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MTC report calls for more funding from state for entrepreneurship

Findings point to shortage of early-stage investments

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Missouri Technology Corp. released a strategic plan this month aimed to boost innovation and entrepreneurship across the state. 

An MTC-commissioned report by Columbus, Ohio-based TEConomy Partners LLC notes multiple challenges facing the state’s entrepreneur ecosystem, as well as strategies to help companies grow. Recommendations in the report, titled “Catalyzing Innovation: Strategies for Missouri to Drive Innovation & Entrepreneurship,” include creating new startup financing options, such as incentivizing angel investments, as well as improving regional efforts for entrepreneurial support and funding an internship program to connect startups to talent.

MTC is a public-private partnership of the Missouri Department of Economic Development that works to promote entrepreneurship and foster growth of technology businesses in the state. Jack Scatizzi, MTC executive director, said he was tasked with developing a strategic plan upon his start with the organization in early 2020. While the COVID-19 pandemic paused pursuit of the plan for most of 2020, the effort resumed early last year.

“The goal was to wrap it up by spring of 2022 so that we could use it for fiscal 2023 budget discussions,” he said, noting the plan, in part, quantifies the impact MTC has had on economic development in Missouri over the past decade.

According to TEConomy data, MTC has invested $75.7 million since fiscal 2014 in innovation and entrepreneurial programs, such as the Innovation, Development and Entrepreneurship Advancement Fund Co-Investment program. That has resulted in a total economic impact of more than $6 billion and generated $175.6 million in state and local taxes. 

However, the report says more can be done to ensure entrepreneurial growth. Challenges identified include a decline in venture capital deals closed by in-state companies, uneven access to entrepreneurial support and a need to boost interest of Missourians in innovation and entrepreneurship. 

Making an investment
Although the number of risk capital dollars invested in Missouri has grown substantially, to $630 million in 2020 from $83 million in 2010, the report said there is concern about the number of deals. Since peaking at 221 deals in 2015, there has been a decline in the number of companies receiving venture capital funding. There were 140 deals in 2020. From 2010-20, the majority of deals were from the St. Louis and Kansas City regions, at 853 and 658, respectively. The southwest region followed with 71 deals. More than 35% of the state’s 1,662 deals were in information technology. 

“Even though the amount of funding in venture capital going to the state’s startups over the past 10 years has grown, we’re still lagging some of our peer states,” Scatizzi said. “More importantly, while the amount is increasing, the number of deals is decreasing, which suggests there’s actually more later-stage deals and fewer early-stage deals. That provides a large opportunity for Missouri Technology Corp.’s IDEA Fund, where we do state-sponsored venture capital activity. We can help fill that gap and do more early-stage investments.”

Springfield-based e-commerce software developer Compatio LLC is a past recipient of MTC funds. Tim Baynes, founder and CEO, said his 4-year-old company received $250,000 last year from the organization during a seed round. He applied for $500,000 and is seeking that same amount this year as part of a new round of investment.

The company’s core software, which went to market in January 2020, enables retailers to better optimize e-commerce sales. Some of its customers are Sunshine Bike Shop, Ennis, Montana-based Madison River Fishing Co. and Ellensburg, Washington-based Red’s Fly Shop.

Compatio has raised $3.4 million to date.

“We decided to extend last year’s round and raise additional funds. We decided to double it to $3 million,” he said. 

Baynes agrees that accessing risk capital is difficult – particularly in the current economic environment.

“Over the last year and a half, it’s taken longer to raise,” he said, noting he’s had investors delay or freeze funds based on the economy.

That hasn’t stopped Baynes from making the ask to potential investors. While the $3 million seed round is just about $400,000 from closing, he said more investment will be sought before year’s end. Through its seed rounds, Compatio looks to grow its sales and marketing efforts, accelerate product development and expand its staff beyond 22.

“We’re still working on the total valuation, but it will be in the range of $8 million to $10 million,” he said.

Finding funds
Scatizzi said some of the recommendations made in the report won’t be easy to fund at a state level. For example, the report recommends at least $100 million in angel and pre-seed funds and $25 million each in risk capital programs and innovation financing options. An additional $30 million is recommended to fund an internship program that would connect students with paid opportunities.

“We’re not planning necessarily to do all of them or exactly as they are written,” Scatizzi said of the 16 recommendations in the report. “They are all legitimate actions. The question becomes how much time, energy and capital do we have. How do you prioritize or how can you identify partners throughout the state that are doing something similar that we can make sure the state’s entrepreneurial and innovation ecosystems have access to?”

The Missouri General Assembly approved $3 million in fiscal 2022 funding for MTC, and the organization is seeking $4 million for fiscal 2023 – the same amount recommended by Gov. Mike Parson in January. The proposed increase would move MTC from the funding drop it experienced in fiscal 2018 when it was cut to $2.5 million from its roughly $24 million a year prior. 

“We’ll probably start implementing some of them or at least start the groundwork in fiscal 2023,” Scatizzi said, noting preliminary discussions just started with elected officials and the governor’s office on state funding options for the report’s recommendations. “We’ll probably be pushing more for fiscal 2024 budget to try and get more capital for larger initiatives.”

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