The St. Louis startup community is growing swiftly, as evidenced by the multiple districts and programs that aim to turn the Gateway City into the next big startup hub. While these districts and programs, such as the Cortex and Arch Grants, provide much needed resources for startups and their founders, the Anders Startup and Funding Outlook Survey Report discovered that more funding is required for the region’s growth to continue unabated.
Anders surveyed both startup founders and funding sources in 2023 to help determine how the local startup ecosystem is faring following the COVID-19 pandemic and amid economic factors such as high interest rates and inflation. The results of the survey show that area startups are struggling to find funding, despite evidence of an involved and active investor class in the region.
Overall, 70% of surveyed startup founders reported difficulties obtaining funding. While 14% of respondents indicated they’d last raised capital more than 24 months before, only 21% reported raising funds within the last 24 months. There are multiple factors potentially responsible for this apparent capital shortage.
Increased competition for early fundraising rounds
A boom in seed funding during the pandemic helped create a surge of new startups, but a corresponding swell of funding didn’t extend into Series A rounds or beyond. As a result, mature startups that would typically begin raising Series A funds have continued to pursue funds from angel investors. These more mature companies are now competing directly for funds with less mature businesses.
This increased competition could have negative consequences for the St. Louis startup community. More competition for funding could lead to lower valuations. While good for investors, this could be detrimental to founders and possibly prior investors. So much so that these founders might seek funding outside St. Louis at a higher valuation.
If these more mature companies are competing for funding with earlier stage startups, it would be harder for these earlier startups to receive funding and, ultimately, survive. While the best startups should survive this early crucible, it’s also likely that many good startups don’t or may choose to leave the St. Louis region rather than remain.
Limited local venture capital options
Startups in the region have few choices when it comes to partnering with venture capital firms. Although there are VC firms with a strong presence in the area, startups surveyed have largely been funded by family/friends and angel investors. Startup respondents, 70% of them, still indicated that they are seeking funding from VC firms. Optimism is missing, with 61% of startup respondents ranking the availability of funding for the St. Louis startup community as “average” while 22% selected “weak.” No respondents selected “strong” as an option, indicating that more availability of capital is required in the area.
These rankings come even though 70% of funding source respondents made investments in St. Louis within the past three months. Surveyed investors also showed loyalty to the St. Louis region, with 47% indicating that they’d spent between 76-100% of their funds in the area within the last 12 months. Another 23% reported spending 51-75% of their funds in St. Louis in the same timeframe. The majority of investors, 52%, also reported that recent economic impacts hadn’t affected their investment decisions at all while 17% responded that they were investing more as a result.
Based on survey results, both startups and funding sources agree: What the region needs now are large, local VC firms that can accommodate B and C rounds to help reduce competition for seed and Series A rounds, creating more opportunities for startups of all sizes and maturities to flourish. The region has already become a destination for startups and funding sources, but now it’s time that the ecosystem ensures these businesses and the entrepreneurs who founded them have the support they require to achieve the same levels of capital they could obtain on the coasts.
For more insights into St. Louis' startup ecosystem, download the Anders Startup Funding and Outlook Survey Report.
Need guidance on next steps with your startup? Anders CPAs + Advisors works with startups and entrepreneurs on their financial needs so they can focus on what they do best. Contact an Anders advisor to discuss your goals and how we can help you achieve them.
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