Why You Should Start a Company in... St. Louis

It used to be, if you were serious about starting a tech company, you went to Silicon Valley. But emerging entrepreneurial hubs around the country are giving startup aspirants options. In this series, we talk to leading figures in those communities about what makes them tick.

Jack Dorsey, the Twitter co-founder, calls St. Louis his hometown. So does uber-VC John Doerr of Kleiner, Perkins, Caufield & Byers. Dorsey even launched his latest effort, credit card processing startup Square, with a St. Louis-based co-founder and kicked off the use of Square at a food festival there in September. But the startup scene is still a bit sleepy in St. Louis, with more of the activity happening in the life sciences and agriculture arenas. There are also some hopes being pinned on a new runway at Lambert-St. Louis International Airport that could lead to the establishment of a Chinese trade hub there.

Keith Alper, CEO of Creative Producers Group, talked to us about what makes St. Louis’s startup scene unique.

What makes St. Louis a great place for startups?

In its heyday, St. Louis was the fastest growing city kind of west of the Mississippi—in the 1800s. St. Louis is trying to continue to redefine itself from being in the top 10 cities in America to now being in the top 20 towards the lower 20 side. It’s a manufacturing city. There’s a lot of universities, and some decent universities here. I don’t know if a lot of people would call it a great startup city, but there are a lot of great startups that have been very successful and founded in St. Louis. Everything from 150 years ago Anheuser-Busch to what now is Boeing—McDonnell Douglas—and probably the fastest growing farmer company from the high tech side is Express Scripts which is not even 15 years old and is 30 or 40 plus billion dollars. Emerson Electric. Monsanto. There’s just a lot of great DNA of the big companies that are here today that were founded here by entrepreneurs. You’ve heard of the "Spirit of St. Louis." You know, 100 yards from my office is where they gave Lindbergh the money to go do it and he named his plane the Spirit of St. Louis. So they’ve always been investing in innovation. The X Prize was founded in St. Louis for flight.

To the question of what makes St. Louis great for startups, first of all the cost of doing business in St. Louis is unbelievable. We have probably one of the lowest housing costs in the country. The talent is very reasonable here. We have world class universities with the biggest being Washington University, which is a top med school in the U.S. It was one of three places in the world to sequence the human genome. St. Louis is really a biotech and ag city. That’s where a lot of the growth is coming from.

Are there particular startups that do better there?

We have a lot of life science business based here. We have a thing called the Danforth Life Science which is one of the largest in the world doing food, bio and plant research here. There is also a small but thriving tech community growing. Jack Dorsey, one of the co-founders of Twitter, is from St. Louis, he just started a new company called Square and Square is half based in St. Louis and half in Silicon Valley. There’s a new company called Aisle411 that just closed out a $4 or $5 million round. So there are a number of tech companies and then there is a group through the university that are focusing on innovation and how to make the tech community better.

Does St. Louis breed or attract entrepreneurs?

First of all, down the street in Kansas City, which is on the other side of the state, we have one of the greatest entrepreneurial supporters called the Kauffman Foundation. So the state and the city does a lot of programs with Kauffman to support entrepreneurship not only in schools but also among entrepreneurs and big business. There are a number of programs, we have a group called the RCGA (Regional Chamber and Growth Association), which is kind of our chamber that is working to really attract new business and especially on what they’ve claimed is the Bio Belt to go get work under biotech and attract startups, existing VC-run companies.

Are there sources of capital available in St. Louis?

There’s a few angel groups here. St. Louis is a very old conservative city. So it tends to favor more life sciences and bio but most of the money coming in for these are not from St. Louis. There might be a fund that places money here—you’ve got probably 10 real kind of VC capital sources but the rest is from out of town and they are happy they are here because of the lower cost of living and doing business or they are happy they are close to Monsanto or stuff like that. The other sources are just the typical start up friends and family sources. There used to be a lot of community banks that were doing some of that but with the financial crisis a lot of those banks are gone. But we’ve got very medium level angels and you don’t have a lot of VC capital coming into the St. Louis market.

Is St. Louis a billion-dollar exit playing field?

I would say that St. Louis has had its handful of decent exits but you’re not seeing billion dollar exits. I don’t know who is seeing billion dollar exits today. There’s a number of people in the medical and medical device areas that have made exits. Probably the only billions are the Express Scripts of the world and maybe a few others. But I don’t think there’s a lot of billion dollar exits out of St. Louis.

For more from this series:

  • Why you Should Start a Company in...Austin
  • Why you Should Start a Company in...New York
  • Why you Should Start a Company in...Los Angeles
  • Why you Should Start a Company in...Chicago
  • Why you Should Start a Company in...Boston

Laura Rich is a freelance writer and co-founder of Recessionwire.

