St. Louis startups struggle to find consistent investment

There’s an unfortunate reality for startups in St. Louis and the Midwest more generally: Early-stage investment capital is just hard to come by.

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Programs from local organizations like Arch Grants focus on this gap, and the nonprofit announced last week that Figozo, King of the Curve and iSite Media would each receive a $100,000 non-dilutive grant to support their continued growth in St. Louis. The three Growth Grant winners were all previous awardees through Arch Grants’ annual startup competition, said Arch Grants Executive Director Gabe Angieri.

“The goal of this program is really to double down on those companies that have come through [our] pipeline and help accelerate their growth,” he said. “These are companies that are going out to raise capital, whether to bring on a new key hire, access a new market [or] expand their suite of services or products.”

Many startups in the region, even the three that won the most recent Growth Grants, have experience with the funding gap that exists, especially with early-stage capital.

Startup companies are usually strapped for cash as they focus on growth, said Brian Lord, co-founder and CEO of iSite Media, an advertising signage network in the restrooms of large venues like Enterprise Center. But that squeeze can feel more acute in between major milestones early on, he said.

“St. Louis has the same hurdles that a lot of the markets we talk with have, outside of maybe [the coasts],” Lord said. “There’s a lot of gap between that initial investment and whatever that next marker is, typically $1 million in annual recurring revenue.”

It’s a slog he said his company faced during the COVID pandemic after being an Arch Grants recipient in 2019. The company is back on track, having surpassed that $1 million mark last year, Lord said, adding he expects to use the cash infusion to make new hires in the St. Louis community and expand the number of venues it operates in.

(Growth Grant recipients must be able to match the $100,000 award with at least $200,000 of outside capital.)

King of the Curve co-founder Heath Rutledge-Jukes also faced funding challenges early on in his venture, which he describes as a compendium to help students with the material in college courses and standardized tests for medical, nursing and other educational verticals. He said it was challenging to get meetings with local angel investors or family offices without an introduction.

“The cold call approach just doesn’t work here,” Rutledge-Jukes said. “Not that it necessarily has the best success everywhere, but it does have more success if you’re talking about East or West Coast venture capital.”

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He started to get more traction with investors after becoming a part of Arch Grants’ 2023 cohort, he said. And the $100,000 Growth Grant has helped his company eclipse two-thirds of the $1.5 million pre-seed fundraising goal that Rutledge-Jukes hopes to hit in March.

“We’ve already begun to make commitments to local St. Louis jobs,” he said. “We’ve hired two people so far to help with the development and content of the platform, going into more medical education content while also focusing on a product for more general education.”

For Angieri, this is the kind of success he wants to see among recipients of his organization’s non-dilutive funding. Since 2021, Arch Grants has awarded 16 similar Growth Grants and the recipients have gone on to raise roughly $90 million and add more than 400 jobs in the St. Louis region, he said.

But Angieri emphasized the nonprofit cannot and should not be the only place early-stage startups find additional support.

“We just simply are not large enough as an organization,” Angieri said.

Others in the startup community reflect this sentiment too.

“Arch Grants is an amazing organization — we need 100 times more,” said venture capitalist Vikram Lakhwara. “They’ve kind of [borne] an outsized portion of this burden for a long time because investor tastes have changed and investors have become a little bit more risk averse.”

Lakhwara moved to St. Louis from San Francisco about three years ago and brings experience from his time in the Bay Area with a fund that backed Fair Flag Robotics, which John Deere acquired for $250 million.

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“St. Louis, it’s a very new ecosystem,” Lakhwara said. “The volume and density of investors, founders and supporters is not the level that it is in San Francisco [or] New York. It really reminds me of [Los Angeles] and Austin a few years ago.”

The relative lack of capital is the biggest gap he sees holding back most early-stage companies in the region, Lakhwara said.

“I think in St. Louis there’s probably a little bit of a learning curve,” he said. “A lot of people think that venture capital is just too risky of an asset class.”

It takes a different investing approach, like backing dozens if not hundreds of potential companies with the hopes that a handful achieve major valuations or high-dollar exits, or focusing on a niche portion of the market that an investor has clear expertise with, Lakhwara said.

He intends to take the former approach with his new Stakehouse Fund, which aims to invest in companies with ties to universities in St. Louis and the Midwest more broadly. But while this will help to fill an important funding gap, it can’t neglect how investors help mentor the companies and founders they support, Lakhwara said.

“One reason why the hit rate in Silicon Valley is so good [is] because there’s this density and volume of advisors, mentors, entrepreneurs that have been ‘been there done that’ and are willing to pay it back and pay it forward,” he said.

This attitude already exists in St. Louis to some extent, according to Shani Bennett, co-founder of Figozo, a platform that helps small businesses retain customers after an initial interaction. His company is also a Growth Grant recipient and was part of the Arch Grants 2022 cohort.

“Coming to St. Louis and looking at the ecosystem, people are very collaborative,” he said. “We strongly believe in St. Louis and much prefer to work with organizations who believe in the fabric of St. Louis.”

To that point, he expects to use the capital infusion to hire more local people for his sales team and make upgrades to the company’s platform, Bennett said. He added capital is as important to entrepreneurship as the human connections you have.

“Investment capital isn’t just some quiet capital where it just injects some money. You’re looking for individuals who can make those connections and get you to the next level,” Bennett said. “Usually it’s the people that fall into place first, whether that’s customers or investors, they tend to rally the cause and be your biggest advocates.”