Nidus Center Articles and Press Releases

St. Louis' big employers have been moving out, downsizing or getting merged out of existence. The city's salvation is coming from entrepreneurs.

Yes, there is a pulse
By Tom Post

No one was particularly surprised when Boeing recently announced it was cutting up to 7,000 jobs at its military airplane factory in St. Louis, since it had lost out on a big order for the F-15 fighter. St. Louisans have grown used to seeing jobs disappear by the planeload in the past decade--20,000 of them from McDonnell Douglas alone, the airplane company Boeing bought in 1997.

St. Louis likes to call itself the gateway to the West. Alas, the gate opens out. In the past half-century the city's population has shriveled from 857,000 to 343,000. During the 1990s McDonnell Douglas, Southwestern Bell and Boatmen's Bancshares closed their headquarters after being acquired. Monsanto nearly exited last year, too, an event forestalled only by the collapse of a merger with American Home Products. Employers' problems feed, in a vicious cycle, the urban problems--like regional and racial divisions, lousy city schools and a poorly prepared work force--that seem to afflict St. Louis even more than other cities.

Is there any hope? There is, in entrepreneurship. In the past decade, even as thousands of jobs were erased, the St. Louis region picked up more than 160,000 new ones--roughly 80% of them at businesses with fewer than 100 employees.

Rejected by banks and investors, Marshall spent two years and $400,000 raising money

AeroTech Service Group is one of these job creators. Its founder and president is George Brill, 36, who quit working as an aerospace engineer at McDonnell Douglas in 1991 when defense cuts put his future there in jeopardy. Building on technology from McDonnell, he developed secure, extranet systems that let large corporations share information with key suppliers and customers at remote locations. Defense contractors can use AeroTech's software, but so can telecommunications, health care and consumer products companies. Revenues last year: $1.5 million. Brill started the company with $20,000 of his own money and $30,000 from his parents; he drew no salary for two years. He says it has been profitable every year since its founding.

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Dana Marshall, a mechanical engineer, was working at McDonnell Douglas on solid-state lasers for the military--mainly for targeting laser-guided weapons. When McDonnell announced in 1992 that it was closing the laser division, Marshall and colleague Theodore McMinn pooled their resources-- $8,000 in an IRA, a $60,000 second mortgage and $18,000 in credit card debt--and founded Cutting Edge Optronics in Marshall's attic to develop lasers for commercial uses: to engrave computer chip packages, weld metal components or cut holes in microelectronic parts. They had no money to fly to Montana for a potential contract, so they loaded a prototype laser into Marshall's 1984 Jeep and drove all night. Two weeks later they loaded up the Jeep and dashed off to Boston for a demo--but didn't win either account.

Just hustling more capital ate up a lot of the two founders' time and money: Marshall figures he has spent $400,000 in the last two years pursuing new funds. Even after Cutting Edge began shipping products--it hauled in $3.5 million last year--banks insisted on unencumbered collateral, such as real estate, before extending a loan. Private investors didn't understand the technology. Venture capitalists recoiled from the risks. When Marshall needed $3.5 million in 1996 to develop a line of semiconductors, he had to turn to Dominion Ventures in Boston. "St. Louis is a very conservative community from an investment standpoint," says Marshall, 40.

Venture capitalists insist the climate in St. Louis is improving, as better deals come their way and more investors get involved. "You can't have a venture economy with only one VC firm in town," says Gregory Johnson, a general partner at Gateway Associates, which invests nearly half of its funds in high-tech companies in and near St. Louis.

Until recently, Gateway was about the only game in town, along with Capital For Business, which invests in established companies that make or distribute industrial products. Now there's Civic Ventures, which specializes in minority-owned businesses, as well as a handful of certified capital companies that provide early-stage financing to startups with fewer than 200 employees and less than $4 million in revenues, and funds backed by the former heads of Ralston Purina, Boatmen's Bank and the Federal Reserve Bank of St. Louis.

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Entrepreneurs are also turning to individuals--who have a long, if spotty, history as investors of last resort. It was a gaggle of St. Louis businessmen, after all, who backed Charles A. Lindbergh's transatlantic flight in 1927. Now there are organized bands of angels. The Can-Do Early Stage Venture Capital Investment Club meets four times a year to hear pitches from prequalified entrepreneurs. Each of its 90 members--entrepreneurs, executives, lawyers, accountants, retirees--ponies up at least $500 a quarter over three years. The ante has enabled Can-Do to invest $470,000 in 13 startups. Two look promising: BioProfile is developing a noninvasive way to detect cancer at the earliest stages by analyzing DNA and proteins; Great American Barbecue will sell $25 million worth of prepared chicken and ribs in local supermarkets this year. One $50,000 investment went awry--when the undercapitalized company collapsed a month later. "Due diligence is not one of our strong points," sighs club member William Rubin.

