
$1.6B in funding and $7B in exits: Chicago tech just had its best year ever - BuiltInLATech
http://www.builtinchicago.org/2015/01/22/16b-funding-and-7b-exits-chicago-tech-just-had-its-best-year-ever
======
spamizbad
Eh, three things really grind me gears about the tech scene in Chicago.

1) Lots of mediocre entrepreneurs that seem to have the same story:

    
    
      - Little to no hard skills.
      - Probably got an MBA from a good B-school
      - Did a stint at a consulting firm and is going to outsmart
        the competition with all the wisdom they gained at 
        Accenture, McKinsey, BCG, Bain, or some big IL firm.
      - Does NOT have a technical co-founder but is being advised
        by some guy with a similar pedigree that attended a coding 
        bootcamp/wrote a crappy iOS app/got a CS degree... 
        but has written <10,000 lines of code in their life.
          - This person will interview you by giving you a fizz     
            buzz test followed by "lateral thinking" brain-teaser 
            questions). Very 90s.
    

I know these people exist everywhere today but there's an unusually large
number concentrated in Chicago. Must be something in the water?

2) Developer compensation is roughly 10% lower (when adjusted for CoL) than it
should be. And in terms of equity compensation Chicago isn't even in the same
league as SV today. Getting >0.25% as the initial engineering hire is
extremely rare here - even at companies that lack a technical co-founder.

This causes younger talent to get sucked to the coasts.

3) Many of the startups do not actively cultivate a technology or engineering
culture. I think this largely stems from Point #1 - you really do need a tech
co-founder to drive that side of the company.

~~~
deet
I'll offer a hypothesis to explain #1:

It's because Chicago's culture is excessively risk averse. There seems to be a
tendency to seek permission or acceptance from peers and others before taking
a risk (either in business, fashion, life, whatever).

This is actually great for bootstrapping, because it keeps you in touch with
the real world and immediate customer demand.

But it leads to fewer qualified, technical people there with no history of
'business' thinking that striking off on their own and starting a company is a
good idea.

The people who do start companies there are often the ones who have gone
through some kind of training program (MBA, work experience, etc.) that in
their minds has qualified them to start a company.

So I propose that it's not that the MBA types are overrepresented, it's that
technical folks and others are underrepresented, because they're tending to
not start companies.

Disclaimer: totally conjecture, based on living in Chicago for eight years,
but being from California and now living in NYC. In moving from Chicago to NYC
the most striking difference (for me), other than the diversity, was the
spirit that no one cares about you or what you do, so you might as well do
whatever you want or think you can. For some that means starting companies.

