Newspaper article St Louis Post-Dispatch (MO)

As St. Louis Venture Capital Matures, All Eyes Are on the Exits

Newspaper article St Louis Post-Dispatch (MO)

As St. Louis Venture Capital Matures, All Eyes Are on the Exits

Article excerpt

Any discussion of venture capital in St. Louis must start with the fact that the region has come a long way.

Even after a couple of down years, the region attracts more funding for its early-stage companies than most Midwestern cities. Two recent rankings, by the website Crunchbase and by Chicago investment firm M25, both labeled St. Louis the fourth-best spot in the Midwest for startups to raise capital.

The numbers aren't all rosy, though. As the St. Louis Regional Chamber points out in a new report on venture capital in the region, the number of local companies raising money has fallen by almost two-thirds since 2015. The amount of money raised peaked in the same year.

The average deal size has more than tripled, from less than $2 million in 2012 to $7 million last year. Investors are backing fewer seed-stage startups and concentrating their capital on companies that already have a product and customers.

An example of the latter is Clayton-based Varsity Tutors, which raised $50 million this year to expand its online tutoring business.

Andrew Smith, the chamber's vice president for entrepreneurship, said the region's challenge is to keep filling the top of the funnel with very early-stage startups while continuing to attract money to later-stage firms.

He's optimistic that St. Louis will someday compare itself to Austin and Denver, not just Indianapolis and Kansas City. "We are at a point where we can set our ambitions higher and compete against other well-known hubs across the country," Smith says. "That's a stretch goal for us."

For now, the important thing is to maintain the momentum St. Louis has built up. As the report points out, the region attracted just $96 million a year in venture capital between 2005 and 2012, and boosted that average to $342 million since 2013.

If national-level investors are focusing on later-stage companies -- and they are -- local leaders may need to get creative to keep money flowing to fragile top-of-the-funnel firms. …

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