation on a macro and micro-level. Inflation is beating expert estimates for 2023, showing the Fed’s monetary tightening is working 🥸 

• Unemployment in Missouri remains low at 2.6%, well below the “increasing” national average of 3.6% and the Midwestern average of 3.7% ✅

• Thanks to decreasing food prices, the Midwest Consumer Price Index was at 2.4% this month, below the national rate of 3.0% ✅

🧠 This Month's Recommendations

📚 What We’re Reading

• 🐘 NOT 🦄! Our friend Erica Wenger recently shared why her investments at Park Rangers Capital will be in the next generation of Elephant companies over Unicorns, companies building communities around their products.

• Financial services innovations have been crucial for business and economic development throughout history, but what does the future look like? Check out Headline’s dive into The Future of Global Fintech Investing

• The growing number of VC Firms has a lot of people wondering if there is space for all of us 😳

• Government leaders take note - here’s How to Win the AI War. Well, it’s more of a guide on how to create an AI paradigm shift, but nonetheless.

🎧 What We’re Listening To

• On Silicon Valley Tech and AI with Gary Folwer, Brett Calhoun, GP at Scale VC, talks about the future of early-stage investing. [39 min]

• With the recent end of Q2, we’re anxiously awaiting any data on VC trends we can get our hands on! Techcrunch’s Equity podcast chatted about Ventures Calm Q2 and what that means for the rest of 2023. [34 min]

• Will OpenAI Kill All Startups? IDK - But this episode from Y Combinator is a great listen. [13 min]

• White noise just isn’t working, so, we’ve turned to listening to Instagram’s Terms of Service to fall asleep. Thanks to The Lazy Data Research (TLDR) Institute, a Swedish artistic collective, we are finally getting the 💤 we deserve! [51 min]

📆 What We’re Doing

• Founders, investors, and corporates meet us at Rally Innovation on August 28-31st to hear some great speakers and pitches 🎤 

• Our team is excited to participate as a judge in the upcoming Arch Grants pitches on August 1st 🫰 

• We are looking forward to seeing our limited partners, founders, and friends at the upcoming Scale VC Summer Friends & Family Gathering 🎉 

Main Street Summit (Event | November 8-9, 2023)

• The inaugural, immersive 2-day festival for owners, operators, and investors of small to medium-sized businesses with ~10-500 employees is happening in Columbia, Missouri! They are gathering the entire SMB ecosystem from manufacturing, construction, oil & gas, and retail to technology, CPG, aerospace, and media.

• Choose from 100+ speakers and sessions to make the most of your time surrounded by owners, operators, and investors. The evolving line-up can be found here and includes Morgan Housel, Bryce Roberts, Tracy Britt Cool, Shane Parrish, Trish Higgins, Andrew Wilkinson, Ian Cassel, Justin Mares, Ali Hamed, John Fiorentino, and the list goes on. Passes start at $500 and are expected to go fast. Sign up here.

🎮 Flyover Deals of the Month

🚀 Scale Portfolio Company Highlight of the Month

Meet Mattoboard, our latest Scale-VC investment! Mattoboard is building an interior design supplies marketplace and digital sample board tool that replaces the billions spent on material samples. The founders have deep industry expertise, and we couldn’t be more excited to join them in building the future of 3D design. 🎨

🛠️ Resources

• 🚨Missouri Founders🚨 - See if your startup qualifies for funding from Missouri Technology Corporation’s IDEA Fund here.

•  🚥 Stop reading balance sheets wrong and start reading them like a CFO

• Founders - Unsure what your SAFE valuation cap should be? Check out Q1 valuation caps from Carta for reference.

• Check out how Daniel Kang raised $3M in 3 Weeks and his insights on how to quickly raise a seed round.

• VCs love shiny objects, so here’s how to make your pitch deck shine ☀️😎

• Here’s a pitch deck template that raised $100M (results may vary)

• First-time founders → 5 metrics every founder should know!

• VCs, here’s what to look for in a founder pitch, spotting 🚩, and the bases you need to cover each call!

• Founders - Take a peek at data room templates, advice, and lessons galore in this Medium article!

• Check out the 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.3