As the St. Louis startup ecosystem grows, it needs an occasional audit to ensure it’s moving forward in a way that benefits investors and startup founders. The inaugural Anders Startup Funding and Outlook Survey Report explored the region’s strengths and weaknesses from the perspectives of investors and founders. There were two areas startup founders noted as posing real challenges to their business:
- Securing funding
- Securing a talented/highly skilled workforce
Competition for funds in the St. Louis market is fierce and despite the local universities generating great talent, keeping the specialized talent in the region is difficult. In light of these challenges, investors in the region still revealed an optimistic outlook for the ecosystem which acknowledges the many strides St. Louis startups have achieved in the past decade. Still, these issues cause impediments to growth in the region, especially as some venture capital firms reveal they have no plans to raise another fund, and must be resolved to keep St. Louis on its current trajectory.
Securing Startup Funding
Although St. Louis and the surrounding region boast an active investing community, with 70% of funding sources reporting that they invested within the past three months, finding and accessing capital is still a significant concern for startup founders. Respondents listed angel investors along with family and friends as their top funding sources, which significantly helps support early-stage startups, but this type of funding does not meet the needs of more mature startups who are looking for Series A and above funding.
The current ecosystem in St. Louis has excellent resources to support early-to-mid-stage startups but the funding levels to sustain them past those stages are not there, forcing growing startups to decide between their loyalty to the region and their responsibility to their business and employees.
It appears that many startups that launched in St. Louis end up selling their business to an out-of-state owner rather than making a successful IPO exit. While this type of exit is still lucrative and beneficial for the investors or funds, having additional late-stage resources in the form of large local venture capital with funding for more A, B and C rounds would help to alleviate some of this pressure founders are currently facing as to whether to sell or move out of the St. Louis ecosystem.
Building High-Skill Workforces
Building a high-skill workforce is a top priority for startup founders, but 50% of those surveyed reported difficulties hiring workers. Although St. Louis has numerous prestigious universities, which produce top talent, these struggles persist for founders. One aspect that is impacting the university-to-workplace pipeline in St. Louis is the top industries in the city.
Health Care, AgTech, and BioTech dominate as the top industries investors are currently funding. These industries have been built up over the past decades with targeted support from organizations like BioGenerator, the Helix Center Biotech Incubator and the Donald Danforth Plant Science Center. Now, institutions like Washington University and Saint Louis University diligently stock these industries with young, high-skilled professionals which is great to see in the market. Other industries are still being left out though, so building them for the future will be key.
Producing a viable university pipeline doesn’t happen overnight, and it didn’t for the HealthCare, AgTech, and BioTech industries. It is a process that begins by creating an environment that provides the necessary resources for the industry to thrive, which in turn attracts skilled, young professionals. This infrastructure of support takes years to build, but the results can help elevate the entire industry and the City of St. Louis.
Regional Assets and Outlook
St. Louis has the potential to become a startup destination, much like those in Boston, Silicon Valley, New York and more places around the country. To achieve this same status, the region needs to take advantage of the many assets it currently has. While a majority of startups and investors already call St. Louis home, the city’s current low cost of living when compared to other startup hub cities could be another draw to attract additional startups and talent to the region.
The investor community is also optimistic about the future of the startup ecosystem in St. Louis. On a scale of 1 to 10, 68% of investors surveyed selected 7 or higher when asked how secure they felt about the future of their startup investments given the current economic environment. Startup founders, reasonably, tend to get caught up in the day-to-day struggles of their business while investors typically think more long-term due to the nature of their involvement.
While funding is an issue, once more late-stage funding options are available, it should create a snowball effect on the region. With more funding for mature startups, competition for Angel investor funds could ease while also encouraging startups and university graduates to remain in St. Louis.
It’s clear from the success of the Health Care, AgTech, and BioTech industries that long-term investments, both in the form of funding and other resources, can redefine the region’s startup ecosystem. Now it’s time to apply those same principles to other industries seeking support.
Anders Startup and Entrepreneurial Services team works with startups and investors to build growth with an eye to the future. Learn more about how Anders supports startups, and the associated costs, by requesting a meeting below.
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