Funding startups can change an entire region

Here's how to change philanthropic dollars to address poverty by leveraging tech

Can capital be redistributed to ignite economic development? Can we change how philanthropic dollars are used to address poverty by leveraging emerging tech? Can we change the future of an entire region by funding startups?

St. Louis nonprofit Arch Grants is working to answer these questions as it endeavors to create a game changing entrepreneurial culture and infrastructure to build successful businesses in St. Louis.

Arch Grants is a different approach to philanthropy and economic development. Our innovation is how we leverage philanthropic dollars to encourage for-profit development in our region. That innovation matters because, in order for a community to thrive, it always has to be creating new jobs in new industries that retain and attract the most talented people.

[I'll be speaking at Vator Splash Oakland on May 6-7 with other investors, heading up accelerators that focus on developing their respective local economies. Splash Oakland is an educational and startup event and competition, attracting leading investors and entrepreneurs from around the country. Register here using "Archgrants25" for a 25% discount.]

Another innovation is the fact Arch Grants does not take an equity position in the companies it funds. It’s free money. The only requirement is that companies must headquarter in St. Louis for the duration of their grant period. And most are staying.

To date, Arch Grants has invested $1.7 million in 35 companies. In 2012, we awarded 15 grants of $50,000 each. In 2013, we awarded another 20 grants of $50,000 each. In 2014, we will award an additional 20 grants of $50,000 each - a third consecutive year of investment in the future of St. Louis.

What is the return on an investment of $1,000,000 when entrusted to entrepreneurs in emerging tech?

Of the 35 companies funded by Arch Grants 32 are still in business, one was acquired (hooray!) and two have closed. Of the 32 still in business, 97% are headquartered in St. Louis. The companies have created over 190 jobs, generated over $6.5 million in revenue, and attracted over $17 million in follow-on capital. Our grant recipients have leveraged the heck out of their equity-free grants of $50,000, and St. Louis is beginning to reap the benefits.

It has been a great start, but it’s just the beginning. We know the ultimate metric is retention…..the number of Arch Grants funded entrepreneurs who still call St. Louis home in 10-years is what will matter most.

Why must a community invest in emerging tech?

For St. Louis, it’s obvious - 22% of all jobs in the St. Louis metro area require specialized knowledge in STEM fields -- science, technology, engineering or math -- according to a Brookings Institution study. That puts St. Louis 18th among the top 100 metro areas.

Jobs in emerging tech are desirable: The average STEM worker in St. Louis makes $66,073 a year (2011 data), compared with $37,567 for other jobs. Brookings also counts 43,580 jobs in computer occupations in St. Louis, with 81% of those requiring a bachelor's degree - conveniently, St. Louis happens to be a great college town.

Can we retain more of the talent we graduate every year? So far, so good - and we’re just getting started!

(Image source: pwestpathfinder.com)