A Note From the Redbud VC Team

Alright, everyone, it's Founder Mode TIME! 🧍 No one’s really sure what that means, but it's time to go all-in as a founder. Forget just managing - it's time to throw your company on your back and charge up that hill! (Okay, maybe not literally, but it sounds cool, right?) Founder mode might be the next big thing in building companies, but it’s not going well for everyone. OpenAI has had quite the “exec exodus.” CTO Mira Murati's exit marks the third founding member to leave the executive team. Meanwhile, former Chief Scientist Ilya Sutskever launched Super Safe Intelligence and secured a casual $1B pre-seed round, which is seriously screwing up early-stage funding data. In other news, the Fed just cut rates for the first time since the pandemic, signaling a slowdown in inflation. The status of the economy is still debatable, but things are looking better! In the VC world, 24% of VCs have been sitting on the sidelines since 2023, but not us! We’re actively looking for our last few investments of the year, so if you’re ready to pitch, let us know here!

Main Street Summit is next week! 🥂 

It is the last week to grab your ticket for the Venture + Startup Track at Main Street Summit. So that means you should grab one rn 👀

Grab your ticket ➡️ https://www.mainstreetsummit.com/venture 

We kick off next week on October 8th-10th, where you can join us in:

• Connecting with 1k+ tech, SMB, and middle market business owners, VC and PE investors, and entrepreneurs

• Building your schedule with access to nearly 150 speakers

• Participating in wine and tequila tasting, group dinners, poker night, rooftop yoga, and more
  

  

• Founders: Connect with potential customers and investors

• VCs: Connect with founders and LPs

• Anyone: Grow your network across PE, VC, buying businesses, and starting high-growth tech companies

Redbud VC invests monetary ($50k-$150k) and social capital in early-stage tech founders. We bring monthly Redbud VC, tech, and economics updates. - We've filtered thousands of sources for our 14k+ readers, so you don't have to. Enjoy🥂

📣 Pitch Us  | 🏆 Redbud Portfolio

🦸🏽 Become a Mentor | 🏉 Meet the Team 

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Wake up, everyone 🛌

A new Paul Graham Essay dropped this month titled “Founder Mode”

The big question: how much should founders delegate versus rolling up their sleeves and getting involved themselves?

Basically, Founder Mode sparked the best memes of the month and a flurry of articles like: “Why your Founder Mode CEO is terrible”

🔥 Burning question of the month 🔥

YC startups are raising at 2x-4x the valuations of non-YC companies. Historically, indexing YC could be perceived as less risky, producing ~10% of unicorns. That said, the YC valuations or the valuations a multistage fund is willing to pay could be jading the valuation expectations of all founders. The initial valuation can push future round expectations beyond any future obtainable value. Expectations are far apart when a company explores an IPO or acquisition, influencing poor distributions with VCs and delayed exits.

📈 Macro Trend Report

• RATE CUTS | Thank you, Jerome Powell (and the Fed), for cutting rates this month! 🚀 We are so back as the Federal Reserve cut interest rates for the first time since the pandemic, marking a potential pause or slowdown in inflation. In August, inflation eased to 2.5%, according to the latest CPI report, down significantly from its mid-2022 high of 9.1% and the lowest level since 2021. Jerome Powell also indicated on Monday this week that additional interest rate cuts are on the horizon, though he emphasized they would “be implemented gradually to maintain support for a still-strong economy.” 🌤

• AI | Open AI is once again in chaos mode. CTO Mira Murati announced her departure after 6+ years, citing a need to "create the time and space to do my own exploration." CEO Sam Altman wished her well on Twitter while also breaking the news of two other high-profile exits: Bob McGrew, Chief Research Officer, and Barret Zoph, VP of Research. Ilya Sutskever, OpenAI’s former Chief Scientist, left earlier this year to co-found Safe Superintelligence (SSI), a company focused on building safe AI systems that surpass human capabilities. SSI recently closed a $1B funding round this month, with investors like a16z, Sequoia Capital, and DST Global, and giving a 3-month-old company a reported valuation of $5B. Sutskever was previously on the board of OpenAI’s non-profit parent organization and played a key role in last year’s dramatic vote to oust Sam Altman as CEO. ☕️

