JUMPSTART INC.

St. Louis Regional Entrepreneurship Initiative Report

April 22, 2013

TABLE OF CONTENTS

The REI Vision: A Top 10 Region for Entrepreneurship .................................................................................2 Expand existing, high impact resources and attract the complementary resources necessary to foster a thriving entrepreneurial ecosystem. .............................................................................................3 With a vision of transformative change, the REI focused on entrepreneurship in context of two types of opportunities: i) high growth potential startups, and ii) existing small companies poised for accelerated growth and value creation. To ensure the REI would benefit from the insights and perspectives of regional entrepreneurs, investors, economic development professionals, educators and others, the REI began with the creation of the 40-person REI Committee. With research and guidance provided by JumpStart and in-region experts, the REI Committee developed the findings and recommendations by participating in regular meetings and engaging in working groups with the topics of Capital Formation; Networking; Marketing and Public Relations; and Economic, Social, and Political Climate. ..........................................................................................................................................3 The Findings: Opportunities and Gaps ...........................................................................................................3 The Recommendations ...................................................................................................................................6 Based on the information gathered during this process and regular interactions among the participants, the REI identified the following opportunities to complement and accelerate existing efforts to establish and grow a high performing entrepreneurial economy:............................................6 Moving Forward ...............................................................................................................................................8 Through grassroots efforts and the contributions of foundations, benefactors, universities, private investors, regional governments, non-profits and others, the region has made substantial progress since the Initiatives launch in April 2012. The establishment of the REI Committee and the Working Groups, their work on this Report, and the recently announced partnership between the SLCEC and St. Louis Development Corporation are examples of the types of collaborations necessary to convert this Report into the high-impact resources needed by the regions entrepreneurs. The REI participants are in position to convert this Report into action, but it won't be easy. The St. Louis County Economic Council and the St. Louis Regional Chamber are ready to help the REI Committee and the organizations they represent take the steps necessary to develop the detailed plans and raise the capital required to help the region achieve its vision. The Chamber has committed resources to validate the regional capacity and interest in raising additional capital to support the recommendations listed above. By continuing these efforts and collaborations, the leaders can accelerate the transformation of the regional economy to one characterized by high growth entrepreneurship and economic prosperity. ..............................................................................................8 Introduction ..........................................................................................................................................................9 The Regional Challenge...................................................................................................................................9 Legacy of Entrepreneurial Successes ............................................................................................................9

World Wide Technology ............................................................................................................................ 10 Enterprise Holdings .................................................................................................................................. 10 Express Scripts ......................................................................................................................................... 10 Entrepreneurial Support System ................................................................................................................. 10 The Regional Entrepreneurship Initiative ........................................................................................................ 14 Formation and Funding ................................................................................................................................ 14 Goals and Focus ........................................................................................................................................... 14 Initial Research and Analysis ....................................................................................................................... 15 Situational Analysis ........................................................................................................................................... 18 Gaps and Opportunities ............................................................................................................................... 19 Success Drivers................................................................................................................................................. 23 Recommendations............................................................................................................................................ 26 Working Group Actions and Planning .............................................................................................................. 34 General Guidance ......................................................................................................................................... 34 Transformative vs. Incremental Actions ...................................................................................................... 34 Core Questions.............................................................................................................................................. 35 Capital Formation Working Group ........................................................................................................... 35 Network Working Group ........................................................................................................................... 36 Marketing and Public Relations Working Group ..................................................................................... 37 Economic, Social and Political Climate Working Group ......................................................................... 38 Moving Forward................................................................................................................................................. 40 Appendix ............................................................................................................................................................ 42 Appendix A: Organizations Interviewed for the REI Planning Process ....................................................... 42 Appendix B: Commercialization Framework................................................................................................ 44 Appendix C: St. Louis Regional Deal Flow ................................................................................................... 48 Magnitude of Deal Flow ........................................................................................................................... 48 Trends in Deal Flow .................................................................................................................................. 50 Composition of Deal Flow ........................................................................................................................ 51 Appendix D: Startup Capital Report ............................................................................................................. 54 Appendix E: Economic, Demographic and Entrepreneurial Profile of St. Louis ........................................ 55 Appendix F: Glossary .................................................................................................................................... 56 Appendix G: Bibliography.............................................................................................................................. 60

EXECUTIVE SUMMARY
Introduction: The Situation
During the last 20 years, Pittsburgh, Cleveland, Detroit, Buffalo, Rochester and St. Louis, each a thriving manufacturing-based economy through most of the 20th Century, lost hundreds of thousands of jobs as a result of global competition and major disruptions in the world economy. With talent, cultures and policies shaped by the dominant presence of large companies, it was difficult for these regions to respond. Having become heavily dependent upon large corporations as the primary engines of their regional economies, these communities are now identifying, developing and supporting the new entrepreneurial companies that could help transform their economies. Faced with major economic dislocations caused by the closure of recent automobile assembly facilities, regional leaders worked with national experts (AECOM) to develop a regional economic adjustment strategy1. In addition to other findings and recommendations, the strategy identified the benefits of developing a stronger and more focused emphasis on entrepreneurship to drive transformative economic growth and diversification. As the first few steps, the AECOM Report recommended the following: Catalog the array of regional entities and organizations involved in and supporting entrepreneurship; Evaluate the climate and capacity for entrepreneurial/small business development across the region by defining local strengths and weaknesses, funding gaps and industry best practices; and Develop a plan to enhance access to resources supporting entrepreneurs and entrepreneurship.

The Importance of Entrepreneurship

St. Louis has a rich heritage of starting and growing innovative companies like Express-Scripts, World Wide Technology and Enterprise Rent-A-Car, now among the largest companies in the nation.

http://www.slcec.com/cmss_files/attachmentlibrary/AECOM%20Chrysler%20Impact%20-%20sm.pdf

The regions strengths in the bio, plant and life sciences sectors are well known. These innovationbased sectors are excellent models for growth in other sectors, including but not limited to information technology and advanced manufacturing. The region has experienced a rapid increase in high value entrepreneurship support organizations and service providers that work with companies to help them grow and find the resources they need to move to the next level. Entrepreneurship is a critical component of the regions economy, creating new and exciting products and companies, attracting talent to the region and creating jobs.

As reported by the Kauffman Foundation, from 1980 to 2005, all net new jobs in the U.S. economy were created by firms that were less than five years old2. In its 2012 State of Entrepreneurship Address, Kauffman also reported that 40 percent of all net new job growth comes from the fastest growing 1 percent of these young firms.3 Supporting these conclusions, a recent study in Pennsylvania found the fastest growing 0.3 percent of businesses created 75 percent of new jobs4.

The Response: The Regional Entrepreneurship Initiative (REI)

In April 2012, St. Louis County Executive Charlie Dooley and City of St. Louis Mayor Francis Slay invited a diverse group of St. Louis regional leaders to develop a regional action plan for strengthening the regions entrepreneurship ecosystem. The leaders included for-profit investors and entrepreneurs, as well as representatives from regional economic development organizations, universities, state and local government, entrepreneurial support organizations and the St. Louis Regional Chamber. With financial assistance from the U.S. Department of Commerce Economic Development Administration (EDA), the State of Missouri and the St. Louis County Economic Council (SLCEC), and collaborative leadership from the City of St. Louis, the State of Missouri, the SLCEC and the St. Louis Regional Chamber, the region launched a Regional Entrepreneurship Initiative (REI) to create a roadmap for strengthening the regions entrepreneurial economy. To help manage and inform the project, the SLCEC partnered with JumpStart Inc., a Northeast Ohio venture development organization. Through its JumpStart America initiative, JumpStart helps regions identify and capitalize on opportunities to accelerate the development of entrepreneurship as a driver of economic recovery, growth and prosperity. JumpStart brings a wealth of experience and expertise gathered during its nine years operating in Northeast Ohio and its work over the last three years in 12 U.S. regions.

The REI Vision: A Top 10 Region for Entrepreneurship

The REI vision is to transform the region into one of the Top 10 best places in the nation to be an entrepreneur. To help accomplish this, leadership established the following goals:

www.kauffman.org/research-and-policy/where-will-the-jobs-come-from.aspx www.kauffman.org/newsroom/high-growth-firms-account-for-disproportionate-share-of-job-creation-according-to-kauffmanfoundation-study.aspx 4 Ben Franklin HiGro Report. August 2, 2011.

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Increase the number of competitive, fast growing firms by identifying high growth potential startups and providing them with the capital and expert assistance they need to attract follow-on funding, talent and the other resources needed to succeed; and Expand existing, high impact resources and attract the complementary resources necessary to foster a thriving entrepreneurial ecosystem.

With a vision of transformative change, the REI focused on entrepreneurship in context of two types of opportunities: i) high growth potential startups, and ii) existing small companies poised for accelerated growth and value creation. To ensure the REI would benefit from the insights and perspectives of regional entrepreneurs, investors, economic development professionals, educators and others, the REI began with the creation of the 40-person REI Committee. With research and guidance provided by JumpStart and inregion experts, the REI Committee developed the findings and recommendations by participating in regular meetings and engaging in working groups with the topics of Capital Formation; Networking; Marketing and Public Relations; and Economic, Social, and Political Climate.

The Findings: Opportunities and Gaps

The following summarizes the current state of the St. Louis entrepreneurship ecosystem and forms the basis for the recommendations (see Recommendations section below). The region has a growing cluster of resources to support entrepreneurs and entrepreneurship, but these resources are not of uniform quality and are not equally available across all market sectors, such as biosciences, tech, agriculture, energy, and advanced manufacturing. The bioscience sector is well-supported and relatively well-funded. This sector has outstanding and significant sources of institutional research to generate a flow of opportunities (e.g. Washington University, St. Louis University, Bio-Research Development Growth Park, etc.), specialized facilities to incubate opportunities, expert assistance programs to help nurture opportunities, specialized training for bioscience entrepreneurs (the Bio Entrepreneur Development), and dedicated investment funds to finance opportunities at various phases of commercialization. The bioscience entrepreneurial ecosystem is anchored by BioSTL, BioGenerator, BRDG Park, CET, the Helix Center Biotech Incubator and CORTEX. Through the example of BioSTL (including BioGenerator), the region has experience and success focusing entrepreneurial support through a venture development organization (VDO) that provides capital and expert assistance, shares related resources, promotes bioscience sector entrepreneurship, and connects and promotes sector opportunities across multiple providers of specialized resources. Events such as the Ag Innovation Showcase, a joint effort of the BRDG Park at the Danforth Plant Science Center and the Larta Institute, facilitate dialogue and deal flow between agriculture industry leaders, emerging innovators and investors in ag-bio, renewable energy, sustainable materials, food production, animal health, and farming technologies from 11 countries. The tech sector benefits from a rapidly growing list of investment and expert resources, and the recent launch of AccelerateStLouis.org should help entrepreneurs and others navigate available resources more efficiently and effectively. The sector nevertheless lacks the concentration and
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magnitude of dedicated resources and support available in the biosciences sector, and as noted, suffers from a gap in investment capital for Incubating to early Demonstrating phase opportunities that require an investment of between $250,000 and $500,000. Across all sectors, the region benefits from the presence of Washington University and St. Louis University, both attractors of substantial research funding and active supporters of entrepreneurship. In 2012, St. Louis University attracted $51 million in research funding and actively supported entrepreneurship and entrepreneurial education through the St. Louis University Entrepreneurship Center. Washington University attracted $620 million in research funding and supported entrepreneurship and entrepreneurial education through the Skandalaris Center for Entrepreneurial Studies. In addition to BJC HealthCare and the St. Louis Life Sciences Project, Washington University was also one of the three founding funders of BioSTL. Across all sectors, although to a lesser extent in the biosciences sector, the ecosystem is burdened by the following critical gaps in the resources available to support entrepreneurs: o Capital. There is a capital gap between: i) the Imagining phase grants and investments provided by Arch Grants, SLCECs Start-Up Challenge, the Helix Fund and Capital Innovators, and ii) the late Demonstrating and Market Entry phase, for-profit investments provided by the angel networks (e.g. Arch Angels, Billiken Angels and FinServe Tech Angels) and Cultivation Capital. In the bioscience sector, BioGenerator fills this gap. Expert Services. The region has two strong mentoring programs (ITEN and IVMS), but is only beginning to augment these programs with paid EIRs. ITEN recently received funding from the Missouri Technology Corporation (MTC) to add three paid EIRs in 2013, one per quarter beginning in Q2. Since fall 2010, financial support for EIRs also has been available through the Helix Fund; both BioGenerator and Nidus have received grants through the Helix Fund for their programs. VDOs and investment funds that service Imagining, Incubating and Demonstrating phase companies often supplement their volunteer assistance with paid EIRs, especially for their most promising portfolio companies. Given the substantial flow of Imagining and Incubating phase opportunities across all sectors, but especially in biosciences and tech, the region should continue to look for opportunities to use paid EIRs to accelerate the progress of its most promising opportunities. Accelerator Graduates. Regional entrepreneurs and investors agree that the increased availability of grants through programs, such as Arch Grants, and the combination of Imagining phase investment capital and related assistance provided by Capital Innovators has increased tech sector deal flow. The region is likely to face significant challenges securing follow-on funding for these deals because of the rapid proliferation of accelerators nationally and the scarcity of institutional financing and venture capital for rounds of $1 million and greater.5 Regional leaders should strongly consider the impact of this gap on the deal flow and momentum generated in the last two years.

http://mobile.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop

Outside the biosciences and tech sectors, the available resources (capital, facilities and expert assistance) are not as abundant, diverse and integrated. In the absence of a VDO, such as BioSTL, or the array of resources focused on the tech sector, the number of opportunities in sectors such as agriculture, energy and advanced manufacturing remains uncertain. Given the St. Louis regions historic strengths in these sectors, the potential for significant deal flow and value merits the commitment of additional efforts and resources. In addition to the capital gap described above (between Imagining phase and late Demonstrating phase opportunities), the region has little early stage or Series A venture capital. More specifically, there are very few venture funds with currently available capital that are capable of leading Series A investments and attracting out-of-region investors (see Appendix C on St. Louis deal flow for additional information). The regions entrepreneurial ecosystem lacks certain enabling functionality, resources and infrastructure critical to maximizing the impact of currently available resources. The following capabilities help ensure that entrepreneurs find needed resources as quickly and efficiently as possible, and provide leaders with the information they need to fill gaps, capture opportunities and ensure the availability of resources over the time period necessary to achieve the desired transformation of the regional economy. The following is a list of the missing capabilities, resources and infrastructure of which the St. Louis ecosystem could benefit: o Region-wide communications and marketing. In the context of promoting the region as a fertile environment for entrepreneurs, investors, and entrepreneurship, the regions current efforts are fragmented at best. Commonly used deal intake and CRM system. St. Louis has no common intake system or customer relationship management (CRM) system to ensure that entrepreneurs are quickly and productively linked to the resources they need. This limitation results in unreliable data, missed opportunities and an uncertain and confusing path between entrepreneurs and the resources they need. Consolidated metrics collection and reporting system. The region lacks consistent terminology and a commonly used system to measure entrepreneurial performance and impact. Most individual organizations provide some measure of their own accomplishments, but no mechanism exists to: i) collect, validate and analyze process and outcome metrics on a consistent basis for the overall region; ii) accurately determine regional deal flow by capturing all relevant opportunities and reconciling duplications; and iii) consolidate this information into a useful tool for promoting the region and assessing resource needs and opportunities. Talent attraction and retention. The region has only recently begun to recognize the importance of developing specific programs to address the talent challenges facing startup companies. Similar to other Midwest economies, the region lacks a sufficient number of entrepreneurs with actual experience building and leading successful startup companies. The lack of experienced C-level and senior talent continues to inhibit the growth and success of young companies. Although the region has several outstanding entrepreneurial educational programs for students, these do not address the near-term need for experienced senior-level talent.

