Growing Missouri Startups: Arch Grants Has Local Focus, Global Reach

The second class of Arch Grant winners in 2013. | Photo Courtesy of Arch Grants
Arch Grants welcomed its second class of startups in 2013. | Courtesy of Arch Grants

Arch Grants At a Glance

Location: St. Louis | Established: 2011 | Classification: Incubator

Current Companies in Program: 20 | Total Companies Assisted: 35

Key People: Ginger Imster, executive director; Ben Burke, operations director; Jerry Schlichter, president, co-founder; Joe Schalfly III, director, co-founder

Specialty: Arch Grants is “industry agnostic,” Burke says, without any quotas for companies from specific sectors.

Structure: Arch Grants recipients get a $50,000 non-dilutive grant that does not require giving up equity. Startups also get mentorship from a pool of advisors, office space and networking opportunities. They must operate in St. Louis during the year of incubation.

Eventbrite - Growing Missouri Startups: A Conversation About Incubators and Accelerators in the Show-Me State

St. Louis is not Silicon Valley, where entrepreneurs are often eager to drop everything, leave their hometowns and develop their early-stage companies amid a richness of startup resources and success stories.

But Arch Grants, a non-profit business incubator, has drawn startup founders from across the United States and abroad with grants and incubation resources that require them to relocate their operations to St. Louis.

For its inaugural Global Business Plan competition in 2012, Arch Grants sifted through 420 applications to choose 15 winners from around the block in St. Louis to Costa Rica.

A year later, 20 more winners emerged from a pool of 707 applications, including the Swedish company Immunophotonics, which is working on a treatment for breast cancer, and Rovertown, which created an app allowing businesses to offer discounts to college students.

Founders of FoodEssentials relocated to St. Louis from Australia, Europe, Japan, and other U.S. cities after receiving a 2012 Arch Grant. The food label database company has attracted significant follow-on capital, including further investment from Arch Grants and two other St. Louis organizations — Cultivation Capital and Capital Innovators.

The pitch is simple. Arch Grants offers companies cash, a year in incubation and accounting, IT and legal services donated by St. Louis area companies that early-stage startups need but generally can’t afford.

This year, 46 finalists stood out in a pool of applications from 38 states and 22 countries. Arch Grants invited its finalists to St. Louis last weekend to sell them on St. Louis by highlighting the city’s attractions, such as Forest Park, sports venues, and art museums, and emphasizing the low cost of living and real estate compared to the coasts and even other large Midwestern cities.

“Entrepreneurs can bootstrap without starving,” Arch Grants Executive Director Ginger Imster said.

Once accepted, the startups are given the $50,000 grant divided into four fiscal quarters. While the grant is small compared with the amounts raised by startups in Series A funding rounds at accelerators, Arch Grants makes up for the deficit by not taking equity. “We want to make these companies as (attractive as) possible to follow-up investment,” said Ben Burke, Arch Grants Director of Operations. “The more equity they have available, the more likely they are to secure financing within the year.”

This year’s grant winners will join a group of 35 preceding recipients that have gone on to raise $10.7 million in follow-on capital and generated total revenues of $4.3 million while adding 142 jobs, according to Arch Grants. Only three companies from the first two classes have gone out of business.

Networking opportunities

Grant winners get more than just cash. Through the connections of Square co-founder Jim McKelvey and other St. Louis power players such as Arch Grants founders Jerry Schlichter and Joe Schlafly, startups get introduced to key business contacts and investors. Rovertown COO Jeffry Harrison chalked up his company’s deal with the St. Louis Blues and pending “college night” partnership with the St. Louis Cardinals to help from Schlichter and Schlafly.

The networking doesn’t stop there; the startups also have each other as resources. “We try to connect entrepreneurs to others like them and create space where they can collaborate informally,” Imster said.

Arch Grants has a section of the T-Rex co-working space, which is home to more than 70 startups. Harrison said startups working side-by-side become friends as well as neighbors, supporting and cheering each other’s efforts and successes. “We had a really close-knit group,” said Harrison, a member of the 2013 class.

Building St. Louis entrepreneurship

Imster said companies donating their services are often building relationships with dozens of future clients, and she noted that once a company gets out of the incubation, it will often stay with the same service providers.

Perhaps the most important aspect of Arch Grants is its role as a magnet for startups coming to St. Louis and a boon for existing local businesses. The $50,000 grant isn’t enough for a full-scale launch of a company, said Peter Meng, CEO and founder of online advertising startup adFreeq. But the grant adFreeq received from Arch Grants last year was enough to remove the cost barrier of having to move from Columbia to St. Louis, he said.

For Steve Marciniak, another member of the 2013 class, Arch Grants kept his legislation-tracking startup in St. Louis after it went through the accelerator program at Capital Innovators. Shortly thereafter, TrackBill raised $500,000 from Cultivation Capital, cementing the company’s status as a St. Louis startup for the foreseeable future.

Of course, the more entrepreneurs that Arch Grants can attract to or keep in St. Louis, the stronger the city’s startup ecosystem grows. “Talent begets talent,” Imster said.

Arch Grants gets the majority of its funding from private sources, and received state funding in the forms of awards from Missouri Technology Corp. — a $150,000 grant in 2011 and a $250,000 grant last year. Legislation pending in the General Assembly would nearly double MTC’s funding for startups, which could lead to an increase for Arch Grants.

Arch Grants will announce its next round of grant recipients later this month.

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