St. Louis’ startup scene gained big momentum last year.
A new report by the St. Louis Regional Chamber finds area startups raised more than $380 million in equity investments. That was more than six times the amount raised in 2012.
Jay De Long, the Chamber’s vice president of New Ventures and Capital Formation, said the changing attitude toward Midwestern startups from coastal venture capital firms is helping the growth. More importantly, St. Louis has the right structure in place for the new companies. De Long said that structure includes the emergence of business accelerator programs as well as several angel investor groups. The Arch Angels investor group, for example, has deployed more that $40 million since its advent in 2006, which places it nationally as having one of the highest average rounds of investment per company.
"The ecosystem in St. Louis is maturing and we have early stage investors working with startups and preparing them for professional investors," De Long said. "Professional investors are recognizing that these are good deals."
In fact, 33 startups attracted equity investments of $1 million or more last year. That was more than double the number of companies who reached that level of funding in the previous five years. The Chamber's report said the average investment for that group in 2013 was $5.6 million.
The number of new startups also increased in 2013. Fifty-two companies met the Chamber’s criteria as "venture backable." Of those new startups, De Long said, 37 are technology based.
"While life science continues to move along at a solid steady 12 to 14 new startups each year, it’s the tech space that’s just exploded in the past couple of years," De Long said.
De Long cautions that while the news is good, more venture capitalists are needed in St. Louis to keep young companies here. The true economic benefit for the region will come when a startup is ready to scale up and hire more employees, he said.
"What we’re finding is if they have to look outside our community for venture capital, they may be relocated," De Long said. "So, when we're at the greatest economic impact opportunity, we’re at our most vulnerable of losing those companies from the St. Louis region."
De Long attributes the self-sufficiency of St. Louis startups to the high success rate of startup companies. Of the 235 startups the Chamber has tracked since 2006, about 200 are still in business. De Long calls that 85 percent success rate "remarkable."
"If there was a statistic, or database where you could look at San Francisco’s start-ups, or Boston’s or San Jose’s, I don’t think you’d come anywhere close to a success ratio of 85 percent since 2006," he said.
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