Inclusion of minority, women, veterans and immigrant entrepreneurs. St. Louis has no organized initiatives to ensure that all of the resources available to help high potential startups include or reach minority, women, veteran and immigrant entrepreneurs. As is the case in most regions across the U.S., the region is not effectively reaching or leveraging the entrepreneurial talent in these disconnected communities in a meaningful, consistent and sustained manner. Efficient and productive matching of entrepreneurs to required resources. The region lacks a database and related system to efficiently and productively match entrepreneurs with the resources they need. AccelerateStLouis.org should help with this challenge, although the region would benefit from continuing to enhance this capability.

The Recommendations
Based on the information gathered during this process and regular interactions among the participants, the REI identified the following opportunities to complement and accelerate existing efforts to establish and grow a high performing entrepreneurial economy: Continue Collaboration. The region needs to continue to collaborate in order to develop more detailed operational and implementation plans in relation to specific action plan priority areas. Bridge the Pre-Seed Capital Needs. In sectors other than biosciences, the region lacks funding to bridge companies from the available validation funding (grants, convertible debt and equity investments in amounts less than $100,000) to the investments provided by angel and venture capital investors ($500,000+). Given the significant deal flow in the tech sector, this gap (investment capital in the range of $250,000-$500,000) represents a real opportunity. An evergreen fund (similar to the Bioscience Seed Fund available through BioSTL/BioGenerator) is compatible with the risk profile of companies at this phase of commercialization. Launch a Regional Customer Relationship Management System. As the diversity, intensity and pace of entrepreneurial assistance continues to increase so does the need for and value of a system to track the assistance, investment and related impact. The system provides the ability to answer fundamental questions such as: i) who are we currently helping; ii) what are the specific assistance or resources we are providing; iii) what is the impact of the resources or assistance; and iii) are we missing something? Develop a Common Measurement and Metrics System. With the metrics and related systems, practitioners and funders will know sooner whether their actions are on track to produce the desired results. Develop Coordinated Marketing and Communications. The rapid development of the region's entrepreneurial support system over the last two years has left many entrepreneurs, investors and service providers confused. The recent launch of AccelerateStLouis.org is a powerful first step in the development of an integrated approach to bringing together the components of a high performing entrepreneurial economy. Additionally, the region would benefit from an intensive, comprehensive and sustainable approach to expanding awareness, increasing participation, attracting and retaining talent, and attracting capital from within and outside the region.

Develop Inclusion Programming. Only a small percentage of St. Louis regional deal flow comes from minority, female, veteran or immigrant entrepreneurs, though they represent significant portions of the regional population. Similar to other regions throughout the U.S., they remain disconnected from the resources available to support high growth potential startups. The solution begins with a commitment to actively, professionally, consistently and intensively pursue inclusion across all of the actions and functions within the entrepreneurial economy (e.g. talent, leadership, policy, investing, mentoring, etc.). The combination of this commitment and the measurement/metrics system is a powerful first step in understanding the dynamics and impact of including a much larger and more diverse population in the high growth potential entrepreneurial economy. Strengthen Expert Assistance (Entrepreneurs-in-Residence) Programs. The region has two strong mentoring programs (ITEN and IVMS), but is only beginning to augment these programs with paid EIRs. ITEN recently received funding from the Missouri Technology Corporation (the MTC) to add three paid EIRs in 2013, one per quarter beginning in Q2. Since fall 2010, financial support for EIRs also has been available through the Helix Fund; both BioGenerator and Nidus have received grants through the Helix fund for their programs. VDOs and investment funds that service Imagining, Incubating and Demonstrating phase companies often supplement their volunteer assistance with paid EIRs, especially for their most promising portfolio companies. Given the substantial flow of Imagining and Incubating phase opportunities across all sectors, but especially in biosciences and tech, the region should continue to look for opportunities to use paid EIRs to accelerate the progress of its most promising opportunities. Develop Regional Entrepreneurship Talent Programs. With a legacy of slow population growth, large company economic dominance and few recent high profile exits, St. Louis needs senior talent with experience founding, funding, growing and exiting from technology-based startups. As many startups have learned the hard way, the experience gained primarily in large companies often doesn't translate into the combination of skills and personal traits necessary to succeed in a startup. A dedicated talent recruiting service to help the increasing number of startups across the various sectors attract talent would have a material positive impact on the regions entrepreneurial economy. Increase the Availability of Series A Venture Capital. In St. Louis and the rest of the country, two factors have created a critical shortage of the Series A venture capital needed by startups to aggressively enter the market and scale their businesses. The first is the contraction of the venture capital industry since late 2008. The second is the huge number of tech accelerator graduates across the country over the last few years.6 These factors plus the relative lack of successful venture capital funds in areas other than the coast have created a shortage of Series A venture capital. This shortage is becoming a major constraint on the success of high growth potential startups. Numerous states and regions across the country have helped establish large Series A funds or pools of capital to co-invest with and attract venture capitalists (a Series A Fund). By following this approach or establishing an aggressive effort to secure venture funding for the region's top opportunities from venture funds located elsewhere, the region should increase the number of its successes and increase the odds that the region will retain its successful startup ventures.

Inc. Magazine. Where Has All the Funding Gone? Competition heats up for million-dollar VC deals, April 2013

Identify Next Market Sector. Opportunities in the tech and bioscience sectors have captured the largest share of the regional validation funding and related support. The region's historical strengths in advanced manufacturing, advanced energy, clean tech and agricultural sciences have not yet translated into strong startup deal flow. A well-structured validation pilot would help provide leaders with greater insights into the entrepreneurial potential of these sectors.

Moving Forward
Through grassroots efforts and the contributions of foundations, benefactors, universities, private investors, regional governments, non-profits and others, the region has made substantial progress since the Initiatives launch in April 2012. The establishment of the REI Committee and the Working Groups, their work on this Report, and the recently announced partnership between the SLCEC and St. Louis Development Corporation are examples of the types of collaborations necessary to convert this Report into the high-impact resources needed by the regions entrepreneurs. The REI participants are in position to convert this Repor t into action, but it won't be easy. The St. Louis County Economic Council and the St. Louis Regional Chamber are ready to help the REI Committee and the organizations they represent take the steps necessary to develop the detailed plans and raise the capital required to help the region achieve its vision. The Chamber has committed resources to validate the regional capacity and interest in raising additional capital to support the recommendations listed above. By continuing these efforts and collaborations, the leaders can accelerate the transformation of the regional economy to one characterized by high growth entrepreneurship and economic prosperity.

INTRODUCTION
The Regional Challenge
With the closure of Chryslers North and South Plants in 2008 and 2009 and the concurrent severe economic recession, the St. Louis Metropolitan Statistical Area (MSA) lost almost 70,000 jobs since 2007. These closures accelerated St. Louis ongoing economic decline from the 10th ranked MSA for economic output and population in 1970 to the 19th in 2011.7 The regions manufacturing base decreased by more than 35 percent since 2000 and net migration has been negative. Although St. Louis is home to 21 Fortune 1000 companies, these anchor businesses are increasingly vulnerable to a globally competitive economy. For these and other reasons, community leaders recognized the need to diversify the regional economy. AECOM, the Los Angeles-based management services organization retained to develop a strategic plan to overcome the impact of the Chrysler closings, observed the Region has arrived at an economic crossroads, where relying on the status quo will lead in the direction of under-performance and insufficient growth, and more proactive strategies will require very deliberate decisions about how organizations, leadership, and resources can be realigned to encourage regional economic growth.8 As one of a number of suggested solutions, AECOM recommended the region: energize entrepreneurship and grow nascent companies with potential to become new economic engines for the region. AECOM also identified potential high growth entrepreneurship as a bright spot in St. Louis economy.

Legacy of Entrepreneurial Successes

Building companies from startups into major businesses is something St. Louis has a long tradition of doing. Dating back into the early to mid-20th Century, some of the regions early and most successful entrepreneurs built companies like Anheuser Busch, McDonnell Douglas and Purina. These companies went on to become some of the regions largest corporations and civic leaders. Today, the regions entrepreneurial spirit continues and the next generation of startups can gain inspiration from companies like World Wide Technology, Enterprise Holdings and Express Scripts, which all began as startups and have grown into successful businesses.

Economic, Demographic and Entrepreneurial Profile of the St. Louis Region, Jack Strauss, Simon Center for Regional Forecasting, September 2012. 8 St. Louis Regional Economic Adjustment Strategic Plan, September 30, 2011, prepared by AECOM for the St. Louis County Economic Council, State of Missouri, and City of Fenton.
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World Wide Technology

Founded in 1990 by co-founders David L. Steward and Jim Kavanaugh, World Wide Technology (WWT) began with four employees and initial funding from a $250,000 Small Business Administration loan. In a May 2001 St. Charles County Business Record article, Steward recalled times when the company was not able to pay its bills, and an occasion when he looked out his window and saw his car being repossessed. However, Steward's vision for the company's future, along with a passion for technology and the ability to attract the right people, would prove instrumental as his company grew. During WWT's formative years, the company mainly worked for the U.S. government. It quickly gained a reputation for on-time delivery and quality. After forming a number of strategic alliances with other technology firms, WWT saw its commercial business begin to grow. During the 23 years of WWTs existence, the company has seen strong growth nearly every year and now employs more than 2,000 professionals, has grown its annual revenues from $812,000 in its first year to nearly $5 billion in current annual revenue, and is now the nations largest African-American owned business.

Enterprise Holdings
Enterprise Holdings has a rich and distinctive heritage. It tells a remarkable story of how entrepreneurship, hard work and a big dream can turn a small startup into a world-class company. The founder, Jack Taylor, started the company in 1957 in a small, lower-level office in a St. Louis Cadillac dealership, with a fleet of seven cars, one employee and a commitment to provide a uniquely personal brand of customer service. Enterprise Holdings is now the largest car rental service provider in the world, measured by revenue, employees and fleet. The companys annual revenues are $15.4 billion, it employs more than 74,000 people and its affiliates own and operate almost 1.3 million cars and trucks. Enterprise Holdings, and its affiliates, offer a total transportation solution and are united by a common mission: to be the best transportation service provider in the world ... to exceed our customers' expectations for service, quality and value ... to provide our employees with a great place to work ... and to serve our communities as a committed corporate citizen.

Express Scripts
In September 1986, a health maintenance organization and a regional drugstore chain started a company so small, it went unreported by the hometown newspaper for more than two months. Today, that entity is Express Scripts, the countrys leading pharmacy benefit manager whose mission is to make prescription drugs safer and more affordable. Based in North County, Express Scripts employs 4,000 people in the region and 30,000 people nationwide. The company has grown into a $93 billion industry leader that processed more than 1.4 billion prescriptions for more than 100 million Americans last year. By leveraging information technology and bringing together three complementary capabilitiesbehavioral sciences, clinical specialization and actionable dataExpress Scripts has built practical solutions for three key decision areas: drug choices, pharmacy choices and health choices.

Entrepreneurial Support System

Although companies like WWT, Enterprise Holdings and Express Scripts are shining examples of the power of entrepreneurship, the AECOM report and regional leaders recognized the need for a more comprehensive and complete support system for entrepreneurs seeking to bring their innovative ideas to market.
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Fortunately, the St. Louis region had already begun to build a substantial base of entrepreneurial assets and successes. In the late 1990s, the community developed and implemented programs to promote technology development and commercialization of plant and life science technology. In the last few years, the region benefitted from a rapid increase in the breadth and depth of resources supporting entrepreneurship in the information technology sector. Examples of regional progress in developing and deploying effective, high impact resources and collaborations in support of high potential startups include, but are not limited to the following: In the bioscience sector, BioSTL and its subsidiary, BioGenerator (collectively, BioSTL), have emerged as a full-service venture development organization (VDO). With significant financial support from Washington University, Barnes-Jewish Hospital, St. Louis University, and large corporations and family foundations, BioSTL provides entrepreneurs with investment capital, expert assistance, equipment, facilities, and other critical resources: o o BioSTL and its partners also provide leadership in the form of marketing, communications and advocacy to help bioscience startup companies acquire the resources they need to succeed; Specialized physical facilities are available through the Helix Center, the Danforth Plant Science Centers Bio-Research & Development Growth (BRDG) Park, the Center for Emerging Technologies and the overall CORTEX development; Research activities are growing at universities and large and small companies, and a growing base of entrepreneurial talent is now emerging. Collectively, the bioscience ecosystem has stimulated a consistent flow of new startups and an influx of capital from local and national investors.

Since 2008, the region generated more than 54 bioscience startup companies. These efforts demonstrate the potential of focused action and investment to accelerate private sector action, collaborations and leveraged investments. In the information technology sector (tech), entrepreneurial support organizations raised the level of startup activity and investment in tech-based entrepreneurship. While no single organization anchors or consolidates core functional programs to the same degree as BioSTL, the tech ecosystem offers a number of the needed functions: o ITEN provides expert assistance through a managed mentor network and recently received funding from the Missouri Technology Corporation (MTC) to augment these programs with paid EIRs; Capital Innovators and Cultivation Capital provide specialized investment capital and expert assistance from entrepreneurs-in-residence (EIRs); and T-REx and several general purpose incubators provide physical facilities.

o o

Since 2008, these efforts have helped create 55 tech companies, 40 of them in just 2011 and 2012. This represents tremendous progress in a short period of time and sets the stage for continued growth. St. Louis historic economic strengths also come from agriculture, advanced energy and advanced manufacturing (AEM) sectors. A number of organizations provide assistance, although not yet at

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the level of the bioscience or tech sectors. Examples of high impact programs in the AEM sectors are: o o o Innovate St. Louis provides expert assistance through its Innovate Venture Mentoring Service (IVMS); Nidus Partners offers EIR assistance and funding to advanced energy and clean tech companies with technologies of interest to their corporate partners; The BRDG Park at the Danforth Plant Science Center hosts the international Ag Innovation Showcase, which attracts small agriculture and plant science companies and investors in a forum that has led to $66 million in post-showcase investment since 2009; and Local angel funds also occasionally invest in the AEM sectors.

Since 2008, the region has generated 23 AEM startups, about half the number generated in each of tech and biosciences. Given the limited dedicated resources, the lower rate of startups is to be expected and could be an opportunity for ecosystem growth. The region also benefits from a number of innovative financing programs that provide entrepreneurs with limited amounts of startup capital. Examples include: o o A variety of business plan competitions in St. Louis that give startup companies financial resources and services to propel them forward. Arch Grants, a program started in 2012, makes $50,000 grants to startups in the Imagining Phase9 through a competitive award process. Although Arch Grants are available to opportunities in the bioscience, tech and AEM sectors, most of its grants have been in tech and bioscience to date. Capital Innovators invests in tech startups in the Imagining phase of commercialization. Capital Innovators offers equity investment capital and expert assistance through an accelerator model (approximately $50,000 per investment). Arch Angels, Billiken Angels and FinServe Tech Angels are for-profit networks of high net worth individuals that invest in local technology-based startups (approximately $250,000 per investment). The angel networks invest primarily in companies in the late Demonstrating and early Market Entry phases of commercialization. Cultivation Capital is a new for-profit fund started by local serial entrepreneurs who invest between $100,000 and $1 million in companies in the late Demonstrating and Market Entry phases of commercialization.

The efforts described above represent only a portion of St. Louis large and complex entrepreneurial ecosystem. Figure 2 provides a graphical depiction of the regional organizations offering assistance to entrepreneurs. Although the region has reason to be proud of its progress over the last few years, it is important to understand that St. Louis is playing catch-up. In terms of timing, scope and magnitude of investment, many of these efforts trailed those in comparably situated cities such as Cleveland, Pittsburgh, Detroit and

For a definition of the five phases of commercialization (Imagining, Incubating, Demonstrating, Market Entry, and Growth & Sustainability), see the detailed explanation in the Appendix B: Commercialization Framework.
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others. These and other regions have made commitments to support entrepreneurship that far exceed those of the St. Louis region. The St. Louis region has made extraordinary progress during the last few years, especially in the less visible but high impact area of collaboration, which has enormous potential to accelerate the development of the entrepreneurial economy. As described in more detail later in this Report, St. Louis is well-positioned to leverage certain gaps and opportunities to sustain and accelerate its progress.

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THE REGIONAL ENTREPRENEURSHIP INITIATIVE

Formation and Funding
Consistent with the strong recommendations contained in the AECOM report, the St. Louis County Economic Council (SLCEC) identified the need to develop an approach to energize entrepreneurship. Initiated by the leadership of St. Louis Mayor, Francis Slay, and St. Louis County Executive Charlie Dooley, the Regional Entrepreneurship Initiative (REI) provided a platform to address the impact of the Chrysler plant closings and the need to support entrepreneurship. With this leadership and funding from the U.S. Economic Development Administration (EDA), the SLCEC partnered with JumpStart, a Northeast Ohio-based venture development organization (VDO) that, through its JumpStart America initiative, helps regions identify and capitalize on opportunities to accelerate the development of entrepreneurship as a driver of economic recovery, growth and prosperity. In partnership with the EDA and the State of Missouri, the SLCEC and JumpStart initiated a 10-month planning process to produce this Regional Entrepreneurship Initiative Report (the REI or Report). To ensure the Report would benefit from the insights and perspectives of regional entrepreneurs, investors, economic development professionals, educators and others, JumpStart and SLCEC formed a nine-member Executive Committee and a 19-member Advisory Group.

Goals and Focus

To achieve the vision of the REImake St. Louis a Top 10 region for entrepreneurshipthe project focused on two main goals: 1. Increase the number of competitive, fast growing firms by identifying high potential regional opportunities and then providing them with the capital and expert assistance they need to attract follow-on funding, talent, and the other resources needed to succeed; and 2. Help the region expand existing resources and attract additional complementary resources necessary to foster a thriving entrepreneurial economy. In accordance with the EDA proposal and the AECOM report, the REI project focused on entrepreneurship in the form of high potential startups. High potential startups are new or young companies, often technologybased, with the potential to achieve accelerated growth, value creation and wealth creation, and in the process, create large numbers of high paying jobs. Below is an illustration of the path a high potential startup follows on its way from idea to successful company. The first three phases of commercializationreferred to as Imagining, Incubating and Demonstratingare also sometimes called the Valley of Death because entrepreneurs without extremely deep pockets, wealthy relatives or enormous luck often find that their great ideas stagnate or die during these phases of commercialization.10 The Valley of Death begins when the entrepreneur exhausts his or her personal resources (sometimes referred to as friends and family money) and ends when the opportunity is sufficiently mature as to be able to attract resources from for-profit investors (e.g. angels, venture capitalists,
See Appendix B for detailed description of the phases of commercialization.

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strategic investors, banks, etc.). In considering approaches to create a thriving entrepreneurial economy, the Valley of Death is the focus. The challenge is to identify efficient and effective mechanisms to create a large number of great ideas and then help them cross the Valley of Death and become great companies, or, as a next step, create great investments for angel and venture capital investors. Figure 1, Phases of Commercialization

Initial Research and Analysis

In pursuit of the goals listed above, the REI conducted primary and secondary research, asset mapping, gap analysis, assessment of regional entrepreneurial opportunities, and extensive community engagement. Primary research included interviews with entrepreneurs, investors, researchers, economic development professionals, entrepreneurial support organization leaders and others, as well as a survey of the perceptions and attitudes of entrepreneurs. The persons interviewed and focus group participants represented over 60 different organizations (see Appendix A for a detailed list). JumpStart also performed an extensive literature review. For secondary research, JumpStart and the SLCEC commissioned two special studies to provide statistical support for the recommendations.11 Throughout this process, JumpStart solicited information and data on regional deal flow with a focus on high potential startups in the first three phases of commercialization (see Appendix B for a description of the phases of commercialization and Appendix C for JumpStarts estimate of deal flow). Based on this research and stakeholder engagement, JumpStart prepared a summary of its findings (see the Situational Analysis, Gaps and Opportunities section), and an outline of preliminary recommendations (see

REI Startup Capital Report, St. Louis Regional Chamber, March 2013 (see Appendix D) and Economic, Demographic and Entrepreneurial Profile of St. Louis, Jack Strauss, Simon Center for Regional Forecasting, September 2012 ( see Appendix E).
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the Recommendations section). In August 2012, JumpStart presented this summary at a meeting that included the Executive Committee, the Advisory Group and a number of additional attendees. In response to the findings and preliminary recommendations, the SLCEC, the St. Louis Regional Chamber (SLRC) and others reached the following conclusions: 1. The REI would benefit from engagement with a larger group of local participants. As a first step, St. Louis leadership created the REI Committee, a 40-person group that included the nine-member Executive Committee, the 19-member Advisory Group and 12 new members. The members of the REI Committee are listed in Table 1 below. 2. Given the magnitude of the recommendations and the implications for regional entrepreneurship support efforts, the REI Committee should be more involved in refining and prioritizing JumpStarts findings and preliminary recommendations. 3. Given the Committee members in-depth knowledge of the resources, systems and capabilities embodied in existing entrepreneurial support organizations and programs, the REI Committee should determine the organizations and mechanisms to implement the resulting recommendations. To fulfill the objectives in conclusions #2 and #3 above, the REI Committee formed the following four Working Groups: i) Capital Formation, ii) Network, iii) Marketing and Communications, and iv) Economic, Social and Political Climate. To help inform the efforts of the Working Groups, JumpStart prepared a Situational Analysis summarizing JumpStarts research and findings, and identifying opportunities for strengthening St. Louis entrepreneurial ecosystem (see Situational Analysis section).

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Table 1, Members of the REI Committee

Regional Entrepreneurship Initiative Committee

Heather Beaven, Director of Operations, Center for Emerging Technologies Gilbert Bickel, Chairman, St. Louis Arch Angels Jim Brasunas, Executive Director, Information Technology Entrepreneurial Network (ITEN) Dennis Breite, Vice President, St. Louis Enterprise Centers, St. Louis County Economic Council Edward Bryant, Vice President, Economic Development Collaborative, St. Louis County Economic Council Vijay Chauhan, Senior EIR, BioGenerator Gregory Christofel, Counselor, SCORE Denny Coleman, President & CEO, St. Louis County Economic Council Rodney Crim, Executive Director, St. Louis Development Corporation Jay DeLong, Vice President, New Ventures and Capital Formation, St. Louis Regional Chamber Barbara Enneking, Vice President, Enterprise Development, Centers for Emerging Technologies Sam Fiorello, COO & Senior Vice President, Danforth Plant Science Center & President, BRDG Park Marilyn Gannon, President & CEO, Innovate St. Louis Victoria Gonzalez, Managing Partner, Nidus Partners Eric Gulve, President, BioGenerator Jason Hall, Deputy Director, Missouri Department of Economic Development Ken Harrington, Director, Washington University Skandalaris Center for Entrepreneurial Studies Laurie Hauber, Staff Attorney, Community Economic Development Program, Legal Services of Eastern Missouri Tim Hayden, Director, St. Louis University Center for Entrepreneurship Steve Johnson, Executive Vice President, Economic Development and Marketing Strategy, St. Louis Regional Chamber Paul Klug, Attorney, Posinelli Sarah Kinkade, Research Coordinator, St. Louis County Economic Council Dennis Lower, President & CEO, CORTEX Brian Matthews, Partner, Cultivation Capital Tom Melzer, Managing Director, RiverVest Venture Partners Elizabeth Noonan, Vice President Bioscience Technology, St. Louis County Economic Council Valerie Patton, Vice President Economic Inclusion & Executive Director, St. Louis Business Diversity Initiative, St. Louis Regional Chamber William Peck, Director, Washington University Center for Health Policy Greg Prestemon, President & CEO, St. Charles County Economic Development Center Joe Reagan, President & CEO, St. Louis Regional Chamber Donn Rubin, President & CEO, BioSTL Theresa Ruzicka, Partner, RubinBrown Sarah Spear, Executive Director, Arch Grants Travis Sheridan, Program Administrator, Helix Center Judy Sindecuse, CEO & Managing Partner, Capital Innovators Steve Trampe, President, Owen Development Christine Walsh, Executive Director, InvestMidwest Derek Weber, President, goBrandgo! Kyle Welborn, Executive Director, FinServe Tech Angels Kelvin Westbrook, President & CEO, KRW Advisors, LLC

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SITUATIONAL ANALYSIS
One of the strengths of St. Louis is the large ecosystem that has formed to support entrepreneurship. Figure 2 below is an overview of the St. Louis assets available to support regional entrepreneurs12: Figure 2, Regional Assets

12

The list of organizations in Figure 2 is not comprehensive. It includes representative organizations that provide assistance in the form of service or capital to business persons and entrepreneurs. Most of the organizations provide general business assistance and do not have the expertise or resources to service high potential startups.

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Gaps and Opportunities

The following summarizes the current state of the St. Louis entrepreneurship ecosystem and forms the basis for the identification of opportunities to strengthen the ecosystem. The region has a growing list of resources to support entrepreneurs and entrepreneurship, but these resources are not of uniform quality and are not equally available across all market sectors such as biosciences, tech, agriculture, energy, and advanced manufacturing. The bioscience sector is well-supported and relatively well-funded. This sector has outstanding and significant sources of institutional research to generate a flow of opportunities (e.g. Washington University, St. Louis University, Bio-Research Development Growth Park, etc.), specialized facilities to incubate opportunities, expert assistance programs to help nurture opportunities, specialized training for bioscience entrepreneurs (the Bio Entrepreneur Development Center), and dedicated investment funds to finance opportunities at various phases of commercialization. The bioscience entrepreneurial ecosystem is anchored by BioSTL, BioGenerator, BRDG Park, CET, the Helix Center and CORTEX. Through the example of BioSTL (including BioGenerator), the region has experience and success focusing entrepreneurial support through a venture development organization (VDO) that provides capital and expert assistance, shares related resources, promotes bioscience sector entrepreneurship, and connects and promotes sector opportunities across multiple providers of specialized resources. Events such as the Ag Innovation Showcase, a joint effort of the BRDG Park at the Danforth Plant Science Center and the Larta Institute, facilitate dialogue and deal flow between agriculture industry leaders, emerging innovators and investors in ag-bio, renewable energy, sustainable materials, food production, animal health, and farming technologies from 11 countries. The tech sector benefits from a rapidly growing list of investment and expert resources, and the recent launch of AccelerateSTL.org should help entrepreneurs and others navigate available resources more efficiently and effectively. The sector nevertheless lacks the concentration and magnitude of dedicated resources available in the biosciences sector, and suffers from a gap in investment capital for Incubating to early Demonstrating phase opportunities (investments between $250,000 and $500,000). Across all sectors, the region benefits from the presence of Washington University and St. Louis University, both attractors of substantial research funding and active supporters of entrepreneurship. In 2012, St. Louis University attracted $51 million in research funding and actively supported entrepreneurship and entrepreneurial education through the St. Louis University Entrepreneurship Center. Washington University attracted $620 million in research funding and supported entrepreneurship and entrepreneurial education through the Skandalaris Center for Entrepreneurial Studies. In addition to BJC HealthCare and the St. Louis Life Sciences Project, Washington University was also one of the three founding funders of BioSTL.

