Silicon Valley vs The Windy City

HPA was formed to fill a gap in financing for early stage entrepreneurs.  There were a few angel organizations around Chicago, but most of the deal flow went through a series of private networks.  One of the things that HPA saw was that the midwest, and Chicago, were especially proficient in many businesses.  No surprise to anyone that lives here, but people on the coasts still view Chicago as an unsophisticated backwater.  “Hog butcher to the world” isn’t exactly high tech!

Many see start up funding as a competition.  Silicon Valley is really good at what they do.  It is a great economic engine. The east coast has some fantastic angel and first stage funds, and an excellent track record of providing a fertile field for companies to grow. This is why a lot of entrepreneurs flee the midwest and set up shop on the coasts. HPA doesn’t see this as a competition.  We think that the pie can be made a lot larger.  There is no reason why Silicon Valley, the East coast and the midwest can’t all succeed. 

Crain’s recently published an editorial about this. In it, the writer “throws down the gauntlet” and challenges California.  It’s a well written piece, and he makes a lot of good points.  Many creative companies have come from Chicago. We need more of them.  Groupon started here and is rapidly growing, adding +30 jobs per month.  However, one thing that Chicago is missing is something talked about at Tie Midwest.  In Silicon Valley there is a “parking lot job application process”.  When the start up you work for goes out of business, exits, or you want to leave-you walk out into the parking lot and talk to people to find a new job.  What happens to you in Chicago?  It’s tougher here, although the climate is changing.  

Recently, Illinois passed a new angel tax credit which will help.  It would be great if all state and local government passed tax incentives to spur start up activity.  But it’s not enough.  IIT, DePaul, UIC, Loyola, Northwestern, and ChicagoBooth all have programs dedicated to entrepreneurship.  The University of Illinois in Champaign recently started a fantastic program for students.  All of our educational institutions have done an impressive job educating students on what it takes to be an entrepreneur.  But, it’s still not enough.  Students graduate. They are wet behind the ears, even though they have a great idea they need seasoning.  What we need is successful entrepreneurs joining organizations like HPA to help invest and mentor new up and coming companies. That is the secret to the Silicon Valley sauce.  They go out there for funding, but entrepreneurs stay because of the mentoring they receive.

There are some really great developments that are in place to help those young entrepreneurs out.  HPA is a co-sponsor of Excelerate Labs.  We looked at another lab starting up in the west loop called Syncubate.  Larry Hayward and Michael Gruber are working on Venture Lab.  Jeff Hoffman has one in the northern suburbs called Color Jar.  There is also the Chicago Entrepreneurial Center(CEC). TechNexus has been around for awhile. It is happening here in Chicago. There is no reason why growing an entrepreneurial community cannot be successful here in Chicago.

Venture funding in the United States is starting to die.  Funds have not had very impressive returns over the past few years.  People also want more control over their money.  Technology enables them to do this, so they are joining angel groups or becoming “super angels” themselves.   The list of the top VC funds never changes year after year.  It’s pretty much the same ten.  They are well run, and have a diverse mix of people administering them.  This death of the VC fund gives everyone else an opportunity.   

It is an uphill fight to try and change the image of the midwest as “flyover country”.  But Chicago has some really terrific advantages over places like Silicon Valley, even handicapping our weather! The educational systems for an entrepreneurs children are significantly better.  The state of Illinois has a much lower tax rate.  There is a core cadre of professionals that a company can hire to grow.  Culturally, Chicago has some of the best museums in the world, the best symphony orchestra, a fantastic opera.  No city in the world has a lakefront like Chicago.  The cost of living is extremely cheap here compared to both coasts. Restaurants are better. While there are some truly great golf courses near Silicon Valley, in Chicago there are more of them.  We have pro sports.  The sports teams of Chicago have been at least as good, if not better than the Bay area teams in recent history. (More World Champs since 2000!)  We also have geography on our side.  Anyone that has ever sat in coach on a flight from NYC to SFO knows what we are talking about! 

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: