Chicago's Startup Community Grows Outside Of Groupon's Shadow
By Staff in News on Dec 1, 2012 4:00PM
With the highly publicized rise and current post-IPO misfortunes of Chicago-based Groupon, there has been a lot of speculation as to whether Chicago can become a hub of successful entrepreneurship on par with New York and the Bay Area, and what it will take to get there.
Chicago has historically struggled to retain talent, with many startups getting sucked out to coastal cities that offer more robust funding opportunities and proximity to more like-minded companies. That may be changing, however, with venture capital funds such as New Enterprise Associates, Inc. establishing Chicago offices. Speaking with Crain’s Chicago Business, J.B. Pritzker, founder of Chicago venture-capital firm New World Ventures, attributed much of this to an improvement in the quality of the entrepreneurs here.
Since 2010, incubators such as Excelerate Labs, Impact Engine, and Lightbank have cropped up to lend both financial and educational support to a number of new ventures each year. University sponsored programs, such as The University of Chicago Booth School of Business’s New Venture Challenge and Northwestern University’s NUvention Web course have also become more popular, creating an ecosystem in which there are more opportunities for entrepreneurs to learn the ways of the startup world.
Silas Hundt co-founded Alltuition, an online tool for managing education debt, with classmate Sue Khim in 2010. Alltuition participated in both the New Venture Challenge and the inaugural class of Excelerate Labs, before their team received funding from a Bay Area firm and moved west to begin work on Brilliant, another education-focused startup.
Hundt stresses that the young companies moving from Chicago to the Bay Area are doing so for clear and immediate opportunities.
“[Chicago]’s greatest weakness would be the community of really successful folk who are not staying there. That last part is changing; it feels like it is changing. And people recognize the value of having a real community in Chicago.”
For Hundt, it is not just about funding, but also about being around other successful companies.
“If you want to start a business in consumer web, like a free online dating site, you want to be in New York or San Francisco. Not because you can’t compete elsewhere, but because you’re around the most other successful versions of your company and you’re near your competition. If you’re working for a subscription service, like Alltuition for example, there is a whole different range of experiences and potential competitors that exist.”
While a startup ecosystem may be in its nascent stages here in Chicago, spaces like the CEC’s new startup hub, 1871, make it all the more tangible. 1871 opened in the Merchandise Mart in May, and offers working space as well as frequent lectures, workshops, and networking opportunities for entrepreneurs.
Brandon Robins and Asaf Elani have been working out of 1871 for the past six months on OurLabel, a fan-driven music platform that launched in February. Robins says the value of the 1871 space is in how many different people and different ideas are commingling there on a daily basis.
“It is helpful to talk to people about what they’re doing and what you’re doing; you might get new ideas about problems you’ve had.”
In addition to meeting other entrepreneurs, Robins says it’s not unusual to grab coffee with someone from one of the venture-capital firms that have offices in 1871, which can be especially helpful for early stage startups that have yet to develop a business model.
In this way, communities like 1871 can fill in for the more structured entrepreneurship training that could be found through business schools or incubator programs. But 1871 isn’t for everyone.
Kate Volzer, a current MBA candidate at Booth, co-founded VisitCoordinator to solve some of the travel-planning headaches she experienced as an admissions counselor at the University of Chicago. She was particularly inspired after an entrepreneurial selling lecture with Craig Wortmann last year.
“Literally that day I went home and called my brother and said ‘do you know how to build a website?’ It was a little more impulsive than I think most people are,” said Volzer.
From there, Volzer didn’t have to look far outside of the Booth community for advice as to where to go next. She sat down with a group of experienced entrepreneurs, including Amanda Thompson, a fellow MBA candidate, to determine whether her idea was realistic, and came out of that conversation with a fundraising goal.
Volzer did a tour of 1871, but was not compelled to join.
“I didn’t really think I could get anything out of that that I couldn’t get out of Booth,” said Volzer. “With the Booth community in general, you talk to one person and end up with a list of 10 more people to contact.”
For others, the business school community and the Chicago startup community are, if not synonymous, at least closely knit. The University of Chicago, Northwestern, Illinois Institute of Technology, and University of Illinois are all present at 1871, with offices down a hallway that has become known as “University Row.”
Neal Ehardt, Phillip Dziedzic, and Austin Asamoa-Tutu are three young entrepreneurs, currently working out of 1871 on startups that began in the entrepreneurship class, NUvention Web, at Northwestern University. The class looks for students from different backgrounds and acts as an incubator within the University. To date, four groups formed during the class have continued on with their ventures.
Asamoa-Tutu, an MBA student at Kellogg School of Management, and Dziedzic, an engineering design student, were paired up and began working on livelocal.ly, a mobile marketing platform for local merchants. By the conclusion of the class, they had already validated a market and started to build a user base, at which point they decided to keep going with the company. They turned to 1871 and became more involved in the startup community outside of Northwestern.
Ehardt took the entrepreneurship class as an undergraduate computer science major at Northwestern. During the two-quarter class, he co-founded Groovebug, a music platform for the iPad.
When asked to compare what they’ve learned about entrepreneurship through school and what they’ve learned through non-university communities such as 1871, the former students agree that it is less a matter of content than structure.
“It’s a lot of the same stuff at 1871, but not necessarily as focused and more opt-in,” said Dziedzic.
Much of the learning that is available at 1871 and through other programs and incubators is due to the many successful and experienced entrepreneurs throughout Chicago who act as mentors for those just starting out.
Bob Gillespie is one such experienced entrepreneur, who teaches sessions at 1871. With an MBA from Booth, Gillespie has been involved with startups since 2001 and co-founded his first company, InContext Solutions, in 2009. Now he is working on a new venture, SwiftExpo, and says that a lot has changed in the past four years.
“It’s totally different here than it used to be. Back in 2008 there wasn’t 1871, there wasn’t Excelerate, there wasn’t anything really. The CEC was doing a couple of things but there was very little infrastructure. Now, as an entrepreneur, there are so many things available to you.”
Gillespie—who is most comfortable with B2B, revenue-generating businesses—says that he loves to ask young entrepreneurs about their go to market and pricing strategies—things that the founders of many early stage startups haven’t developed yet.
Due in part, perhaps, to the influence of mentors like Gillespie, as well as venture-capital firms and Business Schools, Chicago has developed a reputation for being more in line with the revenue-driven startup mentality of New York than the idea-driven mentality of the Bay Area.
“Here, I don’t know if it’s because of a Midwestern vibe, but it’s more about getting your business to a state where you’re generating revenue and seems like a safe bet to investors. On the west coast it’s more about the idea and the team,” says Robins.
Despite his own focus on more moderate growth businesses, Gillespie sees the value in the high-growth B2C companies, like Groupon, who can put a city like Chicago on the map and inspire people to create value.
“Chicago gets a little bit of a bad reputation for saying, ‘we’re not interested unless there is a business model.' I think the right answer is somewhere in between. If you want that homerun, there has to be explosive growth. You need to have enough of whatever you’re selling to get that hockey stick effect. But even if you have a hockey stick effect and nobody’s paying for it, then what’s the point of that?”
Gillespie says that with collaboration between universities, accelerators, and venture capital funds to support and thoroughly vet people and their ideas, Chicago is becoming a self-sustaining organism.
“We’re at the very beginning of this boom period of entrepreneurship in Chicago. Everyone is growing up together, which is fantastic,” says Gillespie.
By Carolanne Fried