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Across all sectors, although to a lesser extent in the Biosciences sector, the ecosystem is burdened by the following critical gaps in the resources available to support entrepreneurs: o Capital. There is a capital gap between: i) the Imagining phase grants and investments provided by Arch Grants and Capital Innovators, and ii) the late Demonstrating and Market Entry phase, for-profit investments provided by the angel networks (e.g. Arch Angels, Billiken Angels and FinServe Angels) and Cultivation Capital. In the bioscience sector, BioSTL fills this gap. Expert Services. The region has two strong mentoring programs (ITEN and IVMS), but is only beginning to augment these programs with paid EIRs. ITEN recently received funding from the MTC to add three paid EIRs in 20013, one per quarter beginning in Q2. Since fall 2010, financial support for EIRs also has been available through the Helix Fund; both BioGenerator and Nidus have received grants through the Helix Fund for their programs. VDOs and investment funds that service Imagining, Incubating and Demonstrating phase companies often supplement their volunteer assistance with paid EIRs, especially for their most promising portfolio companies. Given the substantial flow of Imagining and Incubating phase opportunities across all sectors, but especially in biosciences and tech, the region should continue to look for opportunities to use paid EIRs to accelerate the progress of its most promising opportunities. Accelerator Graduates. Regional entrepreneurs and investors agree that the increased availability of grants through programs, such as Arch Grants, and the combination of Imagining phase investment capital and related assistance provided by Capital Innovators has increased tech sector deal flow. The region is likely to face significant challenges securing follow-on funding for these deals because of the rapid proliferation of accelerators nationally and the scarcity of institutional financing and venture capital for rounds of $1 million and greater. 13 Regional leaders should strongly consider the impact of this gap on the deal flow and momentum generated in the last two years.

Outside the biosciences and tech sectors, the available resources (capital, facilities and expert assistance) are not as abundant, diverse and integrated. In the absence of a VDO, such as BioSTL, or the array of resources focused on the tech sector, the number of opportunities in sectors such as agriculture, energy and advanced manufacturing remains uncertain. Given the St. Louis regions historic strengths in these sectors, the potential for significant deal flow and value merits the commitment of additional efforts and resources. In addition to the capital gap described above (between Imagining phase and late Demonstrating phase opportunities), the region has little early stage or Series A venture capital. More specifically, there are very few venture funds with currently available capital that are capable of leading Series A investments and attracting out-of-region investors due to their investment syndicates (see Appendix C on St. Louis deal flow for additional information).

13

http://mobile.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop

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The regions entrepreneurial ecosystem lacks certain enabling functionality, resources and infrastructure critical to maximizing the impact of currently available resources. The following capabilities help ensure that entrepreneurs find needed resources as quickly and efficiently as possible, and provide leaders with the information they need to fill gaps, capture opportunities and ensure the availability of resources over the time period necessary to achieve the desired transformation of the regional economy. The following is a list of the missing capabilities, resources and infrastructure of which the St. Louis ecosystem could benefit. o Region-wide communications and marketing. In the context of promoting the region as a fertile environment for entrepreneurs, investors, and entrepreneurship, the regions current efforts are fragmented at best. Commonly used deal intake and CRM system. St. Louis has no common intake system or customer relationship management (CRM) system to ensure that entrepreneurs are quickly and productively linked to the resources they need. This limitation results in unreliable data, missed opportunities and an uncertain and confusing path between entrepreneurs and the resources they need. Consolidated metrics collection and reporting system. The region lacks consistent terminology and a commonly used system to measure entrepreneurial performance and impact. Most individual organizations provide some measure of their own accomplishments, but no mechanism exists to: i) collect, validate and analyze process and outcome metrics on a consistent basis for the overall region; ii) accurately determine regional deal flow by capturing all relevant opportunities and reconciling duplications; and iii) consolidate this information into a useful tool for promoting the region and assessing resource needs and opportunities. Talent attraction and retention. The region has only recently begun to recognize the importance of developing specific programs to address the talent challenges facing startup companies. Similar to other Midwest economies, the region lacks a sufficient number of entrepreneurs with actual experience building and leading successful startup companies. The lack of experienced C-level and senior talent continues to inhibit the growth and success of young companies. Although the region has several outstanding entrepreneurial educational programs for students, these do not address the near-term need for experienced senior-level talent. Inclusion of minority and women entrepreneurs. St. Louis has no organized initiatives to ensure that all of the resources available to help high potential startups include or reach minority and women entrepreneurs. As is the case in most regions across the U.S., the region is not effectively reaching or leveraging the entrepreneurial talent in these disconnected communities in a meaningful, consistent and sustained manner. Efficient and productive matching of entrepreneurs to required resources. The region lacks a database and related system to efficiently and productively match entrepreneurs with the resources they need. AccelerateSTL.org should help with this challenge, although the region would benefit from continuing to enhance this capability.

The factors described above served as a starting point for the Working Groups. In selecting opportunities to accelerate the development of the regions entrepreneurial economy, the Working Groups and other leaders should continue to take into account the potential benefits associated
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with increasing the engagement of the regions colleges and universities. These institutions have been and can continue to serve as catalysts and drivers of successful regional economic development efforts focused on high potential entrepreneurship. Across the country, many innovative and entrepreneurial startups have emerged from faculty-driven research and development programs, particularly in the field of medicine, science, technology, engineering, and mathematics. Many educational institutions around the country provide services and financial incentives to enhance the commercialization of appropriate discoveries. Graduate training programs involved in these research and development efforts have also yielded promising entrepreneurs and companies. During the last few years, a rising number of undergraduates have engaged in entrepreneurial events, particularly in the field of information technology. In recognition of these opportunities, many campuses have established special centers of entrepreneurship. A widely diverse campus population, including immigrants and minorities, contributes to and benefits from this environment. Colleges and universities are also uniquely positioned to accelerate the creation of a productive entrepreneurial economy by attracting gifted faculty prospects, undergraduates and graduate students, and then supporting their entrepreneurial inclinations and efforts. Few other regional institutions have a comparable potential to attract, retain or convene the talent required to accelerate the development of the regional entrepreneurial economy. Universities are also the sole educators of the specialized business and legal professionals necessary to help promising ideas become successful companies. Academic institutions can also bring much needed leadership and financial resources to the effort. Their trustees represent a unique combination of academic and community leaders. These leaders collaborate across the traditional boundaries that often separate academia and business. Although universities occasionally establish venture investment funds within their endowments, their primary value to the entrepreneurial economy flows from their core missionthe creation and delivery of supportive academic programs and the resultant change in the regions entrepreneurial capacity and culture. There is abundant evidence that universities and colleges are essential components of the entrepreneurial ecosystems. Regions exhibiting successful entrepreneurial ecosystems have in common the presence of more than one institution that exhibits the qualities described above. These included Northern California (Berkeley, Stanford and UCSF); Southern California (Scripps, Salk, UCSD and UCI); eastern North Carolina (Duke, UNC and NC State); and Cambridge (Harvard and MIT). It is important to emphasize, however, that established universities with global brands are not the only sources of entrepreneurial talent and innovation. Increasingly, community colleges are hot spots for entrepreneurial activity. As an example, Lorain County Community College located in Elyria, Ohio, has established a unique combination of resources in support of entrepreneurship. These resources include an incubator14, a fund that provides capital to early stage technology-based businesses15, the Blackstone LaunchPad program16, supporting academic programs and direct involvement of faculty and students.

www.glideit.org www.innovationfundneohio.com 16 www.lorainccc.edu/blackstone

14 15

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SUCCESS DRIVERS
Through its JumpStart America initiative, JumpStart helps regions, communities, and cities create, reignite or accelerate their entrepreneurial economies to generate economic outcomes such as job growth, wealth creation and increased economic activity. Although interested in JumpStarts experience as a VDO, the EDA was equally interested in JumpStarts experience bringing together resources and productive partnerships to create significant leverage, accelerate change and generate a collective impact beyond the reach of any single organization. In other words, the EDA wanted JumpStart to work with regional leaders to help them develop approaches designed to generate comparable impact in context of the regions opportunities, resources and leadership. Over the last eight years in Northeast Ohio and during the last three years in the course of working on projects to develop and implement plans to support entrepreneurship in 11 U.S. regions, JumpStart America has refined its process and developed approaches to address the following questions that are consistently raised by leaders in Northeast Ohio and elsewhere, including St. Louis: 1. How do we mobilize a leadership group to do something that has proven impossible in past efforts? 2. How can we break through the paralysis caused by zealous advocacy for existing programs among the dozens or hundreds of leaders, individuals and organizations in a region? 3. How can we help regional participants suspend their belief in a zero sum game and consider the possibility that the right combination of efforts could attract new resources from in-region and out-ofregion sources? 4. How do we encourage sufficient discussion and input, yet not let the effort stall because the discussion never results in a true agreement and action plan? 5. How do we overcome the natural human tendency to resist change, even when facts demonstrate that change is needed? 6. How, contrary to most regions past experiences, can we turn a planning exercise into funded, high impact programs and resources? Despite differences in project scope or tactics from region to region, JumpStart strongly believes that the answers to these questions stem from the following Success Drivers. These Success Drivers serve as the backbone for JumpStarts success in Northeast Ohio and the early successes of the newly formed efforts in other regions. When considering any plan to fill one or more of the high potential gaps in an entrepreneurial economy, JumpStart analyzes the plan taking into account four primary elements. Specifically, JumpStart asks if the plan and precise mechanism of implementation is likely to be: i) Catalytic, ii) Inclusive, iii) Accountable and iv) Sustainable. JumpStart uses these Success Drivers to help guide planning efforts. Regardless of the scope, organization and governance of the model ultimately selected for implementation in St. Louis, JumpStart strongly recommends that regional leaders consider the Success Drivers in developing the specific mechanisms to address regional gaps and opportunities. The following is a brief explanation of each of the Success Drivers:

Catalytic. To be catalytic, the approach should have a high probability of generating an impact
beyond the results of the individual investment or program. In attempting to make this judgment, it is helpful to ask: Is the approach likely to generate excitement and new energy, increase participation and bring new sources of support to entrepreneurship? Will the approach shake up the status quo?
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In JumpStarts experience, the desired catalytic impact flows from two characteristics of the model: o o Leadership: new, dynamic and entrepreneurial leadership Independence: independent decision making in the resource allocation, but connected to other regional resource providers through knowledge sharing, shared back office functions, a commonly understood terminology and common metrics

Inclusive. In context of providing resources to support high potential entrepreneurship, most

regions only serve a fraction of the available or potential entrepreneurial talent. Women, minority, veteran, and immigrant entrepreneurs are not significant beneficiaries of these resources and the region does not benefit from the opportunities generated by these entrepreneurs. In attempting to determine if an approach is inclusive, it is helpful to ask: Is the effort to reach women and minority entrepreneurs as professional, consistent and determined as comparable efforts to reach mainstream entrepreneurs within the targeted sectors?

Accountable. Whether an approach or plan has the desired level of accountability depends on two
characteristics of the plan or approach: ownership and measurement. When developing a plan to deliver new or enhanced resources to entrepreneurs, the determination of ownership focuses on the core services, expertise or capital that will be provided to entrepreneurs. In the case of JumpStart, these Core Resources are: i) investment capital and ii) intensive expert entrepreneurial assistance. Ideally, the plan will enable the resource provider to own or take responsibility for the commitment of the Core Resources. To make this determination, it is important to ask the following questions: Does the delivery mechanism increase or decrease ownership in the results? Does the delivery mechanism increase or decrease the likelihood of finger pointing if the results are unfavorable? The answers to these questions should help determine whether the plan or approach delivers the desired level of ownership. o This is especially important because of the second characteristic, measurement. Not all plans, programs or investments will produce the desired results. A strong commitment to metrics and measurement is critical to the efficient and effective deployment of scarce resources in support of entrepreneurship. Before implementing a plan to deploy new resources, it is important to ask the following questions: How will we measure success? Prior to achieving the ultimate measures of success, what metrics will we use to determine if the program is on the right path? Do we have an efficient and effective mechanism to collect and evaluate the data? The goal is to know sooner rather than later (after all of the money is spent) whether the program is on track to generate the desired impact. As with any entrepreneurial effort, if a win cannot be achieved, the next best thing is a fast, efficient and informative failure. Only by combining ownership and measurement can the plan achieve the desired level of accountability.

Sustainable. The transformation of a regional economy does not happen overnight. Success
depends on a long term commitment of resources, and in most cases, no funder will commit the amounts necessary over the period required to achieve the transformation. Sustainability, similar to
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the ongoing need for a business to continue to generate revenues and profits, is an ongoing, daily effort. Success depends on a combination of the three Success Drivers described above. It also depends on executionthe ability to develop a process to continuously identify and engage new support resources. Although the specific strategies depend on nuances of the regional environments, all plans must take into account the need for a continuous, well-executed strategy to attract resources. Given the need for talented and capable development professionals, and the associated cost for this effort, fundraising and development is often best implemented as a shared resource across multiple organizations.

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RECOMMENDATIONS
Based on St. Louis deal flow, the Situational Analysis, and the Success Drivers, JumpStart recommends regional leaders focus their planning efforts on the following opportunities to accelerate the pace and impact of investments to create a thriving entrepreneurial economy:

1. Fill Pre-seed Investment Gap. St. Louis has an outstanding array of investment programs to provide the
first $50,000 for Imagining phase startups. The region also has several existing angel networks and funds that provide investment capital in the range of $250,000 to $500,000 for companies in the late Demonstrating and early Market Entry phases of commercialization. The gap in St. Louis begins in the late Imagining phase and extends through the early Demonstrating phase of commercialization, the very heart of the Valley of Death. In the Biosciences sector, BioGenerator addresses this gap through its Pre-seed Fund and expert assistance. In the Tech and other sectors, the gap has the potential to block the progress of otherwise promising companies.

Companies in these phases of commercialization often lack the commercial and technical proof required by for-profit investors. In addition to the risk profile of these companies, they frequently require substantially more expert assistance and guidance than a for-profit fund wishes or can afford to invest. For these reasons, quality companies often lack the resources they need to advance and succeed. As a solution, JumpStart suggests the region consider an approach similar in structure to a combination of the BioGenerator Seed Fund and services. This combination represents the core resources of a venture

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development organization and has proven effective in Pittsburgh, Cleveland, Southeast Michigan and elsewhere. The amount of each investment and the number of investments will depend on the sector(s) and phase(s) of commercialization targeted by the venture development evergreen fund. Ideally, the investment should be sufficient in size to enable recipients to develop prototypes and market ready products, conduct advanced market research, complete business plan preparation, protect intellectual property, address startup manufacturing and distribution, and secure talent. The goal is to help these companies become quality investments for angel, venture and other for-profit investors. Because the gap exists across multiple sectors, JumpStart recommends the evergreen fund consider all sectors rather than restricting investments to a particular sector. JumpStart is not in a position to recommend the specific organization that should deliver the necessary resources. JumpStart suggests, however, that the regional leaders strongly consider the Success Drivers and also build on the substantial experience captured via BioGenerator and other similar efforts.

