A snapshot of the St. Louis startup ecosystem

A lot is said of St. Louis becoming a new tech hub.  In a city which can, at times, seem infested with feral humans completely devoid of respect for life, often the only way we can keep hope for the future is to point to those organizations which are pushing towards a better tomorrow.  Things might be bad now, but there’s light at the end of the tunnel.

The light at the end of our tunnel takes the form of the multiple organizations which make up our innovation ecosystem, most notably (but not limited to) Arch Grants, ITEN, BioGenerator, Cortex, the Skandalaris Center, BioSTL, T-REX, 1 Million Cups, and Capital Innovators.  These incubators provide a source of funding, mentorship, and community for entrepreneurs.  The Kaufman Foundation did a case-study on the St. Louis innovation community back in 2013.  They noted an environment of cooperative support organizations which was constantly evolving to meet the needs of its fledgling companies.

Here’s an example of how it works:
Every year, Arch Grants gives out multiple $50,000 equity-free grants to a group of promising startup companies.  This act of giving out multiple smaller grants, instead of a few large grants, creates a peer group among the award winning companies.  Of the 16 Arch Grant recipients interviewed by the Kaufman Foundation, 12 of them maintained active relationships, supporting and learning from each other throughout the process.  They were encouraged to co-locate within business incubators such as T-REX and became part of the larger start-up community, forming relationships with mentors experienced in private enterprise, fellow novices, venture capitalists, and a range of skilled professionals such as lawyers, accountants, and software developers.  I have sat in on a few pitches and have seen how the young companies are guided by experienced mentors towards resources which might be of assistance to them.  For example, I watched as the leadership team of a fledgling medical device company was given rapid-fire practical advice and the contact information of relevant specialists from a panel of experienced venture capitalists and business executives.  From within this ecosystem, the young companies can also find alternative sources of funding to keep them afloat while they continue to build their businesses.

Another interesting aspect of this system is the collaboration and communication between the various support organizations.  They vet the young companies, sharing information on which companies are applying the advice given to them with positive results, and which companies aren’t learning or growing properly.  This communication helps to protect the overall ecosystem, preventing the overlap or waste of resources.  In other words, each support organization knows what a particular company needs and already has.  Each organization knows what the other organizations offer, and they adjust to fill roles and prevent duplication of services.  It is a constantly evolving organism.  Of the 16 companies studied in this report, it seems most of them are still ticking along successfully, vindicating the process as a viable strategy.

How does the St. Louis region stack up?

These sorts of innovation communities and incubators aren’t unique to St. Louis.  Virtually every city has them.  It’s a necessary reaction to the past 20 years trend of industry disruption.  It’s painfully clear, you will innovate or you will be devoured by billionaire nerds from California.

This E-W Gateway Where We Stand Update gives us a good overview of our current standing.  It accomplishes this by giving us the status on a few key metrics: productivity, inventiveness, availability of venture capital, business survivorship, and workforce talent.

TL;DR Our region is fairly average among other regions in regards to these metrics, sometimes below the national average and sometimes above it…but as a whole we are in the middle of the pack.  I’ll briefly summarize Where We Stand’s report.

Productivity

Productivity is defined as Gross Domestic Product (GDP) per employee.  Essentially, it measures the amount of value produced by each working person.  This metric improves when workers are able to produce more value with the same quantity of inputs (capital/labor/raw material, etc).  Growth typically implies upgrades to equipment or improving the skills of the workforce.

Productivity in our region matched the national average until 2003 when it dropped off considerably.  We now rank #38 in the country at $79,827 per employee.  This is $5,000 less than the national average of $84,621.  Unsurprisingly, # 1 is San Jose (Silicon Valley) at $164,734 per employee.  Washington DC lags just behind at $147,512 per employee.

This drop in overall productivity is potentially due to the national trend towards a service based economy rather than a manufacturing economy.  We are historically a manufacturing city.  Our manufacturing productivity is actually doing quite well compared to the national average.  Measured as the value of output per hour of labor, we sit at # 15 nationally, $180.80 per hour of labor.  The national average is $150.30 per hour of labor.  Topping out the list is Raleigh, NC and Richmond, VA at around $450 per hour of labor each.

