I had a great conversation with Jeff Carter yesterday on Twitter about the evolution of the Chicago startup ecosystem. (H/T to Chicago Inno and this interview of J.B Pritzker for prompting the conversation). The question at hand was: how do you build a startup ecosystem?
In building anything significant, there is always an order of operations. For instance, for legendary 1980s Miami startup entrepreneur, Tony Montana, the order was as follows:
1. Build high-margin pharmaceutical business (get the money); 2. Whack boss/competitor, Frank Lopez (get the power); 3. Proceed to order the Peking duck (get the duck).
In the world of startup communities, the order of operations looks something like this: 1. Build Big Sexy Startup that draws in top talent; 2. Talent spills over to rest of community helping fuel new startups; 3. Venture capital begins to pour in.
Or…if we’re using the parlance of Scarface, first you get the startups, then you get talent, then you get the money. Here’s a brief history of how this has played out over the last seven years in Chicago.
Chicago Startup Community Timeline
2008–2009: The Tech Desert Era
When we launched GiveForward in 2008, the startup ecosystem didn’t really exist in Chicago. In fact, I honestly don’t think I even knew the word ‘startup’ at the time. That’s not to say there weren’t a few burgeoning tech companies and tech meetups sprinkled throughout the city, but it was still very much an underground movement. If you were looking to join a startup or invest in a startup in 2008, it was pretty much a tech desert
Today, it’s easy to take for granted all the mentorship programs, accelerators, co-working spaces, and educational events that take place every night of the week in the city, but in 2008 none of that existed. There was no Techstars, no Technori, no 1871, no Lightbank, no BuiltIn, no Techweek, no Starter League, no Dev Bootcamp, no Internet, no Impact Engine etc. Here’s what did exist: Midventures, BARcamp and Ron May. MidVentures (which later became TechWeek) was three dudes, (Geoff Domoracki, Jonathan Pasky, Brian Mayer) and a lobby. Every three months or so they’d have a startup event called MV Mixers where four or five companies would give a 10 minute pitch in front of 15-20 people in the fancy lobby area of Geoff’s apartment building.
Here’s some photos from a February 2009 event where GiveForward and Groupon were both pitching.
In early 2009 Groupon was a side project and Andrew Mason was actually still pitching The Point.
This also happened >> People had Blackberries.
BARcamp Then there was BARcamp. If MVmixers were for the suits, BARcamp was for the true nerds and it was even scrappier than the mixers in Geoff’s lobby. Anyone who wanted to be a BARcamp sponsor pretty much could be, including GiveForward. Hooray!
Mind you, in 2009, we were bootstrapped, we had made a whopping $6000 in revenue at that point and our website looked like complete ass. We had no business sponsoring events but we did it anyway, because why not. We were like, you know, one of the biggest startups in the city. Yep, we were total big shots!
The startup bench was pretty thin in 2009, so event organizers would take any crap sponsors they could get. Hell, they even took us!
That was 2008-2009 in a nutshell. In general, there was some small underground stuff going on but there was no national spotlight on Chicago. That would all change in 2010.
2010: Groupon blows the fuck up and Techstars comes to Chicago
In 2010 Chicago got its Big Sexy Startup. Groupon started blowing up, big time coastal VCs invested, and all of a sudden people are starting to look at Chicago in a different light. At the same time, something else awesome is taking place: Excelerate Labs (now Techstars Chicago) launches. GiveForward was super-lucky to be part of the inaugural class. For us, it forever changed the trajectory of our business. But I think from a more meta-standpoint, Excelerate Labs helped change the trajectory of the entire Chicago startup community. Everyone wanted to be the next Groupon, and now there was a program that could help make that a reality. It was a paradigm shift for the city.
2011: GrubHub blows up.
In 2011 GrubHub quickly followed Groupon as the next big success story when they announced they were raising a massive $50M round of funding. The business was going gangbusters and by this point they are well on their way to an IPO.
2011–2015: The Groupon + Grubhub Talent Explosion
As much as our low-interest-rate fueled, Techcrunch addicted startup culture lionizes the ginormous funding rounds and valuations we’ve all witnessed in the last few years, investment capital is not the primary driver of a startup ecosystem’s success. The real driver is a deep talent pool. The effect of Grubhub and Groupon on the Chicago talent pool cannot be overstated. Engineering, product, ops, and marketing talent all moved into the city from elsewhere to be part of these rocketships. And once these companies IPO’d, many of their employees eventually spilled out to join the city’s new generation of startups.
At GiveForward, I can say we’ve been very fortunate and have benefited in a huge way from all the post-IPO talent on the market from Groupon and GrubHub. Our online marketing manager came from Groupon, our Dev Ops guy, came from GrubHub, our CTO was formerly the CTO of Grubhub, and Mike Evans, the founder of GrubHub is one of our board members. On top of that, two more of our engineers are graduates of Dev Boot Camp, a three month intensive engineering program started by two former Groupon guys, Dave Hoover and Elliott Garms. All in all, about 15% of our team came from either Groupon, GrubHub or some derivation thereof.
Silicon Valley is Silicon Valley not because of access to capital. It’s because of access to talent. As, Jeff Carter, founder of Hyde Park Angels and West Loop Ventures and one of the pioneers in the Chicago angel investing community stated so perfectly on Twitter, ‘Talent plays the biggest role. Without it, there is no investment capital.’
With this influx of talent coming into Chicago in 2011-2014, the Techstars, 1871’s and Starter Leagues of the world began to spring up. The Mentorship, office-space and educational programs that these organizations provided were instrumental in helping the Chicago startup community take hold.
2015 and Beyond: The Final Piece of the Puzzle
The final piece of the puzzle is capital.
While it’s great to have coastal VC firms investing more and more in Chicago, it’s critical to have homegrown firms ready and able to invest into Chicago companies.
Though this last piece of the puzzle has been the slowest to progress, I think we’re close to a tipping point where we are soon going to see an influx of early-stage investors moving into the midwest. Last week alone, I had conversations with three next generation investors who are raising seed funds right now. All three of them are under 40. One of them is under 30. And two of the three were in Chicago.