2. Provide Additional Paid Expert Assistance. BioSTL and BioGenerator employ five EIRs and are currently
seeking to fill additional positions. In the tech sector, ITEN has recently received funding from the MTC to add three paid EIRs in 2013. Capital Innovators and Cultivation Capital also provide EIRs to work with their portfolio investment companies. Nidus Partners provides EIRs to work with specific technological opportunities. Historically, the region has provided expert assistance primarily through a well-developed set of mentors and mentoring teams. Recently, these investors and resource providers have turned to paid EIRs (full-time or part-time employees or contractors) to increase the intensity and consistency of the services and advice delivered to their most promising portfolio companies and clients. For the most part, the EIRs have recent experience building startup companies in specific sectors of interest. EIRs working to help startups secure investment capital often use process steps similar to those illustrated in Figure 3 below to identify strong candidates for investment. If a startup does not meet a funds investment criteria, the EIR will refer the startup to service providers that can provide the appropriate assistance. Figure 3, Investment Screening Process

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As noted in #1 above, BioGenerator provides EIR assistance. In addressing the investment gap described in #1 above, regional leaders should strongly consider adding to the number of paid EIRs available to help companies maximize the impact of the $250,000-$500,000 investments made in Incubating and early Demonstrating phase companies.

3. Test the Market for Advanced Manufacturing, Advanced Energy, Clean Tech and Agricultural Startups.
Validation funding has proven effective in St. Louis through the Arch Grants, Spark Funds and several business plan competitions. These existing programs tend to focus on tech and bioscience companies and have resulted in an overall increase in deal flow from these sectors. Validation funding is not generally available in other sectors such as agriculture, advanced manufacturing, advanced energy, green technologies, advanced materials, and instruments-controls-electronics. Given the regions historical strengths in these sectors and some evidence of deal flow, the regional entrepreneurial economy would benefit from targeting these sectors with validation funding for Imagining phase opportunities. Similar to Arch Grants, the validation funds would be in the form of grants, generally up to $50,000. In this area and others, where the gap or opportunity is insufficiently established to support a major investment, JumpStart recommends regional leaders test the opportunities using well-structured, executed and measured pilots implemented whenever possible through existing organizations. To ensure the success of the pilots (i.e. validating the presence or absence of the new opportunity), the leaders should supplement the resources of the implementing organization to ensure the organization will be able to: i) market the pilot effectively and inclusively; ii) apply the required sector or technology expertise; and iii) identify and measure the process and outcome metrics necessary to determine viability of the opportunity. Pilots can only inform future action if based on well-designed, implemented and analyzed measurement systems (see #4 and #5 below).

4. Establish a Common Customer Relationship Management (CRM) System. As evidenced by the need to
conduct a special study to identify the number of startup companies that applied for or received assistance in the region, the region lacks a coordinated system to track deal flow and resource delivery. Most of the organizations in St. Louis use their own intake systems or processes to track requests for assistance, the resources delivered and the resulting impact. Some use online tools and others use manual activity logs. The various systems do not rely on common terminologies or methodologies and do not communicate with each other. Neither the organizations themselves nor their funders have ready access to a listing or analysis of regional deal flow, information regarding investments of time or money made by others, or a wellunderstood mechanism to track results. It is important that the region create a mechanism to ensure entrepreneurs find their way to the optimal resource and that entrepreneurs referred to another resource provider receive the attention they deserve. In the absence of a common intake system, entrepreneurs must often enter their information over and over again; a time-consuming and discouraging process for entrepreneurs who have too many demands on their time already. A shared deal intake and CRM system can produce enormous benefits, including increases in overall efficiency, customer service, productivity and collaboration. The system also collects the information required to apply process and outcome metrics to determine sooner rather than later whether a particular service, program or investment is on track to generate the desired results. The information collected and generated by the system will help establish: i) a solid commitment to measurement and accountability, and ii) help qualitatively and quantitatively tell a collective story about the impact the region is achieving. Both of these attributes are highly valued by funders when considering initial and follow-on investments in the entrepreneurial ecosystem.
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Yet developing, deploying and using a shared intake and CRM system requires leadership, trust, resources and an ongoing commitment to enter and validate information. Typical objections to the deployment of a shared system include: Loss of control over a proprietary asset (we already collected this data and it is one of our competitive differentiators) Confidentiality requirements (my clients and portfolio companies will not permit it) Time and expense (it takes too long for my staff to enter this information) Poaching (theythe system owner/administrator or someone else in the networkwill take all of the good deals before they appear on the system)

Although it takes work, trust and sometimes, compromise, the combination of a quality system and process can address each of these concerns. In the end, the benefits far outweigh the costs. BioSTL has explored the various systems and technologies available to fulfill these needs for participants in the biosciences sector. The St. Louis Regional Chamber has engaged in discussions with JumpStart to secure, configure and manage a deal intake and CRM system to be made available to others in the region.

5. Establish a Metrics and Measurement System. St. Louis should commit itself to measuring its
performance against a well-defined set of metrics that emphasize sector and phase specific outcomes rather than input or effort. For companies in the Valley of Death at the time they receive an investment or a meaningful level of expert services, the principal near-term outcome metric is follow-on funding (ideally from sources that validate the commercial viability of the company). Since most will not have generated revenues at the time of the investment, revenue is often another meaningful outcome metric. For companies already generating revenue and in the late Demonstrating or Market Entry phases of commercialization, the primary metrics are more traditionalgrowth of revenues and profits, jobs, and other indicators of business and economic success. As noted in previous sections, some of the more important metrics help determine early in the program or investment cycle whether the company is on track to achieve the desired results. The metrics must be tailored to the unique aspects and mission of the individual program or fund. The region should not limit measurement to programs providing direct services to entrepreneurs. The region should also measure the effectiveness and efficiency of operating programs. The following are examples of operating program metrics: Marketing and outreach programsresponse rates, attendance, traffic, etc. Investment programsnumber of companies assisted, number of due diligence analyses performed, time required to close an investment, investments made, follow-on-funding, etc. Organizations employing EIRs or mentorsnumber of companies assisted, the hours of assistance delivered, the distribution of hours by client, and the distribution of companies assisted by each type of expert assistance provider, follow-on funding, etc. Development (fundraising)number of contacts made per week, the number of first-time contributors, and total dollars raised.

Measurement should become an expected and even welcomed requirement or condition for participation in the entrepreneurial ecosystem.

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It may not be reasonable to expect widespread early endorsement and participation in an integrated CRM and measurement system without strong support from the funders of the various entrepreneurial support organizations. Coordinated action by the funders can accelerate the adoption of the systems, which will provide the information the funders need to direct scarce resources to the most significant opportunities and the most productive interventions. The integration of CRM and measurement in Northeast Ohio is one of the most comprehensive examples of an integrated entrepreneurship support CRM and metrics system.

6. Initiate and Intensify Inclusion Programming and Practices. The minority population in St. Louis is 23.1
percent, well above the Missouri and Illinois state averages and just slightly less than the U.S. AfricanAmericans are almost 80 percent of the minority population. More than 56 percent of the residents of St. Louis City are classified as minorities and the African-American population is more than 49 percent of the Citys overall population. About 21 percent of all businesses in the City of St. Louis are black-owned compared to just 4.9 percent in Missouri and 7.1 percent in the U.S. The presence of Washington University, St. Louis University, and other research and medical centers attract international students. However, the percentages of businesses owned by Asians and Hispanics are less than the national averages, although much higher than in Missouri. The minority and international populations in St. Louis offer opportunities to involve these groups in potential high growth entrepreneurial endeavors. However, the region has experienced limited deal flow from minority, women, veteran and immigrant entrepreneurs. With regard to immigration, the William T. Kemper Foundation funded The Economic Impact of Immigration on St. Louis report in 2012 by Jack Strauss PhD, director of the Simon Center for Regional Forecasting at Saint Louis University. In June 2012, the region unveiled the Strauss study and formed the St. Louis Regional Immigration & Innovation Steering Committee. The 20-member Steering Committee is a diverse mix of regional business, civic, economic development and academic leaders. The Committee is analyzing the effects of immigration on the St. Louis region and building support for local recommendations to attract, support and ultimately retain new citizens to spur growth and secure the economic future of St. Louis. Despite the recent focus on immigration, the regional resources supporting high potential startups do not regularly and intensively target minority, female, veteran and immigrant entrepreneurs. To ensure the region taps into its entire pool of entrepreneurial talent, the region should integrate inclusion programming and practices into all of its efforts to support high potential entrepreneurship. To do this, the region should consider taking the following actions: Identify, engage with and build connections to diverse entrepreneurs who can benefit from the resources available to support high potential entrepreneurship. These activities must be welldefined, professionally executed and continuous. Periods of intense efforts followed by periods of inactivity will not produce the desired results. Publicly communicate progress and success stories to targeted entrepreneurs and disconnected communities, as well as to the entrepreneurial community in general. Ensure the teams of leaders, advisors and planners are diverse and include solid representation from the targeted communities. Operate inclusively in all business practices, particularly in hiring, board participation, marketing, assistance and investment.

The following is a representative list of regional organizations that could help identify entrepreneurs, gain access to new contacts and communication channels, and amplify messaging:
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Justine Petersen Housing and Reinvestment Corporation Minority Supplier Development Council Veterans Business Resource Center Women Entrepreneurs of St. Louis (WEST) Hispanic Chamber of Commerce Center for Acceleration of African American Businesses Association of Community Reinvestment Act Banks St. Louis Asian American Chamber of Commerce International Institute of Metropolitan St. Louis World Trade Center St. Louis

The St. Louis Regional Chamber recently made a commitment to diversity by adding a vice president focused on minority and diversity programs. This investment could serve as a lever to accelerate the development and implementation of the inclusive practices and programming outlined above. In Northeast Ohio, JumpStart and its funders have invested in connecting minority entrepreneurs to the resources supporting high potential entrepreneurship. As leaders in the St. Louis region understand, to fill the gaps and capture the opportunities, investment is required, and inclusion is no exception. Words will not be sufficient to affect change. Each of the following actions requires a consistent, intensive and professional commitment of resources and related programming: Identifying, contacting and building working relationships with organizations currently serving minority entrepreneurs; Identifying minority entrepreneurs; Vetting the minority owned/operated companies and opportunities and linking them to resources they need; Investing in and nurturing the best companies; and Attracting talent and capital to the best companies.

As a first step, the effort requires a core group of dedicated professionalspersons who understand high potential entrepreneurship, the resources supporting high potential entrepreneurship, and the needs and concerns of the disengaged community (e.g. minorities, women, veterans, immigrants, etc.). Armed initially with funds to market, educate, provide limited assistance and measure the results, these persons would essentially run a pilot (see #3 above) to establish the viability and needs of the market. With this information, the region would then be in a position to add high impact investment and program resources (e.g. investment capital, first client programs, talent attraction programs, etc.). Although it is still a work in progress, this approach in Northeast Ohio has led to more than $50 million in follow-on funding to minority, female and inner city entrepreneurs.

7. Implement a Coordinated Marketing and Communications Program. St. Louis has a relatively large and
complex entrepreneurial ecosystem. In the biosciences sector, the establishment of BioSTL has helped create an identity and focal point for the various activities and resources supporting bioscience entrepreneurship. While BioSTL does not control all of these resources, it provides messaging, information and a market presence that facilitates navigation by entrepreneurs and others participating in the bioscience entrepreneurial economy. In the tech and other sectors, the picture is not as clear. The tech entrepreneurial ecosystem has evolved rapidly over the last two years. Although the results are impressive, the existing resource providers, networks and processes are still being established. As a result, the tech
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entrepreneurial ecosystem is not as well understood by entrepreneurs, investors or service providers. In other words, the location of the front door is not as obvious. The recent unveiling of AccelerateSTL.org should help, but it is only one piece of the marketing and communication need. The region also desperately needs to integrate messaging across the organizations within the entrepreneurial ecosystem to be able to: i) facilitate in-region and out-of-region communications; ii) engage a larger segment of the population in the entrepreneurial economy; iii) secure financial support for the entrepreneurial support organizations and investors; and iv) secure follow-on investment capital and talent for the most promising regional startups. A strong, professionally run marketing and communications program should focus on entrepreneurs, ecosystem members and funders of the ecosystem. Objectives of the marketing and communications function are: Expand awareness of entrepreneurial opportunities and support in the St. Louis region among regional and national audiences; Increase the participation of entrepreneurs, particularly those who have not historically engaged with the regions ecosystem; Create a positive service experience for entrepreneurs; and Promote activity and successes, both regionally and nationally.

8. Implement a Talent Program. In the St. Louis region, the availability of entrepreneurial talent is a
significant challenge in part because of relatively slow population growth, the legacy of large company economic dominance, and the scarcity of successful exits that bring recognition and visibility to regional entrepreneurship. As the pipeline of technology-based, high potential startups increases, the demand and competition for talent will also increase. Technology-based startups require high levels of product, technology and industry knowledge and experience. Even in the well-developed biosciences sector, the lack of experienced startup managers and persons with specialized skills, such as FDA compliance and clinical trial management, is becoming a constraint on success. Similarly, in the tech sector, experienced entrepreneurs are in short supply, as are individuals with select coding skills. While both Washington University and St. Louis University have strong entrepreneurial programs, students coming from these programs need experience to balance the tools obtained from academic programs. The region is already taking advantage of the various talent programs provided by Washington University and St. Louis University. Collaborative efforts among participants in the entrepreneurial economy are attempting to link graduates of these programs to startup companies. These and other efforts, including engagement with organizations such as the Veterans Business Resource Center, the Hispanic Chamber of Commerce, Justine Petersen, and the Minority Supplier Development Council have long-term potential to generate additional talent for startup ventures, but they are unlikely to address the immediate need. Consistent with one of the recommendations of the Economic, Social and Political Climate Working Group, regional leaders should consider the creation of a dedicated effort to secure the talent needed by high potential startups. The effort or program should, at a minimum: Help high potential startups understand their talent needs; Provide recruiting assistance through networking and direct contact; and

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Provide assistance in evaluating and selecting talent that is qualified and suitable for the businesses that receive direct investments of expert services or capital from the regional entrepreneurial ecosystem.

JumpStart currently runs a talent program to support the clients and portfolio companies of the JumpStart Entrepreneurial Network (a formal network of entrepreneurial resource providers and other ecosystem players in Northeast Ohio). The talent program includes two full-time recruiters and a vice president (0.5 FTE). In FY2012, the talent program placed 115 senior executives and employees with specialized talent into 38 companies. The talent program currently has 73 open positions listed, and is actively sourcing on eight to 10 at any given time. JumpStarts approach is founded on eight years of experience and research focused on identifying persons with the requisite technical skills who possess the personalities and related attributes required to succeed in a startup environment. JumpStarts talent program partners with investors to evaluate the talent needs of individual startups. Through education and mentoring, the talent program also works to embed a culture of talent selection and development into the regional entrepreneurial ecosystem.