[Photo by Joel]

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5 Comments

  • J. Jeffryes

    Laura,

    I applaud any coverage of St. Louis as an entrepreneurial city. Our startup scene may still be small, but it's core is very passionate and committed to seeing St. Louis become a great place to build a company.

    At the same time, I feel like this article could have benefited from input from the leaders and main players in the local startup scene. There's a lot going on here that I don't think was reflected in what was written. If you want to do a follow up, I'd be happy to help get you connected to the right people.

  • Jim Brasunas

    Laura, Thanks for the article about St. Louis! I'm the Director of the IT Entrepreneur Network (ITEN), a non-profit that works with emerging tech ventures in the St. Louis metro region. We've got over 150 start-up IT ventures, 100+ mentors and a number of angel groups that we connect our investor-worthy ventures to. Besides Aisle411, mentioned in your article, a number of our other ventures have also been funded and are getting traction. Bigger exits will come; oh yes, they will come! Some of our ventures come via tech-transfer or B-schools from our local universities, but the majority are entrepreneurs with ideas to solve real-world problems. Our town has a number of active incubators and, as mentioned, a robust biotech entrepreneurial infrastructure.........a lot of IT/internet deals are also here, with reasonable cost structures, great upsides and reasonable valuations! Check out ITEN at www.itenstl.org. Thanks!

  • james

    Greg, Much of what you say can be true. When I tried to break into the rehab development business as a new kid on the block, not one consult was encouraging - chiefly because I lacked the St Louis network. I did it anyway, suffered, succeeded, and then helped others. Indeed its a tough city, tough times, and yours, a tough message. Keep hammering at the pleasure you can bring customers. Also, love them when they're skeptical, win them with your sense of humor and persistent caring about them, and, be confident that yours is an important message, and you're the only one getting it out there.

  • Greg Stine

    I founded a start up in St. Louis 3 years ago that is finally starting to get legs under it. Unfortunately, the success that I've had personally as an entrepreneur, and that we have seen as a company, has been in spite of the location that we have chosen for the company's headquarters.

    I am a native-Missourian (not raised in St. Louis but born here) who left the state to be educated at two of the top 20 universities in the nation. I returned mid-career with the express purpose of launching my firm in a place that is great to raise children. I have been very disappointed in the willingness of the 'locals' to embrace those of us that have been here long enough to call the city "home", yet do not have an impressive answer to the First Question ("Where did you go to High School?")

    This article actually agrees with the series that was run in the Post-Dispatch early this year and leads the reader to conclude that St. Louis is a good place to start a business....IF you are 'from here'. If not, good luck building relationships that are required to launch any business - banking relationships, friends that are willing to open doors, prospective clients that are willing to give you a shot, people that are interested in seeing you succeed....even support from organizations that you actually PAY to provide some of that support to you, such as the RCGA.

    We stay in St. Louis because we love and believe in the community, not because it loves and believes in us.

  • Brian Cross

    First, you should start up a company in Saint Louis. The city, and the region need it. Just yesterday it came out that "Missouri ranks 50th, dead last, in a measure that the foundations (Kauffman) call "economic dynamism." It's a composite of indicators such as patents, the rate of business startups and the number of fast-growing companies." (STL Today: http://bit.ly/9wPk8v)

    There are two issues that need to be resolved to really make St. Louis a great city to start a company:

    First, funding. St. Louis funding sources look for bricks and mortar collateral for their loans. They look for factories, equipment, and other things left over from the manufacturing days when doing their loans. They also are afraid to invest to much. In the words of a local angel investor "they are afraid if the company grows too big and looks for additional rounds of funding... they will not be able to meet the needs...and outside investors will dilute their investment [with the additional rounds of funding]. So they elect to stay on the sidelines."

    The other is the local and state governments. Without getting too much into "hallowing out the core of Saint Louis" what they seem to have chosen to do is cut deals with a few large companies and give tax credits and other incentives to them to stay. Incentives they hold over the region's head when looking to expand. Instead (or even just in addition to) they should look at that economic dynamism score and come up with incentives for companies to start up, to research patents and to grow quickly. If you get 50 or 100 companies to start up and hire 10-20 people, you will get a lot more velocity in the recovery than saving one large legacy company from moving (though we need them to stay too!). And these smaller companies pay their taxes since they don't have special abatement programs to do so, further putting money in to continue programs to bring more businesses here.

    I'm glad to see Saint Louis highlighted. We need more articles like this. Hopefully, they can lead to the promise of the title. That Saint Louis could be a great place to start a company. We did.