A Note From the Scale Team

Are we the only ones who can't believe it's almost fall? 🍂 September means it's almost time to start our third cohort. As we start thinking about the next cohort, we can't help but reflect on all the wins from the companies in our first two cohorts. We're so excited that they've been able to raise ~$8M, open multiple locations, find first customers, and even acquire a company, and we can't wait to see this momentum continue! 🎊

🏉 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)

Tons of buzz lately around this guy...who raised more than all Missouri tech founders in the first half of 2022.

💰 Midwest Economics

• In Missouri, startups are driving intense job growth, especially in the tech sector (i.e., 80% of new jobs in the state are with startups!). This is great news for boosting the local economy and increasing trust in local investments. As a result, seven of the top 10 cities for new grads to start their careers are in the Midwest!

• The Midwest had 15.66% & Missouri had 1.22% on the Inc 5000 list, with CDL 1000 being the highest in the Midwest & 3rd on the list.

• This month, investing in Missouri continues to show great upside versus the national market. Missouri stocks have outperformed the market in the last month, last twelve months (LTM), and year to date (YTD).

💰 Midwest Deals

• KC-based PayIt hits big with a $90M Growth Investment. Shout-out to our friends at KCRise for their portfolio company's success!

• Chartwells Higher Education, a contract food service leader on college campuses, acquired Columbia, MO-based Fresh Ideas to bring improved dining options on school campuses in the Midwest and South.

• Whirpool to acquire the Wisconsin-based InSinkErator for $3.0 Billion.

• Digital Diagnostics closes $75 million Series B round; led by KKR.

• Thompson Street Capital Partners closes their 6th private equity fund consisting of over $1.5 Billion!

• Check out the 52 August Midwest deals we tracked here. Total funding was $380M down 5% from July but total deal count was up 136%!

🐄 Midwest Macro Trends

• Unemployment in Missouri continues to decline to a 10-yr. low of 2.5% compared to the national rate of 3.5% and 3.4% in the Midwest ✅

• Missouri’s Purchasing Manager Index continues to decrease to 47.3, well below the national and Midwest indices 🔻

• Midwest Consumer Price Index rose to 8.6% compared to the national rate of 8.5% 🔺

📈 Macro Trend Report

• INFLATION | After rising each month consecutively for two years, the pace of price increases was steady this month - mostly due to lower energy and stable food prices.

• TECH EMPLOYMENT | As workers move away from tech hotspots (hello, Midwest!) they keep their higher than average salaries for the regions to which they move. Now, these higher salaries are spreading beyond tech startups! While this is great for individual workers, this also contributes to continued inflation (see above) and housing competition (see below)

• HOUSING | With sellers dropping prices, canceled home sales reaching 2020 levels, and falling mortgage rates, the hot housing market may be cooling. Experts expect that the Rust Belt and Midwest will weather the changes more easily than pandemic hotspots.

• VENTURE CAPITAL | VC funding through Q2 continues to drop with July reaching an (almost) two year low. Despite larger fundraises driving a competitive market over the past few months, deployed capital is decreasing with Series B being hit the hardest.

  • Seed/Angel and Series D valuations continue to increase in 2022 while Series A-Series C took a modest decline in the second quarter. (The graph displays the difference in price from Q2 2022 to the expressed period)

• Regardless of the round size, Seed/Angel valuations have continued to rise in 2022.

• M&A TRENDS | Despite the theory that decreased VC funding (see above) would drive alternate exit strategies, the M&A market has remained cool. Perhaps Q1 of 2023 will see this trend correct, but we'll have to wait and see how it plays out.

🧠 This Month's Recommendations

📚 What We’re Reading

• Why we invest in founders not companies 

• More support for remote work helping grow less popular markets like Midwest

• 10 "little" lessons from some of the most successful investors

• How the Inflation Reduction Act bill will help startup growth

🎧 What We’re Listening To

• 2048 Ventures' Neha Khera discusses the power of underdog founders and accelerators (aka everything we LOVE) [35 minutes]

• 20VC's Harry Stebbins chats with Logan Bartlett, Managing Director at Redpoint, about growth stage investing, the current private market, and much more [54 minutes]

• Mark Achler & Mert Iseri of MATH Venture Partners discuss Dispelling Folktales for Founder and various insights from building MATH on The Full Ratchet [71 minutes]

📅 What We’re Doing

• LaunchKC returns for its 5th Grants Competition with eight $50k investments into early-stage tech companies set to be given out: closes September 9th.

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

• InsideOutside.io welcomes innovators and entrepreneurs in the Flyover States to a 2 day summit in Lincoln, NE: 9/19-9/20

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

🎮 Midwest Tech of the Month

• Tesseract, a Kansas City-based robotics startup, announced a partnership with Whiteman Air Force Base to test their proprietary data visualization hubs to increase situational awareness and operational control for the military.

🛠️ Resources

• Confused about legal issues? We were too! Check out this thread for advice.

• Need modeling help? Find our 18-month SaaS operating model template here and find our handy Cap Table + Dilution Calculator here 📒 

• Looking for no code tools? We suggest these threads and this tool.

• 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 Inflation Reduction Act of 2022 increases the R&D tax credit cap from $250,000 to $500,000, meaning that startups can reduce their payroll taxes by half a million dollars – a substantial amount!

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 and Will VanAlstine for their help putting this newsletter together! 👏