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MOSourceLink Capital Report

Millions of Dollars of Early-Stage Startup Funding Left on Table, Report Finds

Missouri is leaving millions of dollars on the table, funding that could fuel the early-stage startups which, by the way, create nearly 80% of net new jobs in Missouri, according to a new report from MOSourceLink, KCSourceLink’s partner for the Show-Me State.

Here in the Kansas City region, we here at KCSourceLink have been keeping tabs on capital for years, most recently showing how capital flows through KC with our new interactive Capital Dashboard. But access to capital is a vital issue, not only to our entrepreneurs here in the greater metro area, but also across states in our region, like Missouri.

MOSourceLink's Show Me Capital: Financing Early-Stage Companies in Missouri maps the state’s capital landscape. The report reveals key gaps in both the debt and equity finance systems, draws on funding and financing activity across the state and analyzes data from more than 30 loan programs, 600 grant and equity investments and 50 venture capital firms. (A good chunk of those programs, investments and firms are in Kansas City.) The report reflects the state of capital in Missouri as of December 2019.

The good news: It’s clear what needs to be done to fill the gaps in the early-stage finance continuum.

“Capital is critical to get innovations off the ground and get customers in the door,” says Jim Boyle, co-founder of Justine PETERSEN, the largest player in microlending in Missouri. “Nearly 60% of new business owners bootstrap their business with personal savings, which leaves out those aspiring entrepreneurs who don't have personal wealth to lean in to. Increasing the accessibility of microloans removes a barrier to the hope and economic mobility of entrepreneurship.”

There are some key takeaways about the gap in Missouri capital that we found: 

  • Missouri needs more alternative loans, especially in rural areas: While a number of organizations have alternative loan funds, many of those resources are underutilized and/or underfunded.

  • The pipeline of growth companies needs support at the early stages. Grants play a critical role by fueling companies too new for investors who often expect immediate returns. Data from programs like Digital Sandbox KC prove that investing in companies’ earliest stages helps them survive the “valley of death” and leads to follow-on funding. Federal grants are one avenue for early-stage funding, but Missouri lags compared to leading states in taking advantage of federal research grants (SBIR/STTR).

  • Missouri companies need better access to equity-stage investment. While Missouri compares favorably to some neighboring states in venture capital raised, it lags behind others. Also, Missouri-based VC funds invest in early-stage companies, but not necessarily those based in Missouri.

“The message is clear: We need to connect and activate capital of all types at all stages to support our Missouri businesses, especially those in the very early-stages,” says Ben Johnson, vice president, programs at BioSTL, a collaborative group of St. Louis civic, academic and business leaders who support medical and plant science innovation. “Access to the right capital at the right time is often the critical difference between those who survive the ‘valley of death' to generate revenues—and those businesses that fold.”

Thumbnail image by Vladimir Solomyani on Unsplash.

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