The framework for a state-operated venture capital fund that could be worth up to $250 million to invest in startup companies based in Missouri has begun to take shape in Jefferson City.
The fund — called the Missouri Innovation Fund — would be established under Senate Bill 1037 and was one of several key recommendations made last year by a Gov. Eric Greitens-commissioned task force aimed at increasing entrepreneurial activity in the Show-Me state.
Startups in St. Louis have long cited financing constraints as one of their biggest obstacles. The amount of venture capital invested in Missouri last year fell to a five-year low of $147 million, according to the MoneyTree report, which is compiled by PricewaterhouseCoopers and CB Insights.
This new fund would have the state leverage its credit rating and bonding authority in an effort to attract significant private venture capital with the goal of investing more than the state has in the past through the Missouri Technology Corporation (MTC).
Bill Anderson, executive director of the MTC, said the legislation is just the first step in launching the fund, but that the investment vehicle could potentially allow more private money to flow into the entrepreneurial community.
The state has been helping raise money for startups through the MTC — often by matching dollar-to-dollar outside investment up to $2.5 million — since 2011. And over the last seven years, about 100 Missouri startups have used $30 million in MTC funding to secure an additional $500 million in venture capital, according to data from the U.S. Department of Treasury. Those startups, many of which are based in St. Louis, have also generated more than 1,200 jobs.
Last year, Greitens’ task force came to the conclusion that the state could do more, and the MTC’s budget was cut to $3.5 million from $18.3 million in fiscal 2017 while the state tinkered with the Missouri Innovation Fund concept along with other ideas to foster entrepreneurship. The state projects another $3.5 million budget appropriation in fiscal 2019.
The effect: MTC has invested just $2.3 million into 13 startup deals this fiscal year, down from 42 deals worth $10 million in fiscal 2017.
“It has been noticeable that that capital is missing,” said Cliff Holekamp, a co-founder and general partner at St. Louis-based venture capital firm Cultivation Capital. “There is a sense of losing some of the momentum that we’ve built up over the last six years.”
Drew Erdmann, the governor’s chief operating officer, has referred to the innovation fund as “MTC version 2.0.”
But progress on the new fund may not move as fast as some in local entrepreneurial circles hope.
The legislature returns from its spring break next week and its general session ends in mid-May. And it may take months for the MTC to source the additional outside investment needed to grow the fund.
“We’ll start planning the next steps from there in terms of starting the fund and looking to capitalize it,” Anderson said.
Startup owners need that money now.
“I love the motivation to try and find creative solutions and more innovative approaches, but I also don’t want to lose a year or two of growing our startup ecosystem,” Holekamp said. “A company that is showing promise right now can’t wait one or two years to figure out the best policy. And you never know which one of these companies might be the next World Wide Technology or Centene. They might be in the crop of 2018 startups and they may end up having to move to Chicago because that’s where they found early-stage capital.”
Donn Rubin, president and CEO of BioSTL, an organization that supports startups in the biotech sector and oversees an investment fund called the Biogenerator, said entrepreneurs in St. Louis were waiting to learn more about the Missouri Innovation Fund.
“Right now, there’s not a lot of definition to it, and I think a lot of us are waiting to see what the meat on those bones is going to be,” he said. “Does it replace the investments MTC was making? Or will it be complementing that? The jury is still out on what stage the fund would invest in and we believe it’s particularly important that state resources are available at the earliest stage of investment. We are eager to hear about more of the details.”