• VENTURE CAPITAL | SVB’s H2 State of the Markets report, which dropped this month, is packed with some wild stats. On the fund side, back in 2021, an average of 47 first-time funds were closing per month. Today, that number has dropped to just 13 (quite the drop 😬). There’s been plenty of chatter about whether LPs are pulling back capital and reallocating to other asset classes, and the data backs this up. Exits are getting tougher, company valuations are falling, and more startups are shutting down. 22% of funds are raising less capital than their previous rounds, and only about half are hitting their target amounts. This is another sign of LP capital pulling back, with larger funds absorbing most of the available capital. The fact that 50% of funds are reaching their targets might be skewed by these bigger players dominating the field. Since 2023, 24% of active VCs have made just one investment, with many holding back on new deals and reserving capital for winners in their existing portfolios. Interestingly, the most active investors are leaning more toward early-stage deals, which counts us here at Redbud 🙋‍♀️

  • SERIES A GRADUATION | Seed rounds have skyrocketed since 2021, but things are getting tight at the Series A stage. A decade ago, there was one seed deal for every Series A (i.e., 1 to 1). Today, there are 3 seed deals for every Series A, creating a major bottleneck (i.e. 3 to 1).
    🍾 Many of the seed companies from 2021 were products of the ZIRP are now struggling to raise healthy Series A rounds, and we’re seeing a big crunch in investor deal flow, basically a ton of mismatched supply and demand. There’s also a growing number of “Walking Dead” startups, as a growing number of seed and Series A companies are posting negative growth year after year while remaining unprofitable. These companies tend to be mid-sized, and the share of VC-backed firms with no growth or profits is climbing each year taking over 30% of deal share this year. Sadly the squeeze isn’t just at Series A—there’s a graduation rate decline across all stages. It’s a tough market out there, with more startups walking the line between survival and shutdown.

  • PARTNER PARTINGS | Partners at big firms are continuing to leave, join, and build other firms. It started back in January with Keith Rabois leaving Founders Fund to return to Khosla Ventures, followed by Connie Chan’s exit from a16z. We hate to say, "We told you so," but in a previous edition of our newsletter, we predicted more moves were coming, and here they are. 🏃🏼‍♀️ In May, Serena Ventures’ founding partner Allison Stillman took a step back, along with Fika Ventures co-founder Eva Ho. June brought another departure, with Amanda Robinson leaving Cowboy Ventures to build something new. And just last month, Jacob Westphal announced he was parting ways with a16z.

Check out The VC List to search over 18k investors by 🪜 stage, 🔮 thesis, and 🌎️ geo

💰 Micro Trends

• SF > > > | When it comes to startups, it’s still San Francisco v.s. the world. 🌎Every few years, a new ecosystem steals the spotlight, like Austin or Miami, but SF continues to dominate. For the past six years, San Francisco has held the top spot in PitchBook's Global VC Ecosystem Rankings, pulling in $430B in VC dollars over that time. To put that into perspective, New York City, which comes in second, has attracted $180B, not even half of what SF has. 😔Globally, the U.S. leads with a total deal value of $1.2T, more than double China’s $545B. 

  

• SMALL BIZ SURGE | The U.S. is in the middle of a small business surge, defying the uncertainty surrounding the broader economy. 📈 According to a recent report from the Small Business Administration, three of the best years for small business formation in American history have occurred in the past three years. Over 17M small business applications poured into the SBA over the past 3 years. The catalyst? The COVID-19 pandemic. Just four months into the pandemic, new businesses began to boom, and it hasn't slowed down. In 2021, Congress passed 7 bills that made it easier and more appealing for Americans to start a business. Beyond the government’s actions, there’s something more personal happening: a widespread urge to build a business that matters. People are rethinking their career paths, and many are seeing entrepreneurship as a way to take control. So while the economy at large might be up for debate, small businesses are starting left and right. We can’t wait to see a wave of new startups come through our doors. 👀

  

📰 Middle America Headline of the Month

Big wins in Northern Kentucky! 🐎

eGateway Capital announced that it closed a $94 million Fund II, making it the region's largest venture capital fund to date. Founded in 2021, the firm will invest in growth-stage tech companies in e-commerce and supply chain!

