Fostering business innovation requires strategy, Madison County leaders told

By DENNIS GRUBAUGH
    The money to lure startup businesses can readily be found in Southwestern Illinois, but gaining access may depend first on building a coordinated strategy, local leaders are being advised.
    “I’m not an expert on your strengths, but right off the top of my head, you have so many. River technology, agriculture, food production — there are many opportunities that can be leveraged, but that’s not for me to decide. You guys know it way better than we do,” Patricia Hagen told a group this past month.
    Hagen is president and executive director of the Technology Entrepreneur Center at T-REX, the successful enterprise space operating in St. Louis. She and Brian Matthews, managing partner of Cultivation Capital, a venture capital partnership and strong T-REX supporter, addressed a group of about 30 municipal, business and professional leaders who attended a session sponsored by Madison County Community Development to get advice on how to attract venture capital and innovation accelerators.
    Hagen was asked to appear by Community Development Administrator Kristen Poshard, who has been fielding inquiries from people wanting to know about the success of the “entrepreneurial ecosystem” on the St. Louis side, where dozens of startups have flourished in recent years.
    The nonprofit T-REX startup community had some lean times after it was launched in 2011, but gained steam in more recent years. Today, it is an incubator helping develop tech entrepreneurship throughout the St. Louis area.
    T-REX got its start in the old Railway Exchange Building on Locust Street in downtown St. Louis, but went on to purchase the Lammert Building a few blocks away at 911 Washington Ave., after Macy’s moved from the Railway building.
    T-REX began with an initial investment of $90,000 — $30,000 from St. Louis Development Corp., $30,000 from the St. Louis Regional Chamber of Commerce and $30,000 from the Community Improvement District for Downtown St. Louis.
    “We were specifically placed in downtown St. Louis because the urban center really needed some special attention. There was a lot of empty office space and a lot of opportunities,” Hagen said. “At the same time, the folks who founded T-REX noticed millennials were moving toward urban centers. They liked the vibe and the historical buildings” where they could live, work and play.
    Being developed around the same time and lending emphasis to the common cause was the Cortex Innovation Community in midtown St. Louis, which focuses on health sciences and bio companies, and the formation of ArchGrants, a nonprofit that offers $50,000 grants via competition. Winning startups have to commit to staying in St. Louis for a year.
    Another organization called ITEN (Information Technology Entrepreneur Network) was also formed, a nonprofit that provides mentoring and business plan assistance to tech entrepreneurs.
    “All those things were happening at the same time. Almost immediately when T-REX took space in the Railway Exchange Building, there were instant tenants. That really got us some traction. And that brought more people in,” Hagen said.
    Since 2011, T-REX has had 82 graduate companies, she said. Some 651 direct jobs were created in downtown St. Louis, and 2,230 total jobs were created throughout the region.
    Some 64 of those companies stayed in the St. Louis market, many near their original T-REX homes.
    Much of the T-REX attraction revolves around its Innovation Conference Center. So far, 120,000 people have used the space for conferences, meetings and events, allowing them to see “the vibe and culture” that have made T-REX so attractive, Hagen said.
    “We have venture capitalists, students, entrepreneurs, corporate people, everybody sort of mixing it up within that community space,” she added.
    The operation’s annual economic output throughout the St. Louis region is more than $350 million, she said.
    The current company count within T-REX is 200. Some of those are one-person companies.
    Part of the “major magic” for T-REX is the presence of tenants with financial firepower, including Cultivation Capital and a couple of accelerators, SixThirty, which is focused on financial technology, and SixThirty CYBER, which is focused on cyber security technology.
    The accelerators sponsor international competitions, invest in winning operations and mentor them afterward.
    Prosper, an accelerator focused on women-owned businesses, also has a presence, as does Stadia Ventures, a sports-related business.
    “You don’t have to have all that stuff, but that co-location of funding resources, support organizations and the culture we’ve built within our community — that’s key to the success we’ve had thus far,” Hagen said.
    Matthews got involved in T-REX in 2011 as one of the first investors in Capital Innovators, which was writing checks to many of the companies coming into the T-REX building.
    In the early days, he said, he was afraid the fledgling companies were going to be “accelerated into the wall or off the cliff.”  That led to the formation of Cultivation Capital in 2012, a venture capital fund focusing on businesses that aren’t big enough to be interesting to larger venture firms.
    Since then, Cultivation Capital has established various funds for technical, life sciences, ag and financial technology and more — at T-REX and elsewhere in St. Louis — and has about $150 million in funds under management.
    Venture capital has “exploded all over the country. Every city is trying to do what we’re doing in the Midwest,” Matthews said. Of 15 cities in the Midwest, St. Louis ranks only behind Chicago and Minneapolis in venture capital raising, he said.
    The 42 companies that Cultivation Capital has invested in have done well, he said, raising $800 million in follow-on capital. About 60 percent of those companies are in St. Louis.
    “We’ve created 1,650 jobs, and St. Louis has about 550 of those jobs,” he said.
    What’s needed for Madison County to be successful?
    “You’ve got to figure out if there are grant opportunities, state funding, county funding, federal funding,” Matthews said. “I would suggest you find out what industry sector you want to go for, build an accelerator — a small fund, maybe $20,000 or $25,000. Build expertise around that and start attracting density.
    “You want to have collisions of like-minded people within these facilities. And that’s what you’re going to have to do in Madison County. Look for your strengths.”
    Matthews was asked how much investor funding could be available for startups in Southwestern Illinois.
    “The number would shock you,” he told the Illinois Business Journal, without giving an estimate. “People don’t realize. All of these communities have this money. The selling point is, you’ve got to invest back in your community.”