Some in St. Louis Startup Community Say Capital is Hard to Come By
Arch Grants brought MeterGenius, a startup that develops tools to help consumers track their energy usage, to St. Louis in 2014. A year later, MeterGenius is now based in Indianapolis. “We loved our time in St. Louis,” says Ty Benefiel, co-founder and CEO. “However, we were unable to secure additional investment in St. Louis. We left because we have investors in Indianapolis, and they wanted us to be here.”
Difficulty securing funding is a theme emerging in the responses to the Brown Smith Wallace St. Louis community startup survey. The survey is designed to gain a better understanding of how startups are doing in St. Louis from every perspective, including, startup founders and employees, investors, incubators, accelerators, educators and mentors. “I believe the greatest challenge that the startup community faces is the demand for capital,” says Michele Rutledge, executive director of Gateway VMS. “There are tremendous resources in the ecosystem — but the demand for ... capital far exceeds the supply. There has been significant effort to encourage outside investors to not fly over and to really see what’s going on in St. Louis, but that takes time to create and is a slower process.”
Ginger Imster, executive director of Arch Grants, believes access to capital for local startups will be a key challenge in the coming year and is curious to see what the outlook will be two years from now. “Growth of existing venture capital has been positive. But, there is a lot of room for growth with regard to sources of capital locally, nationally and internationally. Local entrepreneurs seeking funding in the $100,000 to $500,000 range have options, but those options are limited depending on the type of business.”
Mark F. Mueller, a local attorney and the only two-time Arch Grants winner for startups — U.S. Drilling Products and HIPAAtrek — attributes some of the capital challenges to the insular nature of the St. Louis startup community. “[It’s] like a fishbowl,” says Mueller, “If you aren’t in it, you don’t know what’s going on.” While Mueller is enthusiastic about the community and its potential, he says more needs to be done to expose the entrepreneurial community to potential investors. “There’s a lot of old money here, but it’s difficult to make connections between potential investors and startups.”
Barnabas Helmy, CEO and co-founder of SmashToast, concurs with Mueller. “The Midwest ... investor scene is much more risk averse, which makes fundraising much more challenging until an idea has traction. At the point of traction, many tech startups are looking to the coasts for money and guidance.”
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Peter Finley, managing director of Prosper Capital, says that just may be what startups looking for larger cash investments need to do — leave. “Series A round capital, which could be as little as $5 million but as much as $15 million, is very difficult to obtain,” says Finley. “St. Louis needs to raise large pools of capital, in excess of $100 million to support this level of investment.”
Finley added that the new Lewis & Clark Ventures I, a $100 million to $200 million fund, is a start, but that St. Louis may have difficulty finding enough startups that qualify for this level of investment. “Typically, for every 80 to 90 applications for Series A round funding, there’s one successful applicant. There aren’t enough seed companies in St. Louis to support this large of a fund; statistics don’t support it. St. Louis will need to draw startups from other communities to participate,” says Finley.
While St. Louis may be on the cusp of supporting startups in need of Series A round funding, Finley says the city is great for startups that need seed round capital, or funds to help prove a concept works. “If you have sales and the right people in place, the money will follow.”
However, Bill Schmidt, general partner of the Cultivation Capital Life Sciences Fund, says even startups looking for smaller investments are having challenges in St. Louis and beyond. “Many of the early stage funds have moved upstream. There are only so many places you can go to get money once you’ve exhausted your network of friends and family.”
Schmidt says Cultivation Capital would like to see more funds get involved in making early stage investments and provide assistance to startups that may be experiencing operational delays, “We work hard in our syndication efforts with other like-minded, Midwest-based VC firms. We team up to provide $1 million to $3 million or more in capital that will help startups achieve significant milestones to get them to their next funding raise.”
Schmidt and Finley agree that our community is doing a lot of the right things when it comes to preparing startups to compete for scarce investment dollars. “St. Louis does a great job providing mentors to startups. These mentors help startup founders enhance their leadership skills while honing their story and business strategy. These efforts will help attract more investment to St. Louis for the startups based here.”
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