I recently moved from San Francisco. In almost every social intro interaction, the first question strangers would ask me would be “So what startup do you work for?”. It never really made sense to me why they would ask this. Everyone in SF wears their free startup t-shirts everyday so if I’m not wearing one it probably means I’m not part of one (only part of the country which this is true), but I digress.
If you weren’t working for the Googles and the Facebooks of the world or the next Slack, the conversation would either go quiet or end up switching to talking about Philz Coffee or where they are getting brunch tomorrow. The conversation usually ended with everyone in the group agreeing that SF is the place to be and if you wanted to be in tech, you had to move to the Bay Area. I was always weary about this thinking as I am a Midwesterner at heart and figured that it was easier and more accessible for startups to start anywhere with the rise of Servers as a Service (i.e. Amazon Web Services).
I recently moved back to Chicago. It didn’t occur to me until I moved to the Midwest how different the tech ecosystems were in each city. Other than the amount of funding, perks (my friends in SF have free food, dry cleaning, gym membership etc.), there were some other things that surprised me about the Chicago tech ecosystem. This is my best attempt at articulating some of them:
Number of Startups outweigh the amount of VC’s
The Chicago venture capital ecosystem is incredibly small. There are only a handful of firms out doing venture. Because of this, the venture firms are a lot friendlier and more collaborative with each other than other cities. For example, here at Lightbank we host Chicago Enterprise Tech Meetup once a month with other firms in Chicago to help facilitate networking between the best CEOs and entrepreneurs with the tech community. In the Valley, there are 50–100 different VCs that any of the number of the startups will go to and there is less collaboration. If you talk to many entrepreneurs in the city, many have left and found funding elsewhere because they couldn’t find it locally. Marcin Kleczynski, CEO of one of the high flying startups in the Valley, Malwarebytes, has said before he wants his next gig in Chicago.
Culture and Mindset
If someone offered you 30k in salary and 30k in equity or 60k in salary and no equity which one would you take? It seems that many startup employees in Chicago would rather take more salary and have the security blanket rather than take more equity with more upside. There is a more boom or bust mentality on the west coast, and as a result there has been more innovation and more startups. In the Midwest, the vast majority of people work for big companies. There are the most Fortune 500 companies in the Midwest than any other part of the country. Not to overgeneralize, but many Midwesterners have worked for the same company for decades. On the west coast, especially in SF, people are more inclined to move from company to company. As a result, there is less risk tolerance than out west. Even the mindset of investors in the Midwest are more cautious. Startups with high growth and terrible unit economics that are funded in the Valley are few and far in between in the Midwest. Sustainable scalability and how they play out over time are emphasized to a much higher degree here.
Type of Companies
You will find less consumer facing companies. Although many great consumer facing companies have come out of Chicago such as Groupon, Raise, and SpotHero, most are b2b focused. Companies such as Uptake and others have been able to launch successfully while others from the Valley have failed because in the Midwest, there is a clear need for technology advancements that Fortune 500 need both don’t have the talent to do so. Caterpillar wanted the technology that Uptake is building but didn’t want to go to the Valley and didn’t have the talent so they leveraged Uptake to solve a problem which could be a $2 trillion market.
As the tech scene in Chicago continues to grow, I think there is a big opportunity for entrepreneurs and investors to make a name for themselves in Chicago. Although I will miss the great weather, free food, and the boom-or-bust mentality, I believe there is a big opportunity here in the Midwest to be a part of an ecosystem that is exciting and growing fast that has been historically underserved. It wasn’t until I moved to SF that I realized how much the Chicago ecosystem has changed and what it could be. We’ll have to wait and see what happens next.
Disclosure: Uptake, Groupon and SpotHero are all companies that Lightbank works with
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