Why do Chicago VC's lag so far behind others?
Chicago being the 3rd largest city in the country and filled with plenty of wealthy angel investors and VC's, seems to really miss the mark in the internet field. We see much smaller markets from Boston, Austin, Boulder, San Francisco to merge as a growing hub for web entrepreneurs. Why does Chicago seem ages behind the rest of the country? There are very few if no angel funds, start up groups, or incubators. Chicago, whats up?
3 comments
I run a private equity fund in Chicago that invests exclusively in internet and financial-services startups. As far as I know, we're far bigger than any firm in Boulder, and our AUM exceed most of the Sand Hill Road firms. But we're boring and low-key. There are several other VC and angel funds in the area that invest in internet companies, and they tend to be the same -- boring and low-key. Basically, we all require a business model. A 'boring' and profitable business is better than a business that is 'slick and quick.' I would personally rather cash checks than be written about in TechCrunch. I'm more likely to invest in a SaaS company that manages the back-office networks of pension administrators than in a company that aggregates social network profiles, for example.
The fact that the Chicago VC/angel establishment is not constantly funding Google takeover targets (or on TechCrunch all the time) doesn't mean we don't exist...it just means we work differently. We're definitely much smaller than the Boston and SF contingent, but we're here if you look.
The fact that the Chicago VC/angel establishment is not constantly funding Google takeover targets (or on TechCrunch all the time) doesn't mean we don't exist...it just means we work differently. We're definitely much smaller than the Boston and SF contingent, but we're here if you look.
[deleted]
Lots of finance, manufacturing, logistics wealth, trivial amounts of technology wealth (compared to Boston or the Valley.) The expertise isn't there and it has no incentive to move there when there are clusters that are massively more attractive by virtue of the historical forces and path dependence that gave the big clusters a critical mass of expertise and smart money.
Yeah, what he said ;-)
Succinctness is a virtue that I lack.
Succinctness is a virtue that I lack.
My original, long-winded answer:
I think much of the answer is historical, but part of the answer is also cultural (and these two factors intertwine and reinforce each other.)
Historically, Chicago technology startups have tended to be more industrial and/or infrastructure focused than the startups in other hubs. There isn't a major,'exciting' Yahoo or Google-type company headquartered here that gets lots of press and that will buy a non-profitable startup from you. Instead, there is Motorola and companies like that. There simply isn't the strong history of computer-oriented VC firms in Chicago like there is in Boston and SV. Part of that is just historial anomaly (owing to Stanford and Shockley, etc)...but the ripples in SV and Boston turned into waves because people nurtured them. Some places needed technology to become a major industrial base, so their economy and education system rewarded technology research and technology startups. That is not the case in places like New York or Chicago, which have plenty of other industries to keep all the yachts afloat. Of course, once an area builds the infrastructure and the talent pool, it tends to just feed on itself and amplify, making it difficult for other places to catch up.
Culturally, Chicago is a fairly pragmatic city...there isn't as much of an interest in the flashier, consumer-focused startups as there is in Silicon Valley. The "IPO or Flip or Die" strategy is much more prevalent in the Valley or Boston, whereas internet companies in Chicago tend to be more interested in slow, organic, profitable growth. Investors in Chicago are more risk-averse and are not likely to invest in something that just wants to aggregate eyeballs and figure out a business model later. The downside of that conservative approach is that you will miss out on companies like Google. And you will miss out on fame and excitement. The upside is that you are more likely, statistically, to end up with a stable and profitable company.
I think much of the answer is historical, but part of the answer is also cultural (and these two factors intertwine and reinforce each other.)
Historically, Chicago technology startups have tended to be more industrial and/or infrastructure focused than the startups in other hubs. There isn't a major,'exciting' Yahoo or Google-type company headquartered here that gets lots of press and that will buy a non-profitable startup from you. Instead, there is Motorola and companies like that. There simply isn't the strong history of computer-oriented VC firms in Chicago like there is in Boston and SV. Part of that is just historial anomaly (owing to Stanford and Shockley, etc)...but the ripples in SV and Boston turned into waves because people nurtured them. Some places needed technology to become a major industrial base, so their economy and education system rewarded technology research and technology startups. That is not the case in places like New York or Chicago, which have plenty of other industries to keep all the yachts afloat. Of course, once an area builds the infrastructure and the talent pool, it tends to just feed on itself and amplify, making it difficult for other places to catch up.
Culturally, Chicago is a fairly pragmatic city...there isn't as much of an interest in the flashier, consumer-focused startups as there is in Silicon Valley. The "IPO or Flip or Die" strategy is much more prevalent in the Valley or Boston, whereas internet companies in Chicago tend to be more interested in slow, organic, profitable growth. Investors in Chicago are more risk-averse and are not likely to invest in something that just wants to aggregate eyeballs and figure out a business model later. The downside of that conservative approach is that you will miss out on companies like Google. And you will miss out on fame and excitement. The upside is that you are more likely, statistically, to end up with a stable and profitable company.