St. Louis startup CoverCress is the ideal case study.
Since its founding in 2013, CoverCress, which is bringing a new cash crop to market, has exhibited how some of St. Louis' largest corporations can play a key role in the success of some of its smallest, and most promising, startups.
“It is the example,” says Charlie Bolten, senior managing director of St. Louis-based investor BioGenerator, which helped launch CoverCress.
It starts with CoverCress' leadership team, which is filled with expats from Creve Coeur-based Bayer Crop Science (formerly Monsanto), including CEO Mike DeCamp and founder and Executive Chairman Jerry Steiner. It continues with capital, after receiving investment from the venture capital units of both Bayer and Chesterfield-based agribusiness firm Bunge Ltd.. And it culminates in business deals, such as last month, when CoverCress inked a commercial partnership with Bunge, which will use its new crop to produce a renewable fuel source.
The study of an evolving startup economy typically places emphasis on things like company creation, exits and fundraising totals. But CoverCress' example highlights another pillar startup leaders say is crucial to elevating the region’s entrepreneurial endeavors: having corporations involved in the development of early stage companies.
The support from corporations can come in several ways, including financial investment, commercial partnerships and talent. In CoverCress’ case, it even received its first combine harvester, used to advance its R&D efforts, as a donation from Bayer. Its corporate influence also defines its operating approach.
“At CoverCress, we started from the get-go with a very strong structure in terms of how we ran our governance, how we worked with our board, how we kept our records because we had to do those things inside of a company like Monsanto,” DeCamp said.
With companies like Bayer and Bunge calling St. Louis home, CoverCress isn’t the only agtech startup to get an assist from the big firms. Now startup support groups like BioSTL and TechSTL are working to expand that type of support to other industries, like health care and consumer goods, where St. Louis has a concentration of large corporations.
The hope is to not only foster more collaboration between big corporations and innovative startups, but to also push those big companies to spawn more new companies, fulfilling a cycle of opportunity that could take the region's startup scene to a new level.
“The reality is there’s a natural symbiotic relationship between smaller, entrepreneurial ventures and these larger giants, because they rely on each other in the way in which the market moves,” said Emily Hemingway, executive director of TechSTL.
A fundamental shift
Before he joined BioGenerator in 2009, Bolten worked for Pfizer Inc., a titan of the pharmaceutical industry. During the end of his tenure there, Bolten remembered one of the company’s taglines was to “find the best science outside our walls.”
What it meant was that Pfizer would not rely solely on its own research and development prowess to advance the company. Spotting the best ideas elsewhere, and investing in them, had become part of the strategy.
At the time, Bolten recalls it as a relatively new phenomenon that has since come to represent a “fundamental shift in corporate America."
The data back that up. Last year, venture funds affiliated with corporations were part of 19.1% of all startup funding rounds in the U.S., nearly double the 11.3% rate from 2012, according to investment research firm Pitchbook.
“Big companies realize that small companies can do things better in some cases,” Bolten said. “For those big companies to be successful, they have to be interacting with the ecosystem of startups.”
That growth has extended to St. Louis, where several large companies have expanded their relationships with startups in the same timeframe as Pitchbook’s data.
Ferguson-based engineering and technology conglomerate Emerson Electric last November said it planned to invest $100 million in early stage companies over the next five years. St. Louis-based electric utility Ameren Corp. launched its own startup accelerator in 2017. Nestle Purina PetCare Co. in 2014 created its own corporate venture arm, 9 Square Ventures, that for the past six years has staged a pet care innovation contest, which helps fund and develop early stage startups in the pet care industry.
Corporate venture funds and accelerators aren’t the only way for well-known brands to engage startups. At the St. Louis Blues, Matt Gardner, the team's vice president of innovation and digital strategy, has made it a priority to connect with startups that can advance the National Hockey League franchise’s technology initiatives.
In 2019, the Blues tapped local startup TuneSpeak to create Bluenatics, its digital fan engagement portal. The Blues also formed a relationship with St. Louis-based Stadia Ventures, a sports industry-focused venture capital firm. It was through that partnership that the Blues connected with Canadian startup Mantis XR, which created a new e-commerce platform using virtual and augmented reality technology that the team unveiled last month.
