The Strength of Chicago’s Tech Ecosystem, or Non-Strength

This post is by Jeff Carter from Points and Figures

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At 7 minutes in, John Pletz and Amy Guth talk about the Chicago Tech community. Can an Instagram like company be built in Chicago?

Are Chicago investors risk averse and skittish? Do Chicago entrepreneurs think big enough?

Good conversation.  Here is the tweet John talks about in the podcast.

When I started Hyde Park Angels at the very first meeting I said we would invest in things that the Midwest was good at. We weren’t Silicon Valley and why would you want to be. If you want to compete with them, you were guaranteed to lose since someone could get in a car or on a plane and be there shortly.

Chicago has tremendous depth of talent in things like B2B Fin Logistics, Consumer Products, Manufacturing, Medical, and process. You can have conversations in Chicago that you can’t have other places.

Our fund at West Loop Ventures is narrowly focused on B2B Financial Technology.  We have really great deal flow in Chicago, NY and points beyond.  We don’t see a lot from the Bay Area because the Bay focuses on other aspects of fin tech.  Although, I am out here for the next couple of days meeting entrepreneurs.  For funds like ours, you might find some deal flow but it is important to build relationships with the larger funds so they can get familiar with what you are doing and follow on.

Right now, we have three portfolio companies in Chicago.  Megalytics, Open Finance, and Holberg Financial.

I might be uncertain about some things but there are some things that I know for sure.  I know how to win. I don’t like to lose. Chicago can win and it doesn’t need a central plan. It’s important to remember what you are competing for. It’s not against other cities. The pie isn’t fixed. It’s a competition for growth.

There are openings. I saw where rent in San Francisco is $3700 a month for a dumpy apartment. Taxes are super high in NY and California. Illinois is cheaper (for now) than those areas even though our tax climate is pretty bad. We are the fifth most expensive state but if you want an urban area that is affordable with a good tech climate, Chicago is a natural choice.

There are hurdles and almost all of them are public policy type hurdles.  The Democratic Machine is not welcoming to startups.

I think the biggest thing holding Chicago back is a lot of larger funds that will make investments at seed and be able to follow on. We need more capital in LP type funds. It’s incredibly difficult to raise. More capital spread out over lots of funds will increase the competition in Chicago. Increasing competition is always a good thing.  Increasing competition with larger LP funds will be good for entrepreneurs and the ecosystem. LP funds operate differently than family office or corporate type funds. The profit motive is stronger in them and they have to return money to LPs, or die. That means LP funds have to win.

We have come a long way since 2007.  We have a ways to go and we have a chance if we get the right ingredients into the soup.