💰 Flyover Deals

This was the month of the small Series A round in flyover country 🚀

• Check out the 218 flyover deals for over $2.1B in funding we tracked here, up 1% MoM

• Champion, an Indy-based AI-powered customer advocacy platform, closed a $3.3M Seed round

• DesMoine-based AcreShield closed a $2.6M Seed Round

• Chicago-based Pie, co-founded by Andy Dunn, closed a $11.5M Series A 

  • Other Chicago-based startups that raised this month include DubHub’s $7.5M Series A and Lil Bucks’ $3M Series A

• Triobook, a Minneapolis-based ed-tech startup, raised a $5M Seed Round and Rah!Rah! closed a $1.2M Pre-Seed Round

• Eradivir closes $10.25M Series A funding round to complete Phase 2a study of influenza therapeutics

• ATLAS Space Operations closed a $15M round led by NewSpace Capital

• Myoptechs, a Columbus-based med device startup, raised a $2M Seed Round

• Pittsburgh-based Swan raised a $6M Seed round led by a16z

• Aption, an Illinois-based equity pooling startup, raised a $2.4M Seed Round

• Champaign-based HabiTerre wrapped up a $10M Series A 

🐄 Middle America vs. National Macro Trends

• Unemployment in Missouri rose this month to 3.9%, but well below the National Average of 4.2% and is also steadily increasing ✅

• The Midwest Consumer Price Index rose slightly this month at 3.5%, below the national rate of 3.8% ✅ 

  

🧠 This Month's Recommendations

📚 What We’re Reading

• How things get done - 2013 Sam Altman dives into how startups can determine critical priorities that help founders remain focused and build

• A New Vertical SaaS Playbook: fintech-first 💸

• Uncertainty Is Uncomfortable, and Technology Makes It Worse. That Doesn’t Have to Be a Bad Thing

🎧 What We’re Listening To

• Anish Acharya, GP at a16z, discusses a16z’s "Abundance Agenda," aka how AI is set to revolutionize personal finance, education, wellness, and social interactions on the Turpentine VC podcast [44 mins]

• Couture's Thomas Laffont presents "the state of the unicorn economy" video from the All-In-Summit [42 mins]

• The Possibilities of AI with Sam Altman at Stanford’s eCenter [45 mins]

• Steve Huffman on the Making (and re-making) of the front page of the Internet (Reddit) [42 mins] 👾

📆 What We’re Doing

• We’re prepping for the new VC/Startup track Redbud VC, and Mercato Partners are adding to the Main Street Summit Oct. 8-10th.

  • Passes here https://www.mainstreetsummit.com/venture 

• The M25 Summit in Chicago was fantastic! Shoutout to all of the wonderful investors and founders we connected with over the week! ⤵️

🪝Outside Main Hubs: Picks of the Month

🚀 Redbud Highlights

We are excited to announce our participation in Trestle's $2.3M Pre-Seed round alongside Lerer Hippeau, MetaProp, Laconia Capital, Alumni Ventures, The LegalTech Fund, and Meridian Ventures.

Trestle is the construction industry’s only automated prequalification and vendor management platform. Trestle currently supports over 54,000 vendors and is well on its way to becoming an industry-leading solution.

We’re big believers in Victor Zhang P.E. and Jason Chen’s ability to build a category-defining company. This team checks the boxes of being scrappy, relentless, obsessed with their customers, and having a network to hack distribution.

We’re proud to be their first institutional investor. 🏗

Read the official press release below ⤵️

🛠️ Resources

Haven is a full-stack accounting and tax firm for startups, laser-focused on the customer experience of back-office finances. They handle bookkeeping, taxes, tax credits, and fractional CFO services for 220+ startups, with the core philosophy that accounting is a financial service.

• I’m a VC, and these are the 7 things I look for in founders before investing

• 🤖 Why code is no longer a moat

• A list of low/no code tools to get your company off the ground 🚀

• Marc Andreessen on how to hire the best people

• The complete guide on How to Interview and Hire ML/AI Engineers (one of our favorite reads on hiring out there)

• One of the largest VC lists with over 18k investors 🫰 

• Founder who 120 VCs—he closed $2.7M in 5 weeks with demand for $5M+. Here's his step-by-step guide to close a round. 💰

• 📊 All-In-One Startup Metrics Guide - What to track, when and why

• What’s the best way for founders to meet and pitch angel investors? Here’s a basic overview with tips on how to find and pitch to angel investors. 👼🏼

• The ultimate Sales + Marketing playbook

• The Best Fundraising Advice video series from Bill Trenchard

• Founders - Check out the YC Seed Guide for everything you need to know about fundraising early

• 10 Free tools to build the basics of your startup 💪

• 💲Building financial models is not easy → check out these easy-to-use templates and guides

• 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.s