October 16, 2013
Improving the Chicago Startup Ecosystem – A Simple Answer
In The September 3rd edition of Crain’s Chicago Business, I was quoted along side a small headshot in an article titled: Startup Psych 101: Embrace risk – and don’t fear failure. In the short blurb associated with me I was quoted as saying there is a bit of a moat around Chicago. I thought I might elaborate on this a bit.
**I was not listed a week or two later in the big spread on Chicago’s top 50 Tech Stars….so consider yourself fully disclaimed.
In the piece, the single largest Startup player in Chicago prior to the Internet bubble bursting, Flip Filipowski, who declines to discuss the outcome of Divine Interventures states, “If you’ve got a really good idea, you can be successful (here),” he says. “The world has flattened out. You can reach out and get enough of an infrastructure just about anywhere. Venture capital is going where the good ideas are.”
Whatever else you have to say about Mr. Filipowski – he is a smart smart and direct entrepreneur. Currently, his LinkedIn page states his location is Chicago, but it seems clear he is in Winston Salem – otherwise, my assumption is he would be much more visible in the Startup community. Nobody does PR like Flip, which I of course admire greatly. The other thing I admire is he was right about Divine (OMG did I just say that) – his timing was just too early, which is something I know a little bit about. His construct where a funding entity (his VC fund) also provides value added services across its portfolio of companies is exactly the game plan of the biggest and most successful players on both coasts. I am not sure about the idea of including “Divine” in all the portfolio company names, but everyone can have an opinion – who’s to say mine is correct? I met with him once in the private dining room of the Four Seasons at the height of the ’99 bubble…he was basically holding court.
In the Crain’s Chicago article, Matt Moog, who I do not know, but by all accounts is an accomplished entrepreneur and all-around good guy states that, “Chicago-based companies such as CareerBuilder, Orbitz and Classified Ventures, with more than $1 billion between them. They all started here. Does that mean Silicon Valley missed the opportunity to build them there? There’s hundreds of millions of dollars that have come into this market from outside venture firms, and there’s more and more of that happening.” Honestly, I am scratching my head over this quote, not because it is technically false, but it certainly has substantial (and smart) spin on it. These companies were all conceived over ten years ago and funded primarily by major strategic investors (not VC’s)- in industry’s like newspapers and airlines as a defensive move based on game-changing disruption emanating from places like the Valley, NCY, etc.. Giant chunks of value were being clawed from their industry verticals by Startups like Priceline and Expedia, who subsequently generated both IP and market values well beyond those mentioned. My point is that his statement: “There’s hundreds of millions of dollars that have come into this market from outside venture firms, and there’s more and more of that happening.”, I would say the math is technically accurate if you count the aggregate dollars going back a bunch of years. My company fob.com closed $44M on February 7th, 2000 from VC’s on both coasts – is this value in the equation?
SO WHAT IS MY POINT?
In the same article, Victor Hwang, Graduate of the University of Chicago Law School and currently with T2 Ventures in the Valley, was the star contributor – hands down, He crisply stated, and in the process described the moat I was referring to relative to the Chicago Startup and VC investing community:
Mr. Hwang: One of the common things people will say is that Silicon Valley is not a place—it’s a state of mind. Ultimately, it’s about the way people think. I remember, when I was in Chicago, one of the first questions you’d sometimes get is, “Why are you here and how long are you going to stay?” You don’t get that in Silicon Valley. It’s more about, “Welcome. Let’s do something. Let’s try something together.” Another reason why a lot of companies have moved out West is there’s resources to support them. If you’re trying to hire employees, there’s just a ton of talent waiting to join the next big thing.
You mention that you’ve also seen significant differences in the attitude toward favors?
There’s also a unique mentality here. There’s no expectation of a direct return when you’re giving introductions or referrals. It’s just a very fast flow of favors. It makes favors a form of currency.
What other major differences do you see in the Midwest versus the valley?
Every city has its own social contracts. In Chicago, the social contracts are to “stick to your own knitting” or “keep your head down low” or “work with people you trust.” They are all good Midwestern values, but the result is that you don’t take big risks.
Right now Chicago is dominated by a mentality that is a function of all the profits that have been made in “Private Equity” (PE) business. Bricks and mortar companies and smart people creating cashflow arbitrage opportunities and subsequently small fortunes as a result.
Only, when Chicago is finally able to follow the blueprint laid out by Mr. Wang and shed the habits built up by years of fostering the secretive private equity culture (which is certainly required – so nobody can attempt to steal your deal) will Mr. Moog’s statement about funding from “outside venture funding firms” actually become a reality – in real time. Right now, I think our Startup funding community is holding on just a bit too tight. fill in “the moat” around Chicago and let’s create as much access as possible to wherever the right resources are for every entrepreneur.
Let me know what you think