How post-industrial St. Louis made itself a startup hotbed

By , ITworld |  IT Management

Image credit: Flickr/Nicole Yeary

St. Louis has become a startup mecca, and a good place for recent college graduates to find work, or even follow their dream and create their own venture. There are tons of support resources, a favorable business climate, lots of shared spaces to choose from, and a positive vibe from many quarters. Having been a resident of the city for the last seven years, I have personally seen this evolution and am indeed part of the action myself. So why St. Louis and why now? It has to do with money, middle management, mentoring, brains and bandwidth.

Let's look at the stats. Earlier this year, Dice named St. Louis the fastest growing city when it comes to technology jobs posted on Dice. Job postings grew 25% and the average tech salaries were up 13% to $81,245. And according to Dice, Missouri's tech employment beat out Texas, New York and Washington. St. Louis Community College's annual workforce report is also noteworthy in its praise for IT jobs.

First there is money. Over the past several years, entrepreneurs have seen multiple ways to get grants or investments in their companies. Jay DeLong, the Vice President for New Venture & Capital Formation for the Regional Chamber in St. Louis has this video showing the 10 ways to raise $50k for your startup, including links to venture capitalists and business plan competitions. His video is nicely outdated, and new VC firms are being added to that list. Last month, Jim McKelvey, who was one of the co-founders of mobile payments company Square, put together the new VC firm SixThirty.

Matt Menietti is a Venture Partner with SixThirty (the name refers to the height and width of the iconic Gateway Arch.) and he told me, "We are another organization to the rich ecosystem in St. Louis but we are just focused on financial service tech startups." Their first program starts next month and will provide $100,000 investments, requiring each beneficiary to move to St. Louis for a four month program.

Some of these organizations such as Arch Angels have stepped up their game. When I first came to town, the Angels made one or two yearly equity investments and had a few dozen partners. Now they have merged with another venture capital group that was known as FinServe Tech Angels and award dozens of grants per year. Kyle Welborn, who ran FinServe and is now a partner at Cultivation Capital, another St. Louis-based VC firm, told me "With accelerators, business plan competitions, venture funds and angel groups, local companies are raising enough money to get started and grow."

I mentioned middle management for a reason, but not why you think. Over the past decade, St. Louis has been losing headquarters of Fortune 100 companies to other locations. Our iconic Budweiser is now part of an international beer company as one notable merger or acquisition. These moves involve shedding a lot of middle management, who in turn go into startup mode. Many of them have created new ventures and have been early recipients of Arch Grants and other funding sources.

Some ventures have gotten big enough to require their own middle managers. McKelvey's Square continues to have a small development group in town, and Riot Games development team has more than 30 people in the region.

Mentoring is another big factor. If you are going to start up a company from scratch, it helps to have folks you can call and get guidance from. And in St. Louis, there are now so many IT-related mentoring opportunities it is hard to keep track of all of them. The longest-running IT-specific program is the IT Entrepreneur Network (ITEN), which was founded in 2008 and now has 70 mentors advising more than 200 startup companies. ITEN has various programs including its Mock Angel preparatory session for those ventures that are ready to pitch to VCs and another program to help hone business plans. All of its mentors volunteer their time and take no equity position in the ventures. ITEN has more than a dozen job openings on their website, and you can see some of them below here. (Disclosure: I am a mentor at ITEN.)

Jobs posted on St. Louis IT Entrepreneur Network

Image credit: IT Entrepreneur Network

ITEN last month hired its first Entrepreneur in Residence (EIR), John Grispon. He'll help identify potential startups and accelerate their growth through coaching and helping them find capital and talent. "To be effective, you want to have long term growth with multiple EIRs doing it for multiple companies. It's all about being able to impact the regional jobs and regional economic growth," he told me. "We have a great ecosystem for entrepreneurs here in St. Louis and a great set of funding resources, too, and I am happy to be part of the process."

Some of the business accelerator competitions also include mentors on staff. Indeed, Grispon came from the Capital Innovators program where he learned that mentors needed to be a close match between skills offered and needs of the various ventures.

