Coinbase is opening up a Chicago office. Smart move by them. Chicago is the best place in the entire world to find human capital talent for Fin Tech. It’s not happenstance that Max Levchin grew up here, went to the University of Illinois and created PayPal.
If you are operating a B2B Fin Tech company and trying to do it outside of Chicago, you are operating with one hand tied behind your back.
Two nearby universities churn out all kinds of fin tech talent. Chicago Booth is respected across the world for it’s graduates who get MBAs concentrated in finance. There is also the legendary economics department at the University of Chicago. The University of Illinois Gies College of Business has more CFOs of the Fortune 500 companies than any other school.
The largest exchange in the world is in Chicago, CME. The largest options market in the world is Continue reading "What’s The Upside And Downside?"
The news came out last week but it is worth highlighting. Ycharts integrates with TDAmeritrade now on their Veo One platform. Ycharts is a B2B Fin Tech company I invested in back in 2009. Their target market is RIA’s, wealth managers, hedge funds and other firms like that in the investor universe.
Ycharts is like a Swiss army knife for investors.
I have used it successfully to pick strike prices for options trades. It is the best research terminal on the web. It’s not for moment to moment trading. It’s an example of the quiet things going on behind the wall that you might not notice because it’s not on your phone. But, they add a lot of value.
On June 1, I will be co-hosting a learn a lunch with a bunch of colleagues at the University Club in Chicago. We are starting a new group in the club. The group is going to be dedicated toward educating people on issues in financial services and technology. It’s not a stock pickers club. Lunches like this are not expensive. Typically it is just $20-$30 bucks.
Chicago has a wealth of talent when it comes to finance. Just in my little group of co-hosts, we have one of the top SEC attorneys in the country, a hedge fund manager, an accountant that has 40 years of experience and a top fin tech attorney when it comes to payments and exchanges.
A number of years ago, James Koutoulas and I did an impromptu lunch on exchange clearing and the MF Global situation. It was well attended and it was liked.
Our Continue reading "Learn At Lunch: Cryptocurrency"
Today I am flying to New York City. If you are attending Howard Lindzon‘s Stocktoberfest East, hopefully I will see you there. I am looking forward to it.
As a person who is not of Wall Street I have always looked at it differently than a lot of people. I grew up in the pits of Chicago. We traded our own dough and didn’t use OPM. We had a lot more in common with Roman gladiators than the suits in NY. The markets were different, cleaner in my opinion, with less conflicts. I never understood the whole market maker system. We prohibited order fillers from even trading, much less taking the opposite side and “adding liquidity” to the market when they felt the need.
At the same time, NYC is one big gigantic capital market. Only a couple of other cities on earth might rival it, London and Continue reading "Headed to Wall Street"
Was reading how a16z and USV met with the SEC and CFTC over regulation of cryptocurrency. This is not nefarious. It’s good to have this sort of dialogue. One of the interesting parts of the piece I linked to is this:
The group wanted formal assurance from regulators that their products would be exempt from SEC oversight, arguing the tokens aren’t investments but products that can be exclusively used to access services or networks provided by startup companies, people familiar with the meeting said.
That would allow startups to sell tokens broadly to investors without having to provide regulated disclosures such as financial statements and elaborate descriptions of their business. The group said it wouldn’t object to the SEC intervening if a token issuer committed fraud, the people said.
SEC officials have privately expressed skepticism about granting such a broad exemption, the people said. The SEC is more likely to Continue reading "Standards Are Not Bad-But They Do Cost Money"
The past few weekends, I have been out to dinner with friends my age. They are all contemplating rearranging their lives. Kids are gone and the responsibilities of work are changing. Many of the people I hang with that are my age are still driving hard. They aren’t contemplating retiring. The thing that is driving their decision making is the total fiscal distress the Chicago Machine has put the state of Illinois and city of Chicago in.
Many of my friends are either moving away, or redoing their lives so they are not Illinois residents. Ask any local wealth manager and they will quietly tell you that people are leaving and many are taking their businesses with them. It’s especially acute with independent knowledge workers who have capital. In big law and accounting firms, partners will fly in rather than domicile here. The evidence is in real estate prices and Continue reading "What Does Chicago Got?"
Last night I was at Charles Adler’s first Demo Day for the workspace he created called Lost Arts here in Chicago. It’s a pretty cool space and idea. If you don’t know Charles, he was one of the founders of Kickstarter.