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WORKING GROUP ACTIONS AND PLANNING

General Guidance
In creating the REI Committee and its Working Groups, the regional leaders chose to assume primary responsibility for identifying the recommendations likely to generate the greatest impact, and determining the precise mechanisms to convert the listed recommendations into new or enhanced resources available to support entrepreneurs. Success will continue to depend on leadershipspecifically, the ability of the leaders of the various organizations to work together to generate a collective impact greater than any of the organizations could generate on its own. Regional leaders must find a way to address the six questions listed at the beginning of the Success Drivers section. In approaching this challenge, questions 2, 3 and 4 are especially relevant and worth repeating: 2. How can we break through the paralysis caused by zealous advocacy for existing programs among the dozens or hundreds of leaders, individuals and organizations in a region? 3. How can we help regional participants suspend their belief in a zero sum game and consider the possibility that the right combination of efforts could attract new resources from in-region and out-ofregion sources? 4. How do we encourage sufficient discussion and input, yet not let the effort stall because the discussion never results in a true agreement and action plan? Although there are no simple answers to these questions, the Success Drivers provide some guidance. The regions leaders have been clear in their visionmake St. Louis a Top 10 region for entrepreneurship. Incremental change and modest additions to existing resources are unlikely to produce this result.

Transformative vs. Incremental Actions

In entrepreneurship and in transformational economic development, the first step often involves a leap of faith. The entrepreneur identifies a problem and introduces a disruptive solution. The solution is imperfect, the future is uncertain, but the intervention brings attention, attracts resources and accelerates change. The organizers of T-REx did not wait until they raised 10 years of operating capital before getting started. The forprofit investors behind Capital Innovators did not wait until the region replenished its dwindling stores of angel and venture capital before getting started. They engaged actively, aggressively and productively with Imagining and Incubating phase companies. In each case, these efforts brought new energy, expertise and capital into the entrepreneurial economy. T-REx and Capital Innovators are only two examples of the numerous leaps of faith made by regional leaders who decided to implement a disruptive solution. Consistent with these perspectives, actions and results, the regional leaders should strongly consider the following as they finalize the eventual plan and launch implementation: 1. Is our plan likely to bring excitement, new energy, new participation, new funding and transformation change to the entrepreneurial economy, or is it simply a well-reasoned approach to incrementing existing resources? (Catalytic)

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2. Is the plan inclusive in its design and implementation, tapping into 100 percent of the regions entrepreneurial creativity and talent? (Inclusive) 3. Does the plan enable us to monitor progress and make course corrections if the market or results are not consistent with expectations, or in the words of entrepreneurship, does the plan include a credible mechanism to test, measure and pivot if necessary? (AccountabilityOwnership and Measurement) 4. Does the plan include resources and mechanisms to convert early successes into an expanded base of support? (Sustainability)

Core Questions
In response to JumpStarts presentation of preliminary findings and recommendations in late 2012, members of the Executive Committee, the Advisory Group and now the REI Committee raised the following questions, many of which are still to be answered: 1. Given the existing entrepreneurial ecosystem, should new functions and initiatives be delivered by existing organizations, a new organization or a collaboration of organizations? 2. How much of the capital gap and entrepreneurial support needs should be filled by functions recommended in the Report? 3. Are there additional sources of significant and sustainable funding to implement new functions and initiatives? 4. How does St. Louis address the needs of other forms of entrepreneurship other than the potential high growth focus of the Report? 5. Given the momentum evident within the St. Louis ecosystem, should the region allow itself time to identify and implement new programs in an evolutionary, organic manner rather than pursue a focused fundraising and implementation strategy? The Working Groups addressed these and other questions by breaking them down into four categories: i) raising capital to support investment and assistance, ii) developing an entrepreneurial network, iii) shaping the social, economic and political climate, and iv) developing and executing a marketing and public relations plan. In the process, the Working Groups directly and indirectly validated the majority of the primary recommendations listed in the preceding section of this Report.

Capital Formation Working Group

The most fundamental set of recommendations came from the Capital Formation Working Group. This Working Group focused on the capital needs of the entrepreneurial ecosystem in context of the regional vision of becoming a Top 10 region for entrepreneurship. The Working Group quickly reached the conclusion that the region needed to raise $100 million to support the various efforts necessary to achieve the vision. Although the work of the Group continues, the Group shared preliminary conclusions and recommendations in a number of REI Committee meetings. The recommendations validate and are consistent with the recommendations listed in this Report. The Group has not yet reduced its recommendations to specific
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operating plans and implementation mechanisms. The following is a list of the major elements of the Working Groups conclusions and recommendations: Create a new, nonprofit fund (the Fund) that will raise capital for expert assistance and investment. The Fund will not deliver these resources directly to entrepreneurs. The Fund will disburse monies to investment funds and entrepreneurial support organizations that will, in turn, provide the resources to entrepreneurs. The Fund will be flexible in its plans and allocations of resources to ensure the highest possible impact. Create or identify organizations that will deliver services and investment capital to entrepreneurs and startup companies in the biosciences, tech, and agriculture/energy/manufacturing (AEM) sectors. Launch specialized programs, services and investment funds to be managed by or in partnership with vertical support organizations such as BioSTL, ITEN and Nidus Partners Ensure capital is available to meet the demand for existing funds and to fill gaps in the available funding. The Fund would provide capital for a series of investment initiatives including Imagining phase validation funds, Incubating/Demonstrating phase evergreen funds, Demonstrating/Market Entry phase venture capital, and co-investment funds. The goal is to fill gaps in the investment ecosystem and leverage and provide incentives to existing investment funds to continue investing in regional opportunities (see #1 and #2 under Recommendations) Develop and implement an effective and efficient suite of backbone programs that support all entrepreneurial activity in the region, including many of the activities highlighted in the Recommendations section of this Report. Examples include building and maintaining a communications portal, establishing a CRM system, designing and implementing a consistent metrics system, and providing an overall capability for reporting.

With $100 million to deploy, the Fund could exercise substantial influence over the structure and mechanisms for deploying resources to entrepreneurs. Without dictating day-to-day actions or programming, the Fund could accelerate collaborations and impact simply by implementing and holding recipients accountable to generate program, phase and resource specific metrics.

Network Working Group

The Network Working Group focused on strengthening the entrepreneurial ecosystem by building strong collaborations among existing organizations and any new initiatives created or emerging from the REI project. The Working Group emphasized the benefits of a collective impact approach that generated leverage and increased productivity by means of enhanced collaboration. The Group stressed the need for and benefits of regional leaders from key stakeholder organizations and groups engaging in a continuous process to develop and evolve a common agenda, shared concepts of success, and mutually reinforcing activities. Specific recommendations from this Working Group included: Maintain the broad-based REI Committee formed as part of the REI; Develop a shared intake and deal flow system (see #4 and #5 under Recommendations);
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Create the data and reporting tools for communicating the total impact of entrepreneurship within the region; Monitor inquiries and deal flow to identify emerging sectors that require additional dedicated resources; Support existing networking, promotional and education events and create new venues for bringing entrepreneurs together with service providers and investors; Focus on outreach to create a more inclusive entrepreneurial ecosystem and ensure that all demographic groups have the opportunity to participate in entrepreneurial activities (see #6 under Recommendations); Recognize the importance of high quality services and create a system to capture feedback from entrepreneurs about their entrepreneurial experience in the St. Louis region (see #7 under Recommendations); Match entrepreneurs and their startup companies with established businesses within St. Louis through a first customer program (see Marketing and Public Relations Working Group below); Establish a best practices exchange among service providers; Establish an ambassador program to recruit and welcome new entrepreneurs and startups to the region; Develop strategies to support other kinds of entrepreneurs other than high potential startups; and Fully engage the regions robust university community in the entrepreneurial ecosystem.

Marketing and Public Relations Working Group

The Marketing and Public Relations Working Group focused on the need for communications to promote regional entrepreneurial successes to audiences within and outside the region. Within the region, the goal is to increase the visibility of entrepreneurship and increase participation in the entrepreneurial ecosystem (e.g. new deals, new investors, new experts, new resource providers, etc.). Outside the region, the goal is to attract the talent and investment capital necessary to ensure the success of the re gions high potential companies. The Working Group identified almost a dozen recommendations to help the region achieve these goals. The Group stressed the need for a flexible and integrated plan that propels the region forward rather than independent plans promoting a single organization. Going forward, the planning effort should include marketing and communications specialists, the various stakeholder groups participating in or expected to participate in the entrepreneurial economyas with the other leadership and planning efforts, the group should be inclusive. As with the other Working Groups, the planning efforts of the Marketing and Public Relations Working Group continue to evolve. To date, the Working Group has generated the following specific recommendations: Support the launch and sustainability of AccelerateSTL.org, the regions new entrepreneurship website;

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Create an internal and external communication strategy and plan (see #7 under Recommendations); Develop processes and tools to capture stories about successful St. Louis high potential startups; Implement programs to publicize local success stories; Provide talking points for local economic development and entrepreneurship organizations to use as part of their routine communications and marketing efforts; Create a regional branding strategy that incorporates the successes and stories from all entrepreneurial support organizations and startup companies; Broaden the marketing and public relations activities to include internal innovation occurring at established regional companies, demonstrating a broad-based commitment to innovation; Develop a collaborative environment between the entrepreneurial community and local media who can help disseminate the stories, facts and results of regional entrepreneurship and create the needed buzz; Create award programs that will highlight successes; Develop a comprehensive base of information about the entrepreneurial resources within the region and how they work collaboratively to promote a strong ecosystem; and Identify and launch specific programs to highlight local entrepreneurship, such as a Try Local campaign to create business links between startups and more established companies.

Economic, Social and Political Climate Working Group

This Working Group tackled the long term challenge of creating a progressive social, economic and political climate backed by public policy that supports innovation and entrepreneurship as the foundation of the regions economic future. By necessity, this Groups recommendations are part of a long-term strategy. The successful implementation of the recommendations will require the involvement of the broad-based collaborative developed in the REI process. The approach is fundamentally similar to the collective impact recommendation of the Network Working Group. Beyond the REI Committee, the collaboration must include local and state governments, elected officials and regional philanthropic foundations. As with many of the other Working Group recommendations, the following recommendations are a work in process. As the recommendations of the other Working Groups become more specific, this Group will develop specific recommendations to support and sustain those efforts: Convene a process to adopt a common vision, goals and priorities among the various entrepreneurial ecosystem members; Maintain a policy and steering group to continuously focus on social, economic and political touch points and execute a well-planned advocacy program with local, state and national governments;

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Create a climate that promotes inclusion and diversity and builds an ecosystem where entrepreneurs of all types feel welcome and connected to critical support opportunities (see Inclusion Programming and #6 of Recommendations); Support the emergence of a creative class of diverse, resourceful individuals and attract critical talent to make the region an attractive destination for such individuals (see #8 under Recommendations); Educate the community on the realities of entrepreneurshiprisky but with significant pay-off potentialand foster a risk tolerant ecosystem where failure is embraced as an essential learning experience; and Support public policy initiatives that will increase the amount of investment capital supporting services within St. Louis, specifically MOSIRA and Technology Investment Tax Credits.

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MOVING FORWARD
The recommendations of the Working Groups and the recommendations generated in the course of the REI project are remarkably aligned. Moving forward, the Working Groups, with the help of other regional leaders, must now convert these recommendations into detailed operating plans, budgets and funding recommendations. As the region incorporates this Report and related recommendations into operating plans, leaders should keep in mind the regions goalto make St. Louis a Top 10 region for entrepreneurshipand continue to ask the four questions listed above in the Working Group Actions and Planning, General Guidance section. Consistent with the REI Committee process, leaders should: Maintain the broad-based community involvement that has characterized this planning process. Continue to involve individuals and organizations with complementary skills and experience. For example, although banks and other traditional lenders may not be able to provide capital to high potential startups, they have an in-depth knowledge of the regions companies that could be first clients for the startups. They also bring a deep understanding of the capital markets and the network of complementary resource providers. Determine whether to implement the recommendations of the Working Groups through one or more new organizations, or through existing organizations. Use this Report as guidance, but remain flexible. Practical considerations may require the leaders to prioritize the recommendations and implement some before others. Measured productive action should take precedence over continuous planning. Couple execution with clear measures of success and a commitment to sharing the results of programs and investments. Regional leaders should demand nothing less than excellence. Measurement of progress should be rigorous and leadership must be prepared to learn from and act on the evidence.

Ultimately, leadership must determine the magnitude of resources necessary to significantly impact the ecosystem. As proven by the rapid development of the tech entrepreneurial ecosystem over the last two years, even modest investments can generate a large and measurable impact. Entrepreneurial programs delivered by VDOs and other types of organizations around the country operate within budgets that range from $3 to 4 million a year, to a few like JumpStart that combine services and investment capital that range up to $10 million per year. The relative success of the fundraising efforts will, at least in the near term, drive leadership to prioritize the recommendations, establish budgets and identify those interventions likely to generate the greatest impact. The venture development organizations recommended by JumpStart in other regions had budgets ranging from $2 million to $4 million per year. These amounts were set primarily on the basis of fundraising constraints rather than market demand. In each case, however, these amounts were sufficient to generate a significant and measureable impact via direct investment, expert services, and functions representing several of the recommendations contained in the Recommendations section of this Report.

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St. Louis entrepreneurial leaders have embraced a goal of raising $100 million for deployment over five years to support entrepreneurial investment, expert assistance and many of the recommendations generated by the REI project and the Working Groups. If the region succeeds in raising this amount, they will also be able to structure the Fund to improve access to Series A venture capital for investment in regional opportunities. Regional leadership intends to retain the services of a fundraising consultant to assess the feasibility of raising this $100 million goal. The region is well-positioned to build on the successes of the last two years. With the creation of BioSTL and the development of a strong foundation for supporting and increasing volume of tech deal flow, the region has direct evidence that it does not have to settle for the status quo. To maintain this momentum, however, leadership must help existing stakeholders find a way to take the steps necessary to engage in the next level of collective impact and success.

