miiCard presenting during SixThirty’s Demo Day
Gremln provides complaint social media management software for the financial services industry. MiiCard can verify an individual’s identity through a quick, online process. PromisePay allows online marketplaces to take escrow payments.
What do all these companies have in common? Besides focusing on financial technology, they all are part of the SixThirty Financial Technology Accelerator program. In August 2013, SixThirty launched with the backing from the St. Louis Regional Chamber and venture capital firm Cultivation Capital. The accelerator program accepts eight companies a year (four in the fall class and four in spring) and provides them with connections to the Greater St. Louis financial services community, as well as hands-on mentoring.
Each company also receives a $100,000 investment. SixThirty is just one of many ways new companies in the St. Louis area receive financing. After all, building a great company is immensely difficult. It involves coming up with an innovative idea, hiring a great team to bring that idea to life, and building out that idea into a scalable product, in the simplest terms. But, no matter how good the company is, it won’t go very far without ample funding.
Matt Menietti, Venture Partner at SixThirty
Less than a year after launch, more than 100 companies have been applying for each SixThirty class, according to Matt Menietti, the venture partner.
“Considering that we didn’t have any track record to speak of, the venture has definitely been a success,” he said.
The application process for SixThirty is pretty straightforward. The program doesn’t ask for business plans in the initial application round, but merely asks for a general overview of the company and a few other things, such as the problem in the financial technology industry that the company solves and how it’s different from competitors in the market.
From there, a group of finalists are selected. They meet with an investment committee, where the company is expected to display demos and/or webinars of their new technology. The committee then selects who joins the program.
A GROWING STARTUP SCENE…AND CASH TO BACK THAT UP
The startup economy is growing at a rapid pace in St. Louis. More than 50 new startups in the area emerged in 2013, according to a report put out by the St. Louis Regional Chamber in March – the majority of these companies are in technology. More dollars have come to the region as a result of this sea change. According to the Chamber, startups in the region raised more than $380 million in 2013, a six-fold increase over the prior year.
Although St. Louis doesn’t necessarily have the glitz and glamour of cities such as San Francisco or New York, it is strategically positioned as a financial hub. Wells Fargo Advisors has its headquarters in the St. Louis area, employing thousands. Other major financial companies based in the area include Stifel Nicolaus, Scottrade and Edward Jones.
Between 2007 and 2012, the metropolitan area added 5,600 financial sector jobs, more than any other major metropolitan area, according to data calculated by the Wall Street Journal. The five largest financial hubs during that time – New York, Boston, Chicago, Los Angeles and San Francisco — lost a combined 39,000 jobs in the sector.
Menietti said that when the program launched last year, most of the applicants were from outside the St. Louis area, suggesting that the robust financial services industry was a major draw.
“In my mind, the fact that St. Louis was on these applicant companies’ (radar screen) tells me something about the financial community and the wealth managers that are here in the area,” he said.
A SMALL, BUT VIBRANT VENTURE CAPITAL SECTOR
There are many different avenues that startups in the area use to score funding, besides the typical bank loans, money from long-lost cousins and maxed-out Visa cards. St. Louis Arch Angels helps connect companies with seed money. Competition programs such as Arch Grants provide cash rewards for startups that hold promise. Accelerator programs such as SixThirty provide capital along with other non-financial assistance such as ample mentoring, workshops and networking opportunities.
Of course, many startups also look to the venture capital industry. Although the St. Louis region isn’t littered with venture capital firms, they aren’t too hard to find either.
One of those firms is Ascension Ventures, a subsidiary of Ascension, which focuses its investments on the healthcare industry. Of the approximately 47 companies that Ascension Ventures has invested in, three of them are in the St. Louis area: Stereotaxis, ISTO Technologies and Neurolutions.
Recently, there has been a lot of emphasis on values-based investing – investing in companies not just for their ability to generate hefty financial returns but also pouring money into companies that are responsible corporate citizens and making a positive difference in the community.
Matt Hermann, the senior managing director at the firm, agreed that investing is about more than generating outsize investment returns. In fact, he noted that Ascension Ventures has two main goals, which he dubbed “1A and 1B.”
“At the end of the day, we won’t have a fund if we can’t deliver appropriate, risk-adjusted returns to investors – so I would consider that mission 1A,” Hermann said.
However, Mission 1B is delivering strategic value to his healthcare system limited partners. Hermann said the fund invests in companies that primarily focus on three things: improving the quality of care, reducing the cost of care, and providing a positive experience for both patients and caregivers.
A NEW WAY OF INVESTING
Of course, money doesn’t grow on trees, and it can be very difficult to raise money for a venture fund. Hermann suggested that Ascension Ventures could see as many as 300 prospective deals in a given year.
“And talking with my peers in the (VC and Private Equity Industry), that tends to be average or even on the high end,” he said.
Because of the long odds that many strong and creative companies face to receive ample funding, a robust Venture Capital system isn’t a panacea to remaking a vibrant startup scene. St. Louis attorney Scott Levine, a founder of AEGIS Law Firm, saw the long odds as a business opportunity.
“The traditional story is the company comes up with a story, business model, and then hits the street to get the attention of venture capitalists,” Levine said. “But frankly, there is not enough accessible capital for the quality deals, much less the ones that are not high quality.”
Levine believed the thought process needed to change. Instead of focusing on primarily the entrepreneurs’ needs, he decided to flip the whole model on its head and focus on the investor.
This led to the iSelect Fund. The fund allows investors to invest in a batch of St. Louis-based startup companies. Instead of angel investing, which is realistically open to only a very small, very wealthy elite group, iSelect Fund is open to anyone considered accredited by the Securities and Exchange Commission. In order to be a registered investor, one must earn $200,000 annually ($300,000 for couples) or $1 million in total assets, excluding primary residence.
Several weeks ago, the fund launched a biotech committee that is already performing due diligence on several different companies.
Levine believes that the appetite for alternative investments such as the iSelect Fund tend to grow in times of high volatility in the traditional investing marketplace. These types of investments have also gained traction as the traditional notion funding companies has shifted following the JOBS Act, the excitement around crowdfunding and even the television show Shark Tank.
Just this month, iSelect Fund has launched a committee to perform due diligence on early-stage startup companies. Levine said the fund is also looking to expand into Kansas City, Minneapolis and Denver in the near future.
“We’ll eventually go wherever the investor is,” he said.
STAYING AHEAD OF THE GAME
Moving to other cities is probably a prudent idea. It would be incredibly naïve to think St. Louis is the only major metropolitan area looking to build out a robust startup community.
Fortunately, St. Louis has a lot going for it. Talent from universities such as Wash U and SLU and companies such as Monsanto, Express Scripts and Centene are providing a large influx of talent in biotechnology industry, for instance. But St. Louis definitely doesn’t have any room to become complacent, either.
“We’ve got to move faster,” Hermann said. “Even though we are moving as fast as I have seen in my 12-plus years in the city, we have much work to do to outpace the other communities who are also accelerating their efforts.”
Menietti notes that St. Louis has always been a generous town philanthropically, and hopes that more of those dollars can be steered toward angel investing and to competitions such as Arch Grants.
At the end of the day, much of the focus should be on getting outstanding companies to build up in the St. Louis area. As part of the program, Menietti said SixThirty requires that the founders of the selected companies relocate to St. Louis for the 14-week accelerator program.
“It’s been phenomenal to hear their feedback about the startup scene and their experience in St. Louis in general,” he said. “At the end of the day, we need to add value and provide meaningful connections for our portfolio companies. If we do that, the possibilities in terms of follow-on investment, alumni connectivity, etc., are endless.”
