by Julia Paulus Ogilvie

No matter the stage of a business, a proper foundation and well-thought-out vision are needed to secure funding. Luckily, the St. Louis entrepreneurial community continues to grow stronger and offer its innovators the support they need to turn their business ideas into reality. “What we’re trying to do is build a pipeline,” says Judy Sindecuse, the founder of Capital Innovators, a combination of a seed-stage fund and an accelerator program. “So whatever stage a business is at, you can enter and get to the point you want.”

If you are very early-stage, Sindecuse recommends Innovate St. Louis as one of the best starting points. “This nonprofit offers ITEN (Information Technology Entrepreneur Network) and IVMS (Innovate Venture Mentoring Service) programs that give starter-level mentorship,” she says. “It’s a great place to start. After this initial programming, the business will be ready to start seeking seed investments.”

Once you’re through a program like ITEN or IVMS, you’ll have a working prototype, you may have customers and you will be ready to be working full time in your business, according to Sindecuse. The more help like that given at ITEN or IVMS that entrepreneurs receive, the more willing investors are to contribute in the future. “There has been a tremendous amount of growth in St. Louis in the past 18 months,” says Sindecuse. “At Capital Innovators, we invest $50,000 in a company and then provide mentorship and additional perks. We take the companies to the point where they have a number of customers and are showing traction.”

Resources for additional funds, which along with Capital Innovators are part of the second step in the pipeline, include Arch Grants and the MTC (Missouri Technology Corp.). “Arch Grants is a global business plan competition for startups who agree to stay in St. Louis,” says Sindecuse. “Its funding comes from companies or individuals who want to support early-stage businesses via charitable donations that are in turn given as grants to private companies. They made 15 grants last year of $50,000, and they will make 20 next year. Another, the MTC, is a government-run program that matches dollars invested.”

Once through the second step on the pipeline, a business might be ready for Cultivation Capital, whose investments are usually between $250,000 and $500,000, according to Sindecuse. “That’s where business owners prove their model and that they can grow beyond their existing relationships,” she says. “Then the business has shown they are ready to scale.”

Ideally the pipeline will take a business through these first three stages. “That allows individual angels to feel more comfortable investing because they know these companies are getting professional help and support,” says Sindecuse. “So it opens pockets.”

If a business has made it through this pipeline, the next step might be identifying the right investor for the next stage of business. According to Gil Bickel, chairman of the St. Louis Arch Angels, identification of angel investors has eased in the last five years, but funding received by businesses has not. “The St. Louis Arch Angel network has formalized this process to provide access to angel investors,” says Bickel. “However, the bar to receive angel investment is high and most companies do not fit the criteria that angel investors require to consider investment.”

Jerome Katz, director of the Billiken Angels Network and Coleman Chair in Entrepreneurship at Saint Louis University, agrees that while local angels may be more visible, the bar to gaining an angel investment has been raised. “You see more investing because accelerators, top-tier organizations and programs are improving the game of entrepreneurship,” he says. “That being said, if an entrepreneur is hoping to get funding but he or she hasn’t improved the offering, it is becoming harder to get it without improving. As the St. Louis entrepreneurial community continues to improve, to be successful you need to raise your own bar.”

Scott Murphy, the managing director and chief investment officer of Advantage Capital Partners, says the same can be said for the competition for venture capital. “No one should ever forget: It is incredibly hard to get venture capital investment dollars,” he says. “Our firm turns down 40 or 50 companies for each one that we select for an investment because it’s hard to change the world, and that’s what small, entrepreneurial companies are trying to do. From my own prior experiences as a serial entrepreneur, I can tell you that it’s an amazing opportunity to be part of a successful high-growth company and it’s absolutely worth the effort, but it’s never easy to raise venture capital dollars and it never will be.”

So, what steps should you take to compete in the ever-improving game of entrepreneurship in St. Louis and get closer to an angel or venture capital investment? Local investors shared their suggestions with St. Louis Small Business Monthly.

Have a Pitch and Use Your Network.
“First, get your thoughts together,” says Murphy. “Investors are always impressed with people who have passion, energy and an ability to discipline that enthusiasm and turn it into a realistic plan about what they can do. Then get out and talk to people in your network that might know sources of capital. Cold-calling can work, but getting a warm introduction is far better.  If you know people, ask them who they know and eventually get yourself an introduction to a capital provider from someone who can attest to what a great person you would be to go into business with.”

Know Your Value
“Many people say their company is worth $20 million, but they have no real sense of valuation,” says Robert Calcaterra, president of the St. Louis Arch Angels. “They either have an unrealistic valuation or they don’t actually understand what it is. You need to be realistic and understand your valuation.”

Know Whom You’re Presenting to and What They Want
“Look at what the group is asking for,” says Katz. “A third of the submissions to angels are wildly inappropriate. They are expecting 10% return, not 10 times. They want a loan, not an equity investment. Or their business plan is for an already patented product.”

Cover Your Bases
“Your presentation should cover a broad range from market management to financial milestones,” says Calcaterra. “If you don’t have all of that information, we will help you get there. But we need to see it all.”