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APPENDIX
Appendix A: Organizations Interviewed for the REI Planning Process
Organizations Interviewed for the REI Planning Process
Arch Grants Billiken Angels Network Justine Petersen Lindenwood University Duree Center for Entrepreneurship Missouri Department of Economic Development Missouri Enterprise Missouri Technology Corporation Missouri Venture Forum National Association of Women Business Owners Nidus Investment Partners Polsinelli Regional Growth Capital Regions Bank Rivers Edge Enterprise Center Service Corps of Retired Executives (SCORE), Southwestern IL Chapter Service Corps of Retired Executives (SCORE), St. Louis Chapter Small Business Administration (SBA) St. Charles County Economic Development Center St. Louis Arch Angels St. Louis Community College Emerson Center for Engineering and Manufacturing St. Louis County Economic Council St. Louis County Library St. Louis Development Corporation St. Louis Enterprise Centers St. Louis Minority Supplier Development Council St. Louis Regional Chamber St. Louis Regional Entrepreneur Educators St. Louis University Center for Entrepreneurship St. Louis University Office of Technology Management Stifel Financial/Vectis Funds

BioGenerator Bio-Research & Development Growth (BRDG) Park BioSTL Capital Innovators Center for Acceleration of African American Business (CAAAB) Center for Emerging Technologies CORTEX Cultivation Capital Donald Danforth Plant Science Center FinServe Tech Angels Grace Hill Women's Business Center Helix Center/Helix Fund Hispanic Chamber of Commerce of Metropolitan St. Louis

The Mission Center

T-REx

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Information Technology Entrepreneurial Network (ITEN) Innovate St. Louis Innovate Venture Mentoring Service (IVMS) International Institute of Metropolitan St. Louis InvestMidwest IT Enterprises

Small Business and Technology Development Centers (SBTDC) Small Business Development Center at SIUE Southern Illinois University Edwardsville (SIUE) Southwest Illinois Advanced Manufacturing Center Southwestern Illinois College St. Charles City-County Library

University of Missouri St. Louis Office of Research Administration Veterans Business Resource Center Warson Capital Washington University Office of Technology Management Washington University Skandalaris Center for Entrepreneurial Studies

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Appendix B: Commercialization Framework

Despite several high profile success stories of late (think Groupon and LinkedIn), there is no perfect road map, process, or model that will transform an idea into a commercial success. Often times an entrepreneur is left wondering where they are in the process of growing their business and which investors they should approach for funding. Thankfully, there are existing frameworks that can help guide entrepreneurs toward a better understanding of the stages their business will go through, as well as the types of interested investors at those stages. This Commercialization Framework is a guide to help improve decision making at all phases of commercialization. Looking at the Framework from left to right, it becomes a useful tool for entrepreneurs not only to help them understand where they are today, but also to identify the likely resource providers in the next phase.

The period of commercialization between late Imagining (proof of concept) to early Demonstrating (significant sales), known as the Valley of Death, can be the most challenging for entrepreneurs, when access to risk capital becomes critical to an entrepreneurs success. Another framework that entrepreneurs should be familiar with is the Venture Capital Financial Framework defined by PWC MoneyTree that breaks out the stages of development: Seed/Startup stage, Early stage, Expansion stage, and Later stage. Here is a comparison of the two frameworks:

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Commercializati on Framework

Imagining

Incubating

Demonstrating

Market Entry

Growth & Sustainability

Technology Product

Prove the functioning of critical components of the technology or product in the lab in context of the product concept.

Prove the performance of the technology or product against market specifications, usually in the form of a prototype.

Develop a market-ready product, proven by customer tests, and manufacturability within cost and quality constraints.

Introduce the product with manufacturing, quality, service, and distribution capabilities.

Execute a comprehensive product line strategy.

Commercial Concept

Based on the product concept, identify the market opportunity.

Define the business model and market opportunity primarily with secondary sources.

Validate the commercial concept with test market sales.

Validate the opportunity through growth of sales, margin, and customer satisfaction.

Achieve profitability, sales growth, and expanded distribution.

Venture Capital Financial Framework

Seed/Startup Stage

Early Stage

Expansion Stage

Later Stage

PWC MoneyTree Stage

The initial stage. The company has a concept or product under development, but is probably not fully operational. Usually in existence less than 18 months.

The company has a product or service in testing or pilot production. The product may be commercially available, and may or may not be generating revenues. Usually in business less than three years.

Product or service is in production and commercially available. The company demonstrates significant revenue growth, but may or may not show a profit. Usually in business more than three years.

Product or service is widely available. Company is generating ongoing revenue; probably positive cash flow. More likely to be profitable.

Before approaching an investor, every entrepreneur should know what stage of business he or she is in, who potential resource providers are in the next phase, what those resource providers need in terms of proof to support an investment/funding decision, and have a clear idea of how much capital they require, both immediately and for the long term. There are certain investors more prone to provide funding for each stage, and some businesses may need to leverage funding from numerous investor types as they progress through the stages.

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Here is an overview of the phases in the Commercialization Framework and how they relate to the financing stages for investors: 1. Imagining the commercial opportunity. This initial phase is where an entrepreneur tries to link his or her idea/concept with a market opportunity. Activities focus on generating a proof of principle generally defined as demonstrating critical components in a laboratory setting, and describing the market opportunity (the job to be done) that the product concept addresses. Resource providers in the Imagining phase tend to be the entrepreneur, nonprofit institutions, or public entities. Investors will refer to this phase as the Seed or Startup stage, which also refers to the next phase, Incubating. 2. Incubating to define the commercial potential. This is the phase where an entrepreneur needs to define technical and product performance specifications, validate technical capabilities in context of these performance specifications, and provide an initial validation of the market opportunity, usually through secondary market research sources. The Incubating phase can be very resource intensive. Entrepreneurs at this stage of commercialization still fall under the Seed/Startup stage. Because of the high risk, private investors are generally not yet interested in providing funding; the best chance of funding would be from a venture development organization (VDO). VDOs use a combination of technical assistance (i.e. expert advisors) and equity investment to wring out the risks inherent in very early stage companies. VDOs (such as JumpStart) spend their money to move companies along the commercialization path from Imagining phase to Incubating and then to Demonstrating. Tasks often performed with the use of VDO investment dollars include performing market studies and/or research and development, building prototypes, securing beta customers, and recruiting team members. 3. Demonstrating the products and processes in the commercial context. Product development and market testing dominate this phase. There is still a relatively high risk involved because an entrepreneur has not yet established a customer base. They typically use prototypes to demonstrate the functionality of the product in order to provide evidence that people will actually have a use for, and will purchase, the product. An entrepreneur in the Demonstrating phase may still need early stage capital, but can also attract investors that look for businesses that have removed the technical risk and some of the business risk. Because the businesses in this stage are less risky than startups, and there is more proof of a real investment opportunity, angels may become even more interested, with private investors following suit. Also, corporate investors may be an option here, as well as early stage venture capitalists. 4. Market Entry to prove commercial viability. By this phase, an entrepreneur should have their product in production and be distributing it to the public. Investors can now see substantial evidence of sales and marketing activities supporting the viability of the product. This phase also encompasses the early stage and leads into the Expansion stage, where capital is needed for further development of ideas, products, new market entry, or business security. Larger amounts of capital are required, leaving venture capital firms and corporations as the most likely sources of investment now that there are actual sales and the risks involved have significantly decreased. 5. Growth & Sustainability to generate financial returns. Businesses in this phase have a history of sales growth and profitability, and the new goal is for either the expansion of, or possibly the sale of, the business to another entity that can provide the funding needed for expansion.

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Businesses at Growth & Sustainability are ripe for expansion and later stage investors, such as larger venture capital firm that can provide the amount of funding necessary. Venture capitalists, along with commercial banks, are attracted to companies in this phase because it is easy to identify sales growth and evidence of future profitability. An entrepreneur may also choose to use this stage for their exit strategy, where they sell the business to a bigger company or competitor. By utilizing the Commercialization Framework with the Venture Capital Financial Framework together, an entrepreneur can better understand where they fit in the funding spectrum so they have a greater chance of approaching the right kind of investor for funding.

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Appendix C: St. Louis Regional Deal Flow

The St. Louis region does not have a common intake system and customer relationship management (CRM) system that integrates data about potential high growth startup opportunities from the regions multiple service and investment organizations. Without such a system, any assessment of current and potential deal flow is a task that involves piecing together imperfect information. JumpStart interviewed approximately 20 different informed entrepreneurs, investors and others regarding the regions entrepreneurial deal flow. JumpStart asked questions and collected data designed to estimate the regions historic flow of high potential startups. As is the case in most regions across the country, the resulting information was imprecise and anecdotal. Therefore, the REI team commissioned a special study to identify Potential High Growth Startups. This work was performed by the Regional Chamber. Using its experience gained in Northeast Ohio and in other regions, JumpStart organized the interview and special study information by source, industry, technology, phase of commercialization and other relevant factors. The special study enabled the data to be adjusted to account for duplication caused by entrepreneurs approaching more than one organization in their search for resources. The purpose of the deal flow analysis is to determine whether St. Louis has sufficient deal flow to support an enhanced set of venture development functions and to provide guidance as to the magnitude to make these services impactful. More specifically, the goals of the deal flow assessment are to address the following three issues:

Issue 1. Is the magnitude of deal flow sufficient to support venture development functions at an
efficient scale?

Issue 2. Are there discernible trends in deal flow over the past few years that can be expected to
persist throughout the formation of an entrepreneurial support program?

Issue 3. Does the composition of deal flow in particular industries, technologies or phases of
commercialization offer guidance for the entrepreneurial plans of the region?

Magnitude of Deal Flow

The first issue relates to the magnitude of deal flow. Deal flow is characterized by a flow of potential opportunities that begins with an inquiry and follows a sequential path leading to company assistance (Service Client) and/or investment (Portfolio Company).

The interviews conducted with organizations included discussions about the number of inquiries they received, number of startup companies they have serviced, and number of startups in which they made grants and financial investments. These data are shown in Table A-2.

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One of the challenges in using data obtained from interviews was determining unique deal flow. That is, ensuring that the same company is counted only once, even though it may have been serviced by more than one organization. Based on results from interviews, the aggregate level of inquiries and qualified inquiries of all organizations was discounted by about 50 percent to arrive at an estimate of unique inquiries and qualified inquiries. Table A-2, Deal Flow Estimates from Interviews

Deal Flow Estimates from Interviews

Organization Inquiries Qualified Inquiries
100 315 57 40 100 250 200 60 30 24 17 20 30 10 20

Companies Assisted
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Companies Receiving Investment

8 15 NA 2 12 10 NA 5

Arch Angels Arch Grants BED Program Billiken Angels BioGenerator Capital Innovators CET Cultivation Capital FinServe Tech Angels Helix Fund Information Technology Entrepreneur Network (ITEN) Innovate Venture Mentoring Service (IVMS) Missouri Technology Corporation (MTC) Nidus Partners St. Louis University University of Missouri St. Louis Washington University Totals Estimated Unduplicated

250 420 62

175 10 150 130 160 150 40 15 125 1,975 1,000

80 7 120 130

6 4 120 37 46

1 4

46 5 4 6 4 122 40

50 30

5 27 6

60 1,022 500

30 391 130

To estimate the unique number of companies receiving services and investment, the totals were discounted by 67 percent based on observations of the companies in the investment portfolios of the organizations.

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Another challenge was to identify deal flow opportunities that fit the characteristics of potential high growth startupsthe target for the REI. Inquiries from entrepreneurs with life style businesses, non-scalable service businesses, retail, and other forms of small business are included in the number of inquiries, but interviewees were asked to estimate the number of qualified inquiries using their organizations definition of qualified. Based on interview results, annual St. Louis deal flow is estimated to be approximately 1,000 inquiries with at least 500 that meet the general characteristics of potential high growth entrepreneurship. Of these, about 130 received services, and 40 received grants or equity investments. These numbers are reasonably comparable to those experienced by JumpStart in its early years. It is certainly possible that the region generates significantly more than 1,000 unique inquiries and provides capital and services to more than 130 entrepreneurs. This is particularly true in St. Louis where inquiries, services and investments in bioscience and tech companies are reasonably well documented, but investments in other technology fields are largely unknown or anecdotal. This estimated level of deal flow potential is consistent with the informed opinions of regional investors and entrepreneurs. More significantly, the estimates provide reasonable assurance that adequate deal flow exists to support the provision of additional entrepreneurial services and capital investment.

Trends in Deal Flow

The second issue relates to trends in deal flow opportunities over time. To gain insight into the St. Louis deal flow, the Regional Chamber was commissioned to conduct a special study involving further interviews with entrepreneurial ecosystem members and a review of an internal database maintained since 2008. Of particular note is data that measures the number of startups satisfying milestones that signify external validation that the startup has the potential to succeed. The following events were used to measure whether the startup was externally validated: Negotiated a license with a university for intellectual property around which their company is based; Competed successfully in a regional competition, such as Arch Grants, Skandalaris Center Olin Cup, and the St. Louis County Business Plan Competition, St. Louis Startup Challenge; Entered a formal accelerator program, such as Capital Innovators; Located its operations into a high technology oriented incubator; Received formal external equity investment; Received a formal federal grant supporting the evolution of their technology; and Made a formal presentation before regional venture capital funders, such as at InvestMidwest.

Using these company milestones, the number of startup companies in St. Louis over the last seven years shows an interesting trend (Figure A-1).

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Figure A-1, Companies Reaching Startup Status in St. Louis, 2006 to 2012
Validated Startups 45 40 35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 2011 2012
Source: 1REI Startup Capital Report, St. Louis Regional Chamber, March 2013

Prior to the great recession, approximately 25 companies were achieving external validation sufficient to label them as viable startups. During the recession years, this dropped significantly. Beginning in 2011 and continuing in 2012, the number has grown to levels greater than before the recession. In 2012, St. Louis recorded 42 new startup companies, a new record. Part of this recent upturn is a function of the overall economic recovery, and part is due to new programs in St. Louis that provide incentives for entrepreneurs to take risks and form new potential high growth companies. Programs such as BioGenerators i6 program, Arch Grants, and Capital Innovators, have contributed to the strengthening of the entrepreneurial ecosystem. These data indicate that the number of startups has increased over the last six years and is now higher than ever before. This trend bodes well for the future of entrepreneurship in St. Louis.

Composition of Deal Flow

The third issue relates to the composition of deal flowparticularly the stage of commercialization and the industry and technology of the deals. Table A-3 shows the number of companies receiving various levels of external investment.