Ironically last night he spoke a bit about Kickstarter. But, he didn’t speak about Kickstarter. Instead he talked about what led up to the group coming together and founding Kickstarter. There was both mental and experiential preparation. In some cases, 10 years of it. Finally, the primordial soup came together and an idea turned into a company which turned into a sort of community.
I listened to the pitches. They were all different but the similarity that ran through them is they were using some sort of “art” to solve a problem. In some cases, it’s something that had bubbled up inside the entrepreneurs for years prior to them Continue reading "Do We Need Artists?"
Two days of Cubs games have done me in. One they didn’t play, and one they did. I spotted Fred Hoch and Terry Howerton and texted them and took this shot. They started, and run TechNexus in Chicago. You might not have heard of them because there are a lot of entrepreneurial efforts going on that get a lot more publicity.
They were early to the entrepreneurial scene in Chicago. 2006 I think. I met them in 2007 when they reached out to me when Hyde Park Angels was getting off the ground. They were early supporters of our group.
They have some beautiful space in the Chicago Civic Opera House, plus a nice outdoor patio. They do a lot more than provide office space for companies there. If you are in Chicago Continue reading "Fred, Terry, TechNexus"
I got in a conversation at the Cubs party I was at yesterday. I was up at Wrigley wondering why it was snowing in April.
I will tell you that what they have done to the area around the ballpark, and the physical structure of Wrigley Field is incredible. Wrigley’s appearance on the outside always looked second rate until the past few years. It’s a true gem and incredibly beautiful now. Here is a shot. Love the ironwork and what they did with the outside textures. Baseball is the true American game.
During the snow delay before they called the game, I was talking to a guy about the Continue reading "Is It A Fixed Pie or Expanding Pie?"
It has been unseasonably cold in Chicago for an extended period of time. I am getting a bit sick of it. My wife and I went to California for a month this year to get out of the cold. Except they had unseasonable cold for two weeks while we were in San Francisco. Brrr.
I am going to the Cubs game on Monday and it’s going to be 35. That’s not baseball weather. I wonder if baseball should either shorten their season and start in mid-April or should all the early games be played in fairer weather states or in places with domes?
I read an article in the Chicago Tribune about how Illinois high schoolers are matriculating in ever greater numbers to the University of Alabama. I can’t help but think that those kids were heavily influenced when they turned on their television one day in November on a Continue reading "The Weather"
I am headed to Cleveland today. Going to see my friend Greg and give a presentation to his class and also meet another person.
If you are a B2B Fin Tech startup based in Cleveland, I’d love to find time to chat with you. I will be leaving Cleveland on the 5th around noon. Wish I could be there Friday to see the Tribe open the season.
Chicago has had some tremendous news recently when it comes to tech.
- Exits here are significantly more valuable than exits anywhere else
- Apple introduced a new product yesterday at Lane Tech, one of the best public schools in the city
- New companies in Chicago are getting funded at a good rate
But, the underlying state and local financial climates are horrible. It all goes back to underfunded pensions. Yesterday, the Chicago Public School Teacher’s pension said it miscounted and was underfunded by $1B more than it thought. My friend at Wirepoints, Mark Glennon, has been all over this for years. Mark was a VC before he started writing about the public pension crisis in Illinois. It’s not just Chicago. Smaller communities like Quincy, IL are totally underwater.
At the high end of the market, I am seeing real estate values get totally punished. For example, I sold my Continue reading "The Albatross on an Ecosystem’s Neck"
Saw some action on Twitter yesterday about how seed funds are not leading deals. They are waiting. They are making a mistake. Being a VC is about having conviction.
I agree very much with Charlie O’ Donnell’s post. If you are a seed fund and you aren’t leading seed deals, why are you in business? If you are an angel group and find it hard to lead deals, I get it. It’s awfully hard for an angel group to lead. Angel groups need to have efficient internal processes to move quickly enough so that it is easy for them to work with seed funds. By quickly, I mean less than three months. They need to be very Continue reading "Do Seed Funds Seed?"
Wow, what a run. The best part is it’s not over yet.
As a Fighting Illini fan it gives me hope. Maybe someday soon we will return to the Final Four and hopefully win the whole thing. I think they are on the upswing. As a Chicagoan, I wonder why DePaul has been so terrible for so many years. Why isn’t Illinois State and Bradley consistently better with all the local talent here? Loyola is the only Illinois team that has won a national championship in basketball. My Loyola friends remind me of that all the time.
