Holidays are a great time for families to get together. Making the Christmas party rounds, I meet parents looking forward to being reunited with their families – many of which are scattered across the country. I’ve noticed that for Midwestern families, this separation is all too common. Bright kids are using their great educations to compete for jobs in marquee cities like San Francisco, Washington D.C, or Boston, and they only go back to St. Louis, Indianapolis, or Fayetteville for the Holidays.
At one of these recent parties, a mother asked me what I do. I told her about iSelect and how we invest in promising midwestern startups. The mother said, “my youngest kid is a Senior at WashU. He programs computers. Do you think he could get a job here? All my other kids are now in San Francisco, and I just want at least one kid to stay in St. Louis.”
While the media focuses on Silicon Valley’s prolific startup scene, the truth is that the Bay Area is an anomaly. In the US, the percentage of the adult population that owns a business has been on the decline since 1996. It’s also hard to believe that the US currently ranks 12th among developed nations in startup activity. The reality is that money invested in early-stage companies is going only to a select few locations. Midwestern financial advisors and wealth managers are sending money to big investment funds in New York, and that money is directed to places like Silicon Valley, where it is put to work in a few select industries like computer software, media, and entertainment. But who’s funding the next Washington University Med School spinout? Or the next big ag-tech company?
Boston, New York and Silicon Valley do not have exclusivity on smart ideas and smart people. This country is full of great companies working hard in logistics, chemicals, food, materials, clothing, automotive, agriculture, healthcare, etc. These industries and companies are looking hard for new innovation, but they do not find it locally when the money is invested out of town.
If you are an accredited investor and want your children closer to home, it is time to think about investing in regional ventures. But what can an accredited investors with $100k to invest do? If they invest it in a single company won’t they risk losing it all? How do they properly vet many companies and choose a diversification strategy? Can their financial advisor help them with this process? It seems complex, but iSelect has the process and mechanisms to manage this entire process. We review hundreds of companies across the midwest to find the 2% that are the best of the best. iSelect manages the investment process for you.
St. Louis has known many success stories over the years, and the impact of a few initial investors cannot be overstated. Take for example, McDonnell Douglas, Express Scripts, Enterprise, Monsanto, and, most recently, Square. These companies were not born big. Regional investors believed in these companies, funding them when they fledgling for a foothold in the market. Each of these companies now dominates its respective marketplace, in part because a few early-stage investors believed in them.
In 2014, St. Louis early-stage companies received $30M of investment, and the greater St. Louis metropolitan area is home to an estimated 100k accredited investors. If 600 of these investors (0.6%) invested as little as $50k each this year, St. Louis would double its base of early-stage investment to $60M. If these same investors committed 200k, it would completely transform the business community of St. Louis, providing enough venture capital over a four year period to achieve multiple successful exits, and ultimately prompting even more capital to enter the market.
So here’s my economic development strategy: take a small portion of your net worth and invest across 10, 20, perhaps 30 area startups, have your kids move home to work in a competitive field, transform Midwestern industry, and have the potential to earn a good return. This is the type of development strategy that could transform any city, but particularly those found in the Midwest, from Denver to St. Louis to Cleveland.