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Table A-3, Historic Deal Flow EstimatesSLRC Study Pre-Seed

$25K $99K 2006 2007 2008 2009 2010 2011 2012 3 1 0 4 7 7 15 $100K $249K 1 4 2 7 6 9 5 $250K $499K 3 3 1 5 5 7 3

Seed
$500K $749K 0 4 0 2 3 2 3 $750K $999K 2 0 1 0 1 3 1 $1 M+ 10 15 13 13 11 16 15

Venture
Yearly average of each $1M+ $ $ $ $ $ $ $ 3,660,445 5,502,086 6,330,533 5,544,966 3,690,970 5,697,413* 3,928,053

* Excludes outlier; Essence for $70 million Source: 1REI Startup Capital Report, St. Louis Regional Chamber, March 2013

Note that in 2011, 44 companies received some level of external capital investment and in 2012 the same measure stood at 42. Of these 86 startups, almost 65 percent received funding in tranches less than $1 million. The Regional Chamber data correlates well with the results of the REI interviews where it was estimated that approximately 40 companies per year received startup grants or equity investments. Consistent with the regions momentum in creating new sources of pre-seed funding, the number of companies that received investments of less than $100,000 increased substantially from 2011 to 2012, largely the result of the Arch Grants program. These companies are considered to be in the Imagining or early Incubating stages of commercialization (see Appendix B). However, the number of companies that received investments of between $100,000 and $249,000 did not grow proportionately and, in fact declined from 2011 to 2012. If that trend continues in 2013 when Arch Grants is planning to award up to 20 grants of $50,000 to startups in St. Louis, a substantial funding gap will begin to emerge. Furthermore, assuming these are quality opportunities, the demand for capital in the range of $100,000 to $249,000 is likely to increase. Additionally, Seed Stage investments between $250,000 and $999,999 (Incubating and Demonstrating stages of commercialization) did not grow at the same rate as the pre-seed stage investments. Therefore, a gap in investment capital in the $100,000 to $999,999 range is evident. This funding gap is the sweet spot for the nonprofit evergreen fund operated by JumpStart and coincides with the investment thesis of most venture development organizations. One surprising finding from the startup research conducted by the Regional Chamber is the consistent level of investment at the $1 million and higher level. St. Louis has long been concerned about the regions ability to fund larger rounds of investment capital needed just at the point where the company is prepared to contribute most to employment, revenue and wealth creation. While never adequate in the eyes of the entrepreneurs, the consistent level of $1 million and greater investments is testimony that good deals have been able to find investment capital in St. Louis. As the overall level of deal flow expands, the question becomes whether there is adequate capacity to fund the necessary later-stage, larger equity rounds. More than 90 percent of the early stage investments have been to companies operating in the biosciences and tech spaces (Figure A-2). The distribution between bioscience and tech has changed significantly over the past few years. In 2006, approximately 65 percent of the identifiable investment activity was with bioscience firms and 25 percent in tech. By 2012, the tech investments had become more than 65 percent of the regions investment portfolio and biosciences had dropped to about 25 percent. This dramatic
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reversal of sector investments reflects the increased visibility of tech opportunities, the technology focus of new investment initiatives, and general venture capital trends toward shorter term, less capital intense investment options, characteristic of tech firms. Throughout the time period covered by these data, the investment in technology companies operating in sectors other than bioscience and tech (software/information technology) has remained constant at about 10 percent. However, based on interview results, many St. Louis entrepreneurial leaders believe that St. Louis can increase the level of deal flow through outreach, assistance and investment programs specifically focused on opportunities in these other technology fields. Figure A-2, Startups by Industry Sector

Biotech 45 40 35 30 25 20 15 10 5 0 2008 2009

Clean Tech

Other

Tech

2010

2011

2012

Source: 1REI Startup Capital Report, St. Louis Regional Chamber, March 2013 (see Appendix D)

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Appendix D: Startup Capital Report

See separate attachment for this report.

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Appendix E: Economic, Demographic and Entrepreneurial Profile of St. Louis

See separate attachment for this report.

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Appendix F: Glossary
Accelerator. As noted in a recent Bloomberg BusinessWeek article17, the definition of the term Accelerator is rapidly changing. Accelerator programs, as typically defined, make a small equity investment in the companies they accept, and offer space and mentoring to entrepreneurs over the course of several months [as opposed to Incubators, which generally provide space and services over a longer time period].18 Often Accelerators focus on the software/information technology sector because commercial and technical proof in the tech sector generally requires a smaller investment of time and money. Accelerators have, however, spread to other sectors. For these reasons, the use of the term Accelerator can and often does create confusion. Angel Fund. An Angel Fund is a pool of capital contributed by one or more angel investors. Angel investors are high net worth individuals who invest their own money in startups and sometimes established companies. As compared to the limited partner investors in a venture capital funds, angels often provide direct assistance to their portfolio companies. Generally, angels invest prior to venture capitalists. An Angel Fund is a pool of investment capital contributed by one or more angel investors. The line between an Angel Fund and Series A venture capital fund has blurred over the last few years with the emergence of Super Angels (angels willing and able to invest between $1 million and $3 million, amounts comparable to those invested by Series A venture capital funds). Co-investment Fund. An equity Co-investment Fund is a fund that makes direct investments in early stage companies in a fixed ratio (e.g. 1:1) and on the same terms as one or more fund partners. A fund partner is a separate investment fund that assumes primary responsibility for identifying the investment, conducting diligence, structuring the investment, and valuing the company. The Co-investment Fund then provides capital according to the terms of the agreement between the Co-investment Fund and the fund partner(s). Collective Impact Approach. The Collective Impact Approach is the commitment of a group of important actors from different sectors to come together on a common agenda for solving a specific social problem. Unlike collaboration efforts and partnerships, these initiatives involve a centralized infrastructure, a dedicated staff, and a structured process that leads to a common agenda, shared measurement, continuous communication, and mutually reinforcing activities among all participants.19 In short, large-scale, complex social change comes from cross-sector coordination rather than individual organizations. Demonstrating Phase. The Demonstrating Phase is the phase of commercialization in which a company or project team attempts to generate technical and market proof of its commercial concept or product by selling it to customers who can validate the value of the product in a commercial context. Activities focus on product development and market acceptance. Working prototypes, performance to commercial specifications and manufacturability within defined cost and quality standards characterize the goals on the technical side. On the market side, Demonstrating Phase activities focus on generating evidence that customers will buy the product. In the Demonstrating Phase, strategic investors (companies) and angel

18 19

http://mobile.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop http://animatingdemocracy.org/resource/collective-impact

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investors play a significant role. Venture capitalists often participate in this phase, but not to the same extent as angels and venture capitalists. Entrepreneurship. In an academic sense, an entrepreneur is an individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes. In context of the REI and other similar efforts, this definition is too broad. REI-like efforts often focus on those entrepreneurs starting or growing businesses that can be defined as high potential startups (see definition). These businesses generally have enormous potential to grow, generate income, create wealth and employ large numbers of people. In short, the REI focuses on startups with characteristics that angel and venture capital investors would consider attractive. Entrepreneur-in-Residence. An entrepreneur-in-residence (EIR) is a seasoned entrepreneur employed or retained by a venture development organization, accelerator, incubator or other organization to provide assistance and counsel to entrepreneurs. The EIR role in a venture capital firm is often designed to fill one of three primary functions: Launch a new entrepreneurial venture, often with the backing of the parent firm or organization; Assist in the evaluation of potential investments where the entrepreneur has a particular expertise; Provide functional expertise to assist with an existing investment; or Act as a mentor and coach. Follow-on-Funding. Follow-on-Funding is capital invested in or granted to a company following a material investment of capital or services to a company while it is in one of the first three phases of commercialization. Ideally, the Follow-on-Funding is from a source that validates the commercial progress made and the viability of the opportunity. Fund-of-Funds. In context of High Potential Startups and Venture Capital, a Fund-of-Funds is a pool of funds that invests in venture capital funds as opposed to investing directly in high potential startups. In recent years, a number of U.S. states have used public funds or incentives to help raise a Fund-of-Funds as a mechanism to attract more venture capitalists and venture capital. High Potential Startups. High potential startups are startups, often technology-based, with the potential to achieve accelerated growth, value creation and wealth creation, and in the process create large numbers of high paying jobs. Incubator. An Incubator is a firm engaged in the business of fostering companies through the Imagining, Incubating or Demonstrating phases until such time as the company has sufficient financial, human and physical resources to function on its own or attract significant private investment. The firm can be either a nonprofit or a for-profit entity, and can provide assistance via any or all of the following methods: i) access to financial capital through relationships with financial partners, ii) access to experienced business consultants and management-level executives, iii) access to physical location space and business hardware or software, and iv) access to informational and research resources via relationships with local universities and government entities. Some Incubators charge rent and related fees for services. Incubator rent and fees are generally lower than rates available from commercial sources generally either because: i) the Incubator takes a small equity interest in the company, or ii) the Incubator receives public or philanthropic funding to support the cost of operations.

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Market Entry Phase. The Market Entry phase is one in which the business attempts to scale the commercial opportunity. Activities are those typically associated with an ongoing businessproduction, service, distribution, sales and marketing. As noted, venture capitalists and corporate strategic investors are two of the primary funders of Market Entry phase activities. In general, this phase tests the ability of the company to make, sell, service, grow and generate profits. While this general definition applies to many products, services and markets, it does not necessarily apply to markets that involved significant pre-market regulation and testing, such as medical devices and pharmaceuticals. In these sectors, the definition is a bit circular. The Market Entry phase across all industries begins when the company demonstrates those characteristics (proof of commercial potential) that venture capitalists or strategic investors require as a condition to investment. MOSIRA. The Missouri Science and Innovation Reinvestment Act (MOSIRA) creates a funding source to spark growth in research and technology enterprises by capturing a small percentage of the growth in state revenue over a base year (fiscal year 2010) from a designated group of Missouri science and innovation companies. MOSIRA designates The Missouri Technology Corporation (MTC) to administer the funds and directs the MTC to invest through loans and other means to generate further economic growth in the science and innovation industry sectors, with emphasis on biotechnology and life sciences. Funding will be reinvested in a wide range of programs designed to create jobs, nurture startups, and bring science and technology companies to the state. To date, lawsuits have delayed the implementation of MOSIRA. Phases of Commercialization. Phases of Commercialization are steps in the process of developing an idea into a commercially viable business opportunity. The five phases of commercialization (Imagining, Incubating, Demonstrating, Market Entry, and Growth & Sustainability) are represented by the blue circles in the graphic below. Each phase is characterized by specific challenges that the business must overcome in order to reach the next stage on the path to growth and sustainability or a financially attractive exit.

(See Appendix B for a detailed description of the phases of commercialization.) Pre-Seed Investment Gap. The Pre-seed Investment Gap is sometimes referred to as the Valley of Death. For high potential startups, the Valley of Death begins when the entrepreneur exhausts his or her personal
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resources (sometimes referred to as friends and family money) and ends when the o pportunity is sufficiently mature as to be able to attract resources from for-profit investors (e.g. angels, venture capitalists, strategic investors, banks, etc.). This period frequently coincides with the Imagining, Incubating and Demonstrating phases of commercialization. Without extremely deep pockets, wealthy relatives or enormous luck, entrepreneurs cannot move their opportunities forward. As a result, they either stagnate or go out of business. Series A Venture Capital. Series A Venture Capital, sometimes referred to as early stage, refers to the first round of venture capital invested by a venture capital firm. Series A investments are generally in amounts in excess of $1 million. Venture capital investors look for significant returns (10x+) and frequently invest in the Market Entry phase of commercialization. Series A investors generally invest in the form of preferred stock. Startups. A Startup generally refers to a newly formed company that has yet to establish market viability or profitability. A startup offers a product or service that is not currently being offered elsewhere in the market, or that the founders believe is being offered in an inferior manner. Technology Investment Tax Credits. The Technology Investment Tax Credit program is an Ohio program that offers a variety of benefits to taxpayers who invest in technology-based small businesses. Through this program, investors may reduce their state taxes by 25 percent on the amount they invest in qualified, technology-based companies. Both the companies and their investors must meet several requirements specified by state law. Valley of Death. The Valley of Death begins when the entrepreneur exhausts his or her personal resources (sometimes referred to as friends and family money) and ends when the opportunity is sufficiently mature as to be able to attract resources from for-profit investors (e.g. angels, venture capitalists, strategic investors, banks, etc.). This period frequently coincides with the Imagining, Incubating and Demonstrating phases of commercialization. Without extremely deep pockets, wealthy relatives or enormous luck, entrepreneurs cannot move their opportunities forward. As a result, they either stagnate or go out of business. Venture Capital. Venture Capital is the money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but offers the potential for above-average returns. Venture Capital can also include managerial and technical expertise. Venture Development Organization. Venture development describes economic development activity focused on using best practices and activities of experienced business mentoring, pre-angel investing and venture capital investing to help create venture and angel capital-ready firms with the potential to create significant economic growth, wealth and related jobs. Communities without significant recent history or a critical mass of current venture-backed firms pursue venture development as a way to help their local economies begin to transform their ability to create and support such organizations.

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Appendix G: Bibliography
BioGenerator. Web. <http://www.biogenerator.org/>. BioSTL. Web. <http://www.biostl.org/>. Bio Research & Development Growth (BRDG) Park. Web. <http://brdg-park.com/>. Blackstone LaunchPad. Lorain County Community College (LCCC), 2013. Web.

<http://www.lorainccc.edu/Employment+and+Career+Services/Blackstone+LaunchPad/>.
Great Lakes Innovation & Development Enterprise (GLIDE). Web. <http://www.glideit.org>. "High-Growth Firms Account for Disproportionate Share of Job Creation, According to Kauffman Foundation Study. Kauffman Foundation. Retrieved May 2013. Web. <http://www.kauffman.org/newsroom/high-growth-firms-account-for-disproportionate-share-of-jobcreation-according-to-kauffman-foundation-study.aspx>. Innovation Fund. Web. <http://www.innovationfundneohio.com>. Kunkle, Gary. Pennsylvania High Growth Study. Team Pennsylvania Foundation, 2012. Web. <http://teampa.com/wp-content/uploads/2013/02/PAHigroFinalReport.pdf>. Ohikuare, Judith. "Where Has All the Funding Gone? Competition heats up for million-dollar VC deals." Inc. Magazine. Apr. 2013: 27-28. Print. St. Louis Regional Economic Adjustment Strategic Plan. AECOM. 2011. Print. Strauss, Jack. Economic, Demographic and Entrepreneurial Profile of the St. Louis Region. Director of the Simon Center for Regional Forecasting. 2012. Print. Strauss, Jack. The Economic Impact of Immigration on St. Louis. Director of the Simon Center for Regional Forecasting. 2012. Print. "Where Will the Jobs Come From?" Kauffman Foundation. Retrieved May 2013. Web. <http://www.kauffman.org/research-and-policy/where-will-the-jobs-come-from.aspx>.

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