“A few years ago, through a number of different channels, we started to get introduced to a lot more (companies) in the startup space. We started taking more phone calls and hearing more pitches,” Gardner said.
While the relationship between startups and corporations has grown, there are still barriers between the two groups.
Stadia Ventures has created a line of business where it acts as an "innovation broker" for companies. Its client list includes Baltimore-based apparel brand Under Armour and the The United States Olympic & Paralympic Committee. While companies sometimes are eager to work with startups, Stadia Managing Director Alex Chalmers says firms often are also so internally focused they don't know the type of technologies they could use or how to evaluate early stage companies.
“We’re almost offering innovation as a service. To companies, we’re saying we can help you be proactive sourcing better deal flows and actually having those startups validated through our process, so when we’re presenting them back to you, they meet the criteria of what you’re looking for," Chalmers said.
Other hurdles can involve large companies wanting startups to work with them exclusively or being leery of working with a company that has yet to develop a track record of success, Chalmers said. There’s also often differences in operating approaches that need to be overcome, said Martha Schlicher, the CEO of St. Louis agtech startup Plastomics who previously held leadership roles at Monsanto and Mallinckrodt Pharmaceuticals.
“This is really always hard for the corporates," she said. "Startups are scrappy. They’re always looking for money. They’re always looking for talent. Every day and every dollar matters. When you’re on the corporate side of things, booked back to back with meetings, you don’t recognize that by not getting back to them this week could mean they're out of business.”
Being the bridge
As the region's entrepreneurial economy grows and innovation becomes ever more crucial for the success of large companies, TechSTL's Hemingway says the region needs to "intentionally bridge” the two groups. She made that a focus of TechSTL, which recently launched as the region’s first tech council and whose members include both early stage companies and well-known brands like Square, World Wide Technology and AT&T.
“We’re one of the few organizations that is building pockets of early stage startups to nonprofits, to universities, to corporate giants and to government agencies,” Hemingway said. “There are very few networks that are able to bring players of all of those in the same room and have very intentional conversations.”
By convening both startups and large firms, Hemingway believes TechSTL has the opportunity to foster collaboration between the two in areas like health care and consumer goods, where St. Louis has a high a number of large companies. TechSTL eventually hopes to provide programming to drive such collaboration, but for now will keep its focus on convening conversations between the startups and big companies.
“I think that's the first big step, that we have to recognize the commonality (between the two) is enough to justify the conversation,” Hemingway said.
BioGenerator, the investment and startup creation arm of local innovation hub BioSTL, is targeting its efforts toward encouraging the region’s corporations to create and develop startups focused on improving health care for patients. BioSTL’s global recruitment arm, GlobalSTL, has found success luring international companies to do business in St. Louis, touting access to the region’s health systems and companies like Express Scripts and Centene Corp., which work in the patient care and insurance markets.
However, St. Louis-born startups in those particular markets are rare to find.
“We’ve seen almost no startups in this space in St. Louis, despite the opportunity. We’re making a bet in this space. We’re really aggressively trying to find entrepreneurs in residence in health care,” Bolten said.
With its efforts, BioGenerator envisions creating startups that are stacked with leaders that have previous experience and expertise gained from major health care firms in St. Louis and that can receive backing from those companies.
"We need to find those people and we need participation from the strategics to help us build those companies. There's just a tremendous opportunity there," Bolten said.
If it can, Bolten believes another CoverCress is in the making.
“It’s a proven model,” he said.
EVENT: St. Louis Inno: State of Innovation
On June 28, St. Louis’ State of Innovation event will delve further into the topic of this week’s cover story. The event will feature a panel discussion about how corporations and startups can best work together. Panelists will include Doug Spencer, co-CEO of local startup Bold Xchange; Matt Gardner, vice president of innovation and digital strategy at the St. Louis Blues; and Emily Hemingway, executive director of TechSTL.
Date: June 28
Time: 4 p.m. to 6 p.m.
Location: Dennis & Judith Jones Visitor & Education Center in Forest Park, 5595 Grand Dr, St. Louis, MO 63112
