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Chicago's Exploding Tech Startup Scene: Second to None

Chicago enjoys a unique quality that neither of the coasts will ever master: it's perfectly satisfied being perceived as un-tech-sexy, un-cool, and downright value-driven. Bonus: it's also relatively affordable as far as big cities go.
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After having left Chicago for the West Coast nearly six years ago, I recently returned on a technology-related business trip anxious to assuage my FOMO on perhaps the greatest tech opportunity in the U.S.

Within 24 hours of my arrival I was connected to a handful of the city's startup ringmasters, offered VIP tickets to EE12 (Chicago's preeminent New Year's Eve event for entrepreneurs benefitting the H Foundation) and invited to the CEC's 2013 Startup Forecast event.

I was floored. Why was everyone so nice and helpful? But then I remembered...right, this is the Midwest, this is how it works.

Chicago enjoys a unique quality that neither of the coasts will ever master: it's perfectly satisfied being perceived as un-tech-sexy, un-cool, and downright value-driven. Bonus: it's also relatively affordable as far as big cities go.

It's not that Chicago isn't cool, or that its arts and culture (home to Lookingglass and Steppenwolf theatre companies), fashion forward thinking, and nightlife scene - much of which is owed to the city's master social staple Billy Dec and Rockit Ranch Productions - aren't up to par. Rather, Chicago foregoes building an economy around trends, much of which is perpetuated by media and industry pundits.

That's right. The same old fashioned, undercover-come-mafioso, diligent qualities that launched a little known Senator squarely into the Oval Office have [recently] had the same effect on the city's tech startup scene.

But why will this city be an important national contender during the next decade of job growth, education, and investment in tech?

The Groupon effect

Despite its somewhat controversial reputation, or at least in terms of its love-hate relationship with the media, the overnight success of Chicago-based Groupon arguably catapulted the local tech scene into the spotlight. Beyond [somehow] managing to sidestep a Google acquisition and going for the IPO-gusto, the founders have served the local community through the establishment of "Chicago Ideas Week" and have been an integral part of cultivating the local investment pool.

The third and "quieter" Groupon Co-founder, Brad Keywell, is also a Co-founder and Managing Partner at Lightbank, an investment firm keen on early stage, disruptive technology companies, many of which have sprouted up from the Midwest.

According to Mr. Keywell: "The pace of startups being founded in Chicago is moving faster than ever, with 195 companies started in 2012 according to data that Built in Chicago shared with me. That's about double what it was two years ago. We've also seen exits (acquisitions, mergers, IPOs) at almost four times the rate they were two years ago. With a new digital startup every 48 hours, we're in the game and building our own unique global tech hub."

The media amplification engine

A major leading indicator of an exploding industry or market is the number of media distribution channels near or around a source. While most of the authoritative tech and business-focused media are based in New York, San Francisco, and Los Angeles, given their proximity to news sources (VCs, PR folks, founders, analysts, experts, wack-a-doo celebrities, etc.), Chicago's recent "on the map" status has given rise to a growing media infrastructure.

From the Chicago Tribune's expanded coverage of the technology sector, to the recent launch of Technori (Chicago's very own "TechCrunch with a soul" if you will) spearheaded by Seth Kravitz, the windy city isn't blowing any smoke - this is serious business.

Captial, capital, capital

Kevin Willer, President and CEO of the Chicagoland Entrepreneurial Center (CEC) working out of the city's premier incubator 1871, puts it aptly:

"In order for the startup ecosystem to thrive, three types of capital are required: human, financial, and social.

"In terms of human capital we have two of the top five business schools, five renowned design schools, and access to several universities with leading computer sciences programs. Its not that the talent isn't here, it's that we are tasked with keeping them here."

Beyond human capital, financial capital is likewise required to support an entrepreneurial environment where risk is high.

"Capital follows great opportunity and we've been seeing this over the past two years. Local VC firms are keeping investments local and national VC firms are starting to come here looking for deals. We're talking about rather sizeable investments ranging from 10M to 40M. Additionally, Chicago has an extremely supportive 'Angel' community, which provides ample support to our seed stage companies."

While governments are typically discouraged from interfering with the private sector, the engagement of the Mayor's office (Rahm Emanuel) and the Illinois state government has been well received. Chicago has created a "tech friendly" environment through its quest to make the city more "wired", and a government-backed early stage venture fund has been instrumental for growth.

This kind of social capital does not preclude the influence of Chicago-based Fortune 500 companies and their interest in supporting the startup scene. From Walgreens and Allstate to United Airlines and JPMorgan Chase, big opportunities are attracting big businesses.

Community builders
It's easy to undermine the importance of the less obvious aspects of what makes an emerging economy tick. Beyond just the capital requirements, the media engine, and the super-star standouts, community support mechanisms must also exist.

Entrepreneurs need a place to work that inspires collaboration and sharing of ideas; to this end Chicago has reinvigorated River North's Merchandise Mart with 1871. The Coop, TechNexus, Enerspace and Catapult Chicago also provide startups with options for shared space and networking. Next generation talent and "mature" workforce participants also need guidance and support. Through The Starter League, individuals can learn the basics of what is required for the swiftly shifting job market.

And what of entertainment, fun, and rewards for a job well done? Chicago has this too. From professional sports to a slew of award-winning restaurants and nightclubs, which makes for the city's very own celebrity scene of sorts, local 'treps have plenty of choices when it comes to unwinding from the daily stress of running a startup.

History in the making
Chicago's speedy rise through the ranks of a tech-epicenter has been years, if not decades, in the making. While it's easy to become enamored by startup darlings such as GrubHub, Braintree, SproutSocial, and Belly, and emerging tech companies like FoodGenius and Narrative Science, the importance of the city's solid technology roots should not be overlooked.

Starting with Motorola in 1928, then known as Galvin Manufacturing Corporation, Chicago slowly but surely built an ecosystem ripe for technology innovation. Remember Feedburner? How about Orbitz? Before Angels and VC firms afforded startup founders the luxury of business and monetization model exploration, WyzAnt bootstrapped their way to profitability as the leading, online matchmaking service for tutors and students across the U.S.

The next decade and Chicago's big bang

Despite the vast challenges and opportunities that surely lie ahead, my hope and desire for Chicago is as solid as my Midwest roots: that the city not lose its soulful approach to building and sustaining an innovation economy. What has always made Chicago great is its ability to foresee the future without the distraction of fantastical pies in the sky.

What the technology industry needs over the next decade is self-effacing, total innovation devoid of sexed up, useless solutions to problems our over-techy culture have created. We need solid solutions to systemic, industry-wide problems driven by technological advancement.

Could Chicago lead this charge?

In the words of Al Capone: "This American system of ours, call it Americanism, call it capitalism, call it what you will, gives each and every one of us a great opportunity if we only seize it with both hands and make the most of it."

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