Chicago's Tech Scene Faces Competition From All Sides

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By Monty Munford2013-12-04 13:56:41 UTC

I had been up most of the night driving through snowy, icy Illinois to keep the van warm while my mate slept in the back. We had no sleeping bags, so we were freezing. Finally, exhaustion overcame me and I pulled up into a car park.

Suddenly, a terrible bumping and the sound of my friend screaming. I thought we were in an earthquake, or a nightmare.

I had turned the engine off, instantly fallen asleep and kneed the column shift into neutral. The van had self-reversed across the car park! It was only the packed ice around the edges that had stopped us falling 100 meters into an electricity pylon. We got out in a daze, looking at the van as it balanced on the ice.

My best friend walked into the car park diner, swearing. I remained in the hired van, head against the steering-wheel, my heart beating fast.

That was two decades ago, and my relationship with Chicago is vastly different. When once I shivered looking out at frozen Lake Michigan, nowadays it’s more likely a reasonable hotel. And my companions hail from the tech community, not from the clans of nomadic beatniks.

Chicago’s reputation as a tech cluster is rising quickly. Several initiatives are encouraging the city’s entrepreneurs to stay put, not to relocate to either maritime coast to seek their fortunes.

Moreover, its time zone between the west and east poles of San Francisco and New York make it an attractive place not only for local startups, but also for European ones.

Unfortunately, in addition to battling the coasts, Chicago has serious opposition from other smaller hubs in the region.

Detroit may not immediately seem a local rival, but things are stirring in the struggling city. While startups aren't yet setting up shop on the notorious East Side, the downtown M@dison Theatre co-working space is a catalyst for companies looking for cheaper alternatives to the Valley. Twitter has an office in the building, and Google operates a presence a couple of blocks away. The "Madison Block" effect now consists of M@dison Theater companies that have expanded to other offices.

To the west, there’s Denver, Colo. According to Built in Colorado, the state has brought in $346 million in funding already in 2013 for 95 different startups as well as 15 acquisitions.

And it’s not just Denver that is fostering growth. According to a separate report by the Kaufmann Foundation and Engine.is, a non-profit advocacy group for American startups, smaller Colorado cities like Fort Collins-Loveland and Colorado Springs are also buoyant hubs. And Boulder has more startups per capita than any other U.S. city.

Still, Chicago is setting the pace outside Silicon Valley and New York City. The city's academics are strong and strategic, smart about how to commercialize and support university research.

The Chicago Innovation Exchange, the Illinois Science & Technology Coalition and the state’s Department of Commerce and Economic Opportunity are all stakeholders in Chicago’s tech hub. This ecosystem is supported by IllinoisVentures, the University of Illinois' early-stage technology investment arm that puts early money into startups.

But it is the the story of 1871, a 50,000-square-foot co-working space inside the imposing Merchandise Mart on the banks of the Chicago River that is proving to be the biggest "accelerator" of all. Set up two years ago, similar to the Detroit’s co-working hub of the M@dison Theater, 1871 is now home to more than 240 startups who must (literally) leave the building if they grow larger than 5-12 employees. As these successful companies move out to surrounding offices, Detroit’s Madison Block effect begins to occur. To date, 15 companies have graduated from the building.

Consequently, entrepreneurs who may have been tempted by the attractions of San Francisco and New York are encouraged to learn the ropes by staying local, bootstrapping local and growing local. These respective co-working spaces in Chicago and Detroit are leading the trend of viable and economical alternatives to other comparatively expensive cities.

It’s not just local companies that see the attractions of Chicago. European social media monitoring company Brandwatch moved to the city at the end of 2012 to follow the high-level brands it works with.

"For our U.S. expansion, Chicago was a no-brainer," say Giles Palmer, CEO of Brandwatch. "It's a huge city, packed with big brand customers, especially financial services, and is our strategic outpost for the Midwest. We went to New York first for our U.S. headquarters, close to the agency community and the UK time zone, then Chicago second, and it'll be the West Coast third."

While a frozen Lake Michigan has its charms, however, the San Francisco sunshine and New York metropolitan energy will continue to claim the sons and daughters of American entrepreneurship.

But Chicago is putting down a marker, declaring its intent as a challenger. Its ecosystem supports the task through impressive industry and academic support, as well as the sterling efforts of startup incubators like 1871.

I continue to talk to my best mate about the ongoing challenge of "sorting my life out" (aka, keeping the parking brake on). Twenty years later, I'm thankfully not falling asleep at the wheel. More importantly, neither is Chicago.

Chicago tech scene Images: BRENDAN SMIALOWSKI/AFP/Getty Images, Jelf Small Business