Inventiveness

Inventiveness is measured as the number of patents filed per 10,000 employees.

The patent rate matters because, apparently, it is associated with higher productivity and lower unemployment.

Our patent rate has been increasing over the last 15 years, but not as much as the rest of the country.  We lag far behind the national average at 5.5 patents per 10k employees for the St. Louis region vs a national average of 9.4.  Topping out the list are the largest regions in the country: Boston, LA, NYC, SF, and Silicon Valley.  Silicon Valley blows us (and most other cities) out of the water with a whopping 132.5 patents per 10k employees.  Following far behind in second place is San Francisco at 40 patents per 10k employees.

How much money is available?

The amount of Venture Capital available in the St. Louis region is measured as the amount of VC per employee.  VC funds have been increasing in the St. Louis region over the past 15 years.  We currently sit at #23 nationally with $179 per employee.  This is well below the national average of $491 per employee.  However, this national average is skewed by the freakish volume of money pouring into San Francisco ($9986/employee!!!!), Silicon Valley ($6270/employee!!!), and Boston ($2231/employee!!).  Among our Midwestern peers, we are actually doing quite well, ranking at # 3.

How many businesses are created?

This metric is defined as the number of businesses formed per 100,000 residents.

On the surface, it appears that the St. Louis region ranks # 5 in terms of the sheer number of small businesses created.  However, this comes with a caveat because most of these business are tiny (1-2 employee, $12k/year) healthcare service companies (home nurses, for example).  It’s unclear why there’s been such a massive increase in these types of firms, but I think it’s safe to say that they aren’t the type of small business that can rebuild the regional economy.

In terms of manufacturing and tech startups, we rank # 37.  20.5 new businesses are formed in St. Louis per 100k residents.  This is below an average of 33.6 nationally.  The list is topped out by Miami at 71.8 businesses, Austin at 60.1, and Silicon Valley at 57.6.

Manufacturing and Tech related startups average around 5.2 employees per company with an annual salary of $77,000.

How long do our businesses survive?

This metric is defined as the percentage of companies surviving after 5 years.  Nationally, an average of 48.7% of companies survive 5 years.  In St. Louis, we are slightly lower at 46.9%.  The top of the list includes Boston (54%), Pittsburgh (53.8%), and DC (52.4%).

How skilled is our workforce?

Our workforce is relatively well educated.  We rank # 29 in the percentage of adults with Bachelor’s degrees or higher (32.5%).  We rank # 22 in the percentage of adults with advanced degrees (12.8%).  In both of these categories we rank slightly higher than the national average.

In terms of job demand, about a quarter of all jobs in the St. Louis region require a Bachelor’s degree.  This is about the same as the national average.  About 4% of jobs in our region require a more advanced degree than a Bachelor’s.  This is also about the same as the national average.

About 6.4% of the jobs in St. Louis are related to the STEM (Science, Tech, Engineering, Math) fields.  While only 6.4 percent of jobs in St. Louis are in STEM related industries directly, in 2011, the Brookings Institution found that 22 percent of all jobs in the region required knowledge of STEM related subjects.  Take from that what you will.

In terms of workforce education, we are pretty average when compared nationally, but we are above average for our region.

Conclusion

It’s do or die for many cities in the United States.  Virtually every city has an innovation cluster and aspires to be the next Austin or Silicon Valley.  It might sadden some people to hear that St. Louis is in the middle of the pack.  However, this shouldn’t discourage you from trying to get involved.  There is a whole range of events aimed towards amateurs who want to network and get involved with the startup community.  The Kaufman report I cited earlier specifically mentions that events such as Code Until Dawn, Global Hack, and other team and activity based events are valuable networking opportunities for those wishing to step into the startup world.  Most new entrepreneurs are students coming from the graduate and research programs of regional universities rather than directly from technology transfer offices, university administrations, or big corporations.  The barrier to entry isn’t as high as you might think.  Now is the time to step up.