Universities are hatching cool technologies into new companies.

As FORBES noted in its recent survey of employment hot spots (May 31), academia has a role to play in economic development. "We're trying to serve as a launching pad to get inventions into the hands of those who can develop them," says Washington University Chancellor Mark Wrighton, who spent 23 years in the chemistry department at MIT and has a few patents in his name. This year the university will file about 70 patents and collect some $9 million from nearly 300 licensing agreements.

Some of that technology has ended up as the nucleus of new companies. Growth Networks Inc., based in Brentwood, Mo. and Menlo Park, Calif., is designing and marketing a new class of high-speed switches for wide area networks. AP Materials in St. Louis develops uniform microscopic particles to produce high-performance materials, enhancing, say, conduction in semiconductors or the storage capacity of tapes and disks.

Other ideas will be hatched in newly built incubators, including the Monsanto-backed Nidus Center for Scientific Enterprise and the Donald Danforth Plant Center, opening in 2000. St. Louis' Center for Emerging Technologies--backed by funds from the feds, the state, the city and the University of Missouri--began offering subsidized lab and office space last year. It now has nine tenants, all in the bio- and agritech areas. Applicants must demonstrate cutting-edge research, a business plan with potential economic impact on the St. Louis area and strong ties to a regional university.

The new battle cry around town: "If you can sell it in St. Louis, you can sell it anywhere."

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Furthest along in the incubation process is a development-stage company called Stereotaxis. It's currently in human clinical trials on a $1 million device for magnetically guided, minimally invasive brain surgery and other interventional applications, including cardiology. The company has raised $23 million. Orion Genomics hopes to start pulling in revenues next year from its proprietary method of sequencing, mapping and cloning agricultural genes--technology that can be used to improve crop yield, develop pest resistance or help plants survive drought, flooding and cold. Richard Wilson, 40, one of four founders, is a professor of genetics at Washington University.

Roy Curtiss III, 65, gave up his chairmanship of the university's biology department to work part time at his six-year-old company, Megan Health. Megan is developing animal vaccines because they involve less costly clinical trials than human immunization and produce quicker cash flow.

Already Megan has sold $250,000 worth of a poultry vaccine consisting of the salmonella bacterium in which two genes have been deleted--which renders the bacteria harmless. It's sprayed on chicks as they hatch, and costs less than a cent per bird. Some very cool science is on the drawing board: a recombinant vaccine that pairs salmonella with a gene from, say, the organism that causes tuberculosis as an oral delivery system to stimulate the body's natural immunity to both bacteria.

Where to find the right people to staff the startups? Universities are an obvious choice. So are tech-based corporations in the midst of shrinking. Many entrepreneurs are recruiting outside the area--using as a lure the fact that housing costs are so much lower in St. Louis than in San Francisco or Boston. In O'Fallon, Mo., a prosperous suburb with a good high school, $163,000 will get you a four-bedroom home.

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Gregory Sullivan, founder and president of a $13 million (1998 sales) custom applications software company that bears his name, trolls the Internet and trade shows, and follows up on referrals from his 190 software developers. When he takes on jobs outside St. Louis--Nashville, for example--he can usually scour that region's engineering schools and have a project team up and running inside of two months. Among his come-ons: giving hires a chance to publish their software development ideas as well-distributed trade books--and paying them a fat bonus for their labors up front.

Attracting talent is a challenge for low-tech startups, too. At Build-A-Bear Workshop--where kids walk in and assemble their own teddy bears for $10 to $40--Maxine Clark provides incentives rarely found in a retail business. Those at the associate manager level and up can earn a bonus twice a year based on sales, profits and customer service (Clark is vigilant about follow-up surveys); soon they will qualify for stock options and a 401(k) plan. Clark targets her hourly workers for training and career development, whether they're high school students, part-time teachers and nurses, or grandmothers.

Clark, 50, opened her business in 1997 with a single store in the Saint Louis Galleria mall. This year she hopes to do $20 million in revenues with 14 locations (10 of them will have been added since January). "This is a great place to launch a business," she says. "If you can sell it in St. Louis, you can sell it anywhere."

Which is the kind of thing you hear all over town these days. "A long time ago the city fathers spurned the railroads because they already had such great river commerce," says Richard Fleming, chief executive of the St. Louis Regional Commerce & Growth Association. "The railroads turned to Chicago, and St. Louis was never the same again. Today we don't intend to pass up the opportunity of the new economy."

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