By David Nicklaus, St. Louis Post-Dispatch | December 16, 2021
Since the venture capital industry was created in the 1960s, most of its money has flowed to just three areas: Silicon Valley, New York and Boston.
That’s beginning to change, a report called “Beyond Silicon Valley” says, and its authors chose an interesting cover illustration to make their point. Instead of using a booming city like Denver or Minneapolis to highlight what’s happening between the coasts, the cover shows an aerial photo of St. Louis.
It’s an outdated photo, with the circular shape of the old Busch Stadium clearly visible, but the folks at Rise of the Rest, a Washington, D.C., venture capital fund, wanted to feature a city whose startup landscape has been dramatically transformed.
“It was really important to select a city straight from the heartland that was representative of not just the past but the reality of what’s happening on the ground right now,” said Anna Mason, managing partner at Rise of the Rest. “The data bears out that St. Louis is attracting more money.”
The report says St. Louis firms attracted around $100 million in early-stage capital every year between 2018 and 2020, up from $35 million in 2011. This year, the number is approaching $250 million.
The 10-year transformation reflects both the emergence of locally based venture capital funds and the ability of startups to reel in money from the coasts. Rise of the Rest itself has invested in three St. Louis companies: apparel maker Summersalt, software firm LockerDome and agriculture startup Plastomics.
A decade ago, the report says, venture funds in the San Francisco Bay area invested just $2.5 billion outside their home market, New York and Boston. This year, they’ll invest more than $13 billion. New York funds have made a similar shift toward what they once considered flyover country.
St. Louis software startup Advocado raised money this week from a San Francisco investment firm. Earlier this year, software firm Balto and telemedicine company SteadyMD had lead investors from New York.
Mason said her firm, which invests outside the traditional venture capital hotbeds, had noticed more investors looking at the same deals. “It was heartening to see the data reveal what many of us were experiencing,” she said. “You really see the needle moving away from pure Silicon Valley dominance.”
Carter Williams, chief executive of St. Louis-based iSelect Fund, said rising costs in Silicon Valley forced coastal investors to broaden their horizons. “There’s a lot more talent throughout the country than was understood before,” he said.
The report shows that several heartland cities are ahead of St. Louis in attracting venture money. Dallas and Denver, for instance, will each pull in more than $1 billion this year.
Brian Matthews, co-founder of Cultivation Capital in St. Louis, thinks his hometown will continue moving up in the standings. “It really takes 20 years to get the ecosystem completely mature, and we’re still in the middle of the road,” he said. “The flywheel is starting to turn.”
One of St. Louis’ strengths is that it has local sources of capital to nurture firms until they get noticed by coastal investors. Arch Grants, BioGenerator, Cultivation, the St. Louis Arch Angels and others fill that role.
With that support, Matthews said, “we’re getting many more shots on goal. I like to say there at least 1,000 venture bankable companies in St. Louis right now.”
Ten years ago, seeing St. Louis on the cover of a venture capital report would have seemed odd. Ten years from now, if Matthews is right, it may seem prophetic.
The skyline of downtown St. Louis, Mo. is seen on Tuesday, Oct. 12, 2021. | Robert Cohen, St. Louis Post-Dispatch