Cities Hunt for Startup Magic: Entrepreneurial Culture Seen as Growth Key; $100 Million Seed Fund in St. Louis

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The Wall Street Journal
By Ben Casselman
June 11, 2013

ST. LOUIS—This city, which sponsored Charles Lindbergh’s flight across the Atlantic and served as the starting point for Lewis and Clark’s westward expedition, is trying to recapture its risk-taking spirit.

Stung by the takeover of iconic local companies such as Anheuser-Busch, which was sold to Belgian brewing giant InBev in 2008, and by the failure to recruit big employers to replace them, locals are trying a new approach: building the next generation of businesses from the ground up.

On Thursday, a coalition of local leaders from both the public and private sectors will unveil plans to raise $100 million over five years to invest in and support local startups. The effort is the latest in a series of steps intended to revive an entrepreneurial culture that even local boosters acknowledge has faded over the generations.

“St. Louis has a pretty deep history, and it’s built on entrepreneurs and risk-takers,” said Judy Sindecuse, chief executive of Capital Innovators, a two-year-old early-stage investment firm, and one of the leaders of the nascent local startup scene. “Now we need to redevelop that.”

In similar moves, in recent years cities and states across the country have established venture funds, tax incentives and other programs meant to encourage new businesses. Such efforts have been especially popular in cities such as Pittsburgh, Detroit and Cleveland that have seen their industrial economies decline in recent decades.

The focus on entrepreneurship comes at a time when job growth has been slow and rates of business formation are falling nationally. Economic research suggests a possible connection between the two trends: Harvard economist Edward Glaeser, among others,

But it isn’t clear how cities can best foster entrepreneurship—or even whether it’s possible to do so. Even success stories haven’t necessarily been the result of government policies, Mr. Glaeser said.

“It’s not at all obvious that governments know how to promote entrepreneurship,” Mr. Glaeser said. “The theory is sound. Whether or not they’re actually going to be able to produce this is much less sure.”

St. Louis is hoping it has history on its side. Once the gateway to the western frontier, the city emerged in the late 19th and early 20th centuries as a commercial and industrial hub. Anheuser-Busch, pet-food company Ralston Purina, aircraft maker McDonnell Douglas and other local firms grew into national and even global brands.

But the region’s frontier spirit gradually gave way to a reputation for business conservatism. One by one, the city’s iconic companies were sold to out-of-towners, and few others stood in line to take their place. When Anheuser-Busch was sold in 2008, many locals saw the deal as the end of an era, even though the brewer has retained a significant presence in the city.

“It absolutely was such a crushing blow to St. Louis because that is the global brand that identifies St. Louis,” said Rick Holton Jr., a local financier who traces his lineage to both Budweiser co-founder Adolphus Busch and explorer William Clark. “People started saying, ‘The party’s over.’ ”

Now Mr. Holton and other local leaders are trying to revive the risk-taking spirit. In the past two years, a web of independent but intersecting efforts has sprung up to support local companies. Among them: Ms. Sindecuse’s firm, Capital Innovators; Cultivation Capital, an early-stage venture-capital firm in which Mr. Holton is a general partner; and Arch Grants, a nonprofit group that has in the past two years awarded 35 startups with $50,000 apiece in financing.

Even with such programs, however, St. Louis lags behind other cities in funding. Missouri, the 18th-largest state by population, ranked 34th in total venture-capital dollars awarded last year, according to an analysis by PricewaterhouseCoopers and the National Venture Capital Association.

The new $100 million fund aims to help close that gap. The project, a joint effort by the city and county governments and several private groups, aims to raise private money from local companies, investors and foundations to provide firms with not just seed funding—as Arch Grants and other programs have done—but also with enough capital to stay in the city as they expand.

“The idea is to grow the resources here to keep the companies here,” said Katy Jamboretz, a spokeswoman for St. Louis County Economic Council, one of the project’s backers.

Even before the fund’s launch, St. Louis can count some successes. LockerDome, a sports-themed social network, recently raised $6 million in venture capital from, among others, Jim McKelvey, a St. Louis native who co-founded mobile-payments company Square Inc. In a mark of the city’s progress, LockerDome’s new backers are letting the company stay in St. Louis rather than move to Silicon Valley, something both the firm and its investors say once would have been unlikely.

Gabe Lozano, LockerDome’s 30-year-old co-founder and CEO, said St. Louis has come a long way since the company got its start in 2008. Back then, he said, St. Louis was the kind of town where it was better to be unemployed than to be an entrepreneur—at least being unemployed implied the effort to find a job.

“Now,” Mr. Lozano said, “it’s probably the exact opposite.”