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 02 25 11 | St. Louis Post-Dispatch article by David Nicklaus Divergence Sale Spurs Hope for More Deals As St. Louis assembled money, facilities, and talent to build a life-sciences industry, backers often said we lacked just one key ingredient: success stories. This week, with the sale of Divergence to Monsanto, we got a success story worth talking about. The hope is that the buzz surrounding the agricultural-technology firm — and the profit it made for investors — will inspire other entrepreneurs to start companies here and make it easier for them to find money. Monsanto didn't disclose the purchase price, but various people close to Divergence said the deal created a tidy profit for investors. "My feeling is everybody should be happy with the return," said Robert Calcaterra, a principal in Startup Midwest Management and an investor in Divergence. Ilya Nykin, a managing director of Prolog Ventures in Clayton, called the sale "a big deal for St. Louis. It's a good payoff for a very nice team." Prolog invested in all three of Divergence's venture-capital fund-raising rounds, beginning in 2002, and Nykin sat on Divergence's board. Divergence also raised money from out of town, most notably from Cultivian Ventures, the Indianapolis firm that led an $11.8 million fundraising round in 2009. The more money out-of-town firms can make in St. Louis, the more they'll want to invest here. "We're always being asked, what are your success stories?" said Donn Rubin, executive director of the Coalition for Plant and Life Sciences. "When outside investors are talking about success, they want to know about something that's gone all the way to exit and returned some multiple on their money." Divergence was founded in 1999 by James McCarter, a genetics scientist at Washington University. Its CEO was Derek Rapp, a former Monsanto executive who now has rejoined his old company. In addition to raising venture capital, Rapp funded his company through federal research grants and partnerships with companies like Monsanto. Ultimately, its first product — a method for making soybeans resistant to pests called nematodes — was promising enough that Monsanto bought the company and said it will keep all 25 employees. An acquisition by a large strategic partner is the most common type of liquidity event, as venture capitalists call their cash-out opportunities, but exits of any sort have been rare among the small number of venture-backed companies in St. Louis. The last big liquidity event for a St. Louis startup was Stereotaxis' $44 million initial public offering in 2004. The initial excitement over that one diminished for investors who held on to their shares; Stereotaxis now trades for less than half its IPO price. Divergence, by contrast, was a clean exit for investors. Calcaterra, for one, says he already knows what he'll do with the profits. "For me, personally, I'm going to recycle the money. ... I'm going to put my money back in play with other deals." The real payoff from this deal will come if more St. Louisans — scientists, managers, and investors alike — become excited by the opportunity to build the next successful biotech company. "We need more of this, and I think we'll see more of it," says Joseph Schlafly, head of venture-capital investing for Stifel Nicolaus. It takes patience, to be sure — Divergence's 12-year life span doesn't exactly qualify as a get-rich-quick scheme — but we now have proof that patience can be rewarded.
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