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ST. LOUIS BIOBELT'S
VENTURE CAPITAL ENVIRONMENT IMPROVED, BUT MORE TO BE DONE
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By Shera Dalin
Over the last decade, the St. Louis area made great strides
in helping startups, especially biotech, but more needs to be
done, venture capitalists say.
The region is blessed with many strengths that have helped attract
and keep venture capital as well as spark the growth of new
companies. Strong institutions of higher education such as Washington
and Saint Louis universities and research centers make the area
attractive to investors.
“That has actually gotten better in the last five years. If
the deal flow is there, the money will come,” says Scott Zajac,
senior managing director of Advantage Capital Partners in Clayton.
The St. Louis area attracted $115 million in venture investment
in 13 companies in 2005. Since 2000, total investment reached
nearly $1 billion.
“We made a lot of progress in the late ‘90s and the first half
of this decade in establishing a venture capital industry,”
Zajac says. “But things have really flattened out. Except for
life sciences, there is less venture capital available for smaller
businesses than we had five years ago.”
Missouri “played a positive role” when it previously supported
New Market Tax Credits that led to the creation of Prolog Venture’s
second investment fund, says Kelly Gillespie, executive director
of the Missouri Biotechnology Association trade group.
“We really need the State to support capital formation initiatives,”
Zajac says. “If you look at any area that’s been successful,
including the coasts, they have made those areas attractive.
No one thinks twice about putting up money for an industrial
plant, but there should be a role for government trying to stimulate
entrepreneurial companies.”
Gillespie says the need isn’t limited to just one type of investment.
“We need more of the capital formation tools filled across the
entire end of the spectrum from pre-seed to early stage to exits
and IPOs,” he says. “If we aren’t rounding out our capital portfolio,
we are going to be in danger of our clock being cleaned and
our young companies being enticed away.”
St. Louis is stronger in that funding spectrum than other areas
of the State, he says. Companies are getting funding and some
of it is finding them and from out of state nonetheless.
“Clearly we’re much better off today than we were five years
ago,” Gillespie says. “However, the scale, scope and flexibility
of new deals requires us to move so fast and require companies
to consider options so that we have still got room for improvement
in that territory.”
And the fight is on to lure companies from one state to another.
Southwestern Michigan, for example, conducted a direct mail
campaign offering $50 million to St. Louis area biotech and
technology firms if they move to the region, says Gil Bickel,
chairman of St. Louis Arch Angels investment group.
Without local investment, the fear is that new companies here,
especially biotech companies that require immense funding, will
be forced to move out of state at the demand of non-Missouri
investors.
Other areas in which the region succeeds is a strong work ethic;
scientists, engineers and middle managers that are seeking opportunities;
and an agreeable lifestyle, Zajac says.
“Certainly the positives are: the entrepreneurial spirit in
St. Louis is very much alive and well. The governmental units
are waking up to the fact that the entrepreneur is a very important
source of growth not only for jobs, but for industries and the
health of communities,” Bickel says.
Business incubators are also a strength, Bickel and Zajac says.
CORTEX, the NIDUS Center and the Center for Emerging Technologies
along with the area’s general business incubators all boost
investment prospects and entrepreneurial activity in the area,
he says.
“If you could design the perfect set of metrics for an incubator,
that would be the Center for Emerging Technologies,” Zajac says.
CET President and CEO Marcia Mellitz said she is encouraged
that the State of Missouri allocated 25 percent of the settlement
fund from tobacco companies for the Missouri Life Sciences Trust
Fund, which includes research. And she is optimistic about private
funding sources for CET’s future operations as well.
“We still need funds at the earliest stages: pre-venture and
in some cases pre-angel,” she says. “BioGenerator has been positive
in addressing that gap, but they will be out of funds in the
next couple of years.”
BioGenerator acts like a “virtual” incubator by supporting management
and providing funding to advance the development of startups.
BioGenerator's mission is to bridge the funding gap between
university-related research grants and venture capital.
Companies also need money for “translational research” that,
for example, moves a drug from the lab to clinical trials.
“That kind of money is hard to come by because it doesn’t require
an investor return. It usually comes from public sources,” Mellitz
says.
Pennsylvania and Michigan use tobacco settlement funds for that
purpose, and Wisconsin uses employee pension funds for investment,
she says.
Experts say Missouri’s employee and teachers’ pension funds
need to be persuaded to invest in the State’s growing firms.
“We think it will pay off for those stakeholders, especially
in the biotech sector. Many states are doing it, and Missouri
will do it too eventually,” Gillespie says. “It makes sense.
We’ve got a lot of winners here.”
The prize would be fostering another Monsanto or Sigma-Aldrich,
he suggested.
“We have 20 or 30 prospects out there that could grow up very
quickly and become one of those world-class institutions,” Gillespie
says.
While there is considerable work to be done, venture industry
officials say, there is much growth to appreciate and resources
inherent to the region.
“We need to acknowledge there is a lot of success. Otherwise
there is not enough critical mass,” Mellitz says. “We need to
keep pushing.”
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