But mentoring can come in other ways. Square's McKelvey is behind another effort called LaunchCode. They pair experienced coders at local St. Louis companies with newbies to help them get up to speed. The newcomers either get permanent jobs or get fired. So far more than 70 companies have signed up with the project, which starts later this month.

Brain power is another reason. Some of this is because we have three top-notch universities with about 20,000 undergraduates each in town: Washington University, St. Louis University, and the University of Missouri St. Louis campus. Each has solid programs in entrepreneurship, business, law and applied technology. For example, Washington University's Computer Science department has been offering a class in iOS programming for years now.

As another example, St. Louis University's entrepreneurship program is run out of its business school and has one of the top ranked programs according to U.S. News and World Report. Jerry Katz teaches at the Center for Entrepreneurship and is also the Director of the VC fund called the Billiken Angel Network as well as runs the Idea to Product annual student startup competition. "We have seen a real sea change over the past three years, and there is a lot more traction for the tech scene," he told me. "The knowledge and interest in startups is deep. People are coming to St. Louis because they hear about our program and the buzz is getting noticed elsewhere." Katz puts one of the reasons on the "app economy, and the beauty is there is so much potential for new ideas, and the startup cost is so low. "

And the region is beginning to see other second-degree effects of its ecosystem. Go 30 miles east of downtown St. Louis and you'll find a small 10,000-person town called Highland, Ill. It started its own entrepreneurship program two years ago and already helped mentor a dozen companies. The efforts have paid off, and these companies have created 44 jobs, with most of them full-time manufacturing positions. While this is a program for all kinds of businesses, one IT-related venture has benefitted and hired its first engineer with a six-figure salary to move across the region, and is looking for more talent. "One of the reasons this software company is in Highland is because the city owns their own fiber and they get screaming connectivity there," said Lee Crockett, who helped create the Highland program and is conducting a business plan competition in the town "to create more deal flow. The entire community is behind this program. We now have to figure out how to duplicate it across the region." Anyone can enter, as long as they agree to move their business there if they win.

That brings up bandwidth: any IT job growth depends on a solid Internet connection. St. Louis has connections to many of the cross-country fiber networks. Several of its downtown offices have been vacated by people and are being filled with server farms and data hotels. Contegix just moved their data center in larger quarters last month and Xiolink and Daotel are adding capacity and growing too.

But you need more than just bandwidth. Having a variety of attractive spaces is also key where startups can congregate, rub mouse pads and share ideas when they need something more than a table at the local coffeeshop. The St. Louis county economic development agency runs five such shared facilities around town, and other workspaces have cropped up in the past few years, including Lab1500 and Nebula. Then there is the T-Rex, a former Macy's regional headquarters office building that is filling up its floors with startups of all shapes and sizes. Tenants have come from literally all over the world to be in downtown St. Louis, and now the building is humming with activity of dozens of startups. T-Rex has become so popular that a variety of startups have moved to St. Louis from other cities, and Katz' entrepreneurship students have also rented their own office, just to be near the action.

As you can see, there is a lot going on in St. Louis, and I hope you might consider checking out some of the resources that I've listed. It is truly the "gateway city" to many IT possibilities, and many of the local startups are hiring.

Other tech hotbeds

St. Louis isn't alone in trying to attract new tech talent. There are lots of other smaller cities that have gotten their IT ecosystems together, including:

Replicating STL in your town? Here are a few tips.
  • Show me the money. Local VCs need to fund not only startups but A rounds and subsequent rounds of capital too.
  • Where is my (office) space? Your entrepreneurs need places to congregate and work, not just the local coffee shops. These should also have evening programs to bring the community together to learn about running a business and finding investors.
  • Mentors. Start with retired executives and expand.
  • Get the chamber interested. It isn't just about bringing in large employers.
  • Competitions. Provide ways to celebrate and entice entrepreneurs through cash prizes, and equity investments in exchange for office space in an incubator.
  • Go to college. Local schools should have programs in entrepreneurship to teach students how to start their own businesses.

Thumbnail photo courtesy of Flickr/debaird.

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