I met Loyola head coach Porter Moser at a Cubs game a few years ago. He was really nice guy and we talked a lot about basketball and his journey. He played high school basketball at Benet Academy near where I grew up. I was surprised he was a Cub fan since the Continue reading "Happy For My Loyola Friends"
Amazon people were here last week checking out the city. Here is the Chicago video. Logistically, you cannot beat Chicago. Talent wise, it’s pretty hard to beat. Absorbing 50,000 new residents would be a snap and wouldn’t even ripple the water here.
Every place has negatives, and Chicago certainly has some of those. The tech community is growing here though as evidenced by sites like BuiltIn. I was glad that the Amazon people met with Chris Gladwin who has built two successful startups and is working on a third. Chris has really good perspective.
When Amazon chooses, I would hope that like a good venture capitalist instead of giving some wishy washy excuse for passing, they give hard metrics and blunt statements about why they did what they did. For the cities Continue reading "Should Chicago Get Amazon HQ2?"
Pitchbook did a study on exits in 2016. Chicago was the best locale for making money if you invest in VC. They released another study on 2017 using the same assumptions as the 2016 study. Guess who popped out on top again?
The thing is, it’s not even close. Chicago is lapping everyone else. Return in Chicago is 8.5x. For example, a lot of VCs are spending a lot of time in LA. The return, 4.7x. New York City? 4.8x. Boston? 3.4x
The questions are why is the return better and why isn’t investment capital flooding the region?
There are several answers which I have blogged about from time to time.
- It’s cheaper to operate a company in Chicago than LA, NYC, Boston, or Silicon Valley. Less capital going to rent and salaries means longer runways and better return.
- Companies in Chicago tackle problems that Continue reading "8.5x"
Don’t forget to vote. Good elections in lots of races no matter if you are a Republican or Democrat.
If you are in the 10th district and are pulling a Republican ballot, vote for Dr. Sapan Shah. He’s a healthcare entrepreneur and a doctor and a lawyer. Isn’t that the kind of guy you want figuring out healthcare issues and policy in Washington? He also is pledging to term limit himself to two terms in the House because he believes strongly in citizen government instead of career politicians.
I met Sapan via Hyde Park Angels in Chicago. He started a healthcare business. While he was running that, he started to invest in other entrepreneurs. He is exactly who we need in Washington.
Of course, in Chicago, vote early and often. I woke up this morning and felt a breeze coming out of the cemeteries.
I get asked about angel groups all the time. I don’t know how every single angel group runs. I do know the principles of what I did when starting Hyde Park Angels. Groups evolve over time. The underlying market also evolves. I think if you start with some core principles you can adhere to those and provide continuity as everything around the group changes.
I think that the interest in “heartland investing” could spark the creation of local angel groups. Having some core principles to build off of will give those potential groups a foundation to build off of.
- Transparency is a core principle. Transparency in all things. This means if the group gives a salary to any employee, it ought to be known by all the members. All expenses of the organization need to be transparent as well as any income/sponsorship sources. In the mid-1990’s one of the reasons Continue reading "18 Best Practices for Angel Groups"
If you have a personality that gets ruffled easily or don’t have an even temper, don’t invest in startups. It’s funny, as the startup community builds in Chicago more people are being drawn to it. Some people want to invest in it. They might join an angel group to learn the ropes, but that isn’t always the best way to learn. Some angel groups are good for mentoring, others are not. Some are just organized check writing societies.
Some just start writing checks. That will teach you the hard way! But, you do have to be willing to write checks and take the risk if you are going to invest.
I think the first thing you need to do is take an inventory of your psychological self. Do you have the psychological make up to be a startup investor? It’s a totally fair and responsible question to ask yourself. Contemplating Continue reading "The Ups and Downs"
After spending a month in the Bay Area you get a little confirmation bias and see notice things you might not normally notice. That’s happening to me a bit right now. I saw this article in the NYTabout a visit VCs from the Valley made to parts of the Midwest. They were pleasantly surprised at what they found.
It is true that if you are going to locate your company in the Bay Area, your costs of operation will skyrocket. That is a piece of the puzzle driving higher valuations. If a founder decides to sell equity, the rule of thumb is that they will sell 15%-25% of their equity in a round. Given that runways in the Bay Area are a lot shorter, you have to raise more money to sustain the company to the next round.
The Valley is bumping into pure economics. There are costs and Continue reading "The Valley Is Out of The Valley"