~~~
rayiner
> It's because Chicago's culture is excessively risk averse

I don't know if the culture is that much more risk averse than SF, but rather
that the risk calculation is different. There's such a big tech ecosystem out
in SF that "failure" as an entrepreneur might mean raising more money for the
next project, or failing that BigCos fighting to hire you. Without the same
depth of tech infrastructure, the downside risk is much higher in Chicago (or
really, anywhere that's not SF).

~~~
michaelochurch
I would say that the SF failure-is-good culture has good and bad influences
from the VCs. They don't care _that_ you failed. They care _why_ you failed.
If their evaluation is that you failed in good faith, you get to call it a
learning experience and you get an executive position at Google (preferably
something with the authority to buy companies, so you can pay them back) or
more funding for your next venture. If they judge you to have failed in bad
faith, then you're black-balled. So it cuts both ways. It's nice that they'll
go to bat for someone they judge to have failed in good faith; it's bad when
someone gets blacklisted as having failed in bad faith (or has his successful
business taken from him) because he pissed someone off.

Any time you replace objective evaluation of people with subjective holistic
evaluations, you get a system that seems more humane and less sharp-cornered,
but you also get corruption. It's the question of which is better: sheer cold
fairness or sticky warm humanness that can devolve into corruption or even a
reputation economy (meaning, "extortion system") if the powerful abuse their
roles in the judgment of others.

You can look at it charitably and say that the VCs are doing good by caring
more about the reason for failure than the fact of it. Or you can look at it
negatively and say that it creates a culture where (a) slimy operators good at
creating impressions can play politics and let their companies rot, knowing
that their backers will see their failures as "good faith" regardless of the
facts, and (b) those with power over the "holistic" element of evaluation
evolve into reputation-making and -breaking extortionists. The "right answer"
is somewhere between the two.

With Chicago, I think the problem isn't that there's a lack of good jobs for
technical people, but that the job-hopper stigma is still very strong in
finance (and that's true everywhere; it's not geographical, and the attitude
is similar in SF finance). So it's hard for a trader to bounce back if the
startup doesn't work.

If hedge funds were willing to hire people with typical startup/tech CVs--
those tend to show the brutally honest behavior of job-hopping (even at 2
years, or 6 months) if one's career is stagnating, rather than sticking around
for 5-6 playing the system or slacking like white-collar people are "supposed"
to do when passed over, because it's somehow more disloyal to leave than to
slack for years-- then people would less afraid to do startups. The fault
isn't with Chicago _per se_. It's with finance and the F500 world and their
anachronistic hatred of the "job hopper".

There's a lot that I don't like about California startup culture but I think
job hopping is a good thing. If you're ambitious and it's clear that you've
been passed over for advancement, it's better for everyone to move on than to
stick around and suck out a salary and play against the system for 5+ years
because the white-collar world thinks you're "supposed" to show "staying
power" or "loyalty".

At any rate, I think you're completely right. I don't think that California is
more or less risk averse than the rest of the country, nor do I necessarily
think that risk seeking is even a virtue. California entrepreneurs get to look
more risk-friendly just because there's such a high frequency managed outcomes
(acqui-hires and executive positions made available if the VCs judge you to
have failed in good faith) that VC-funded entrepreneurs can count on one.
Where it's pernicious is when these founders justify massive equity
disparities (compared to the 0.5% that the first engineer gets) because they
"took all the risk" when, in fact, most of these VC-funded founders don't take
_any_ more risk than any other corporate employee.

~~~
mrchicity
Traders don't want to hire job hoppers because it's a negative signal about
their abilities and ethics. First, if this guy is really so great, why has he
flamed out of 3 firms in 5 years? Either he's lying or has some serious
personality defect. Second, do I really want a guy who's bounced from firm-to-
firm glomming up ideas and IP? Won't he do the same thing to me?

Going away to do a startup doesn't send the same signal. I'd gladly hire
someone who did that.

~~~
michaelochurch
_Traders don 't want to hire job hoppers because it's a negative signal about
their abilities and ethics._

You're wrong. I can make the same argument against people with long tenures.
Some people, when they realize that they've been passed over for a promotion
or that they're not being groomed for the role they want in the future, bounce
(external promotion). That's the honest thing to do. Others stick around, play
politics, work the system, slack, and wait for others to fail so they can
capitalize on the chaos and move up the ranks. In other words, one could make
the argument that the able, confident, ethical, honest people job hop and the
political actors stick around and climb the ladder.

I don't _actually_ believe that most people with long tenures are unethical.
I'd put the correlation right around zero, to be honest about the whole thing.
I think that there are patterns that cause good people to have long tenures
and bad people to have short ones, and also patterns that cause good people to
have short tenures and bad people to have long ones.

 _First, if this guy is really so great, why has he flamed out of 3 firms in 5
years?_

Maybe he's technically excellent but bad at playing the politics. Perhaps he's
an overperformer, like McNulty on _The Wire_. Maybe he's just unlucky. Maybe
he didn't flame out, but each move was a major promotion that he wouldn't have
been able to get internally.

 _Second, do I really want a guy who 's bounced from firm-to-firm glomming up
ideas and IP? Won't he do the same thing to me?_

The problem isn't "job hoppers". It's attrition. When people leave, it's
disruptive (and the internal disruption to your own processes is so much more
of a threat than IP leakage, unless someone's actually stealing code and then
it goes to the courts, that the latter is a rounding error). You can control
attrition by treating people well and making sure that ambitious people have
appropriate opportunities get promoted on time. It has little to do with the
people you hire, and much more to do with how you manage them.

The anti-"job hopper" sentiment isn't really about IP. It's about being mean-
spirited, and the IP justification is just made to back-fill an already-formed
prejudice.

~~~
xvirk
are your comments always grayed ?

~~~
michaelochurch
Ever since I exposed Spiegel for what is probably a self-serving PR move
exploiting the Sony hack, I've had at least 4 stalker down voters. It's
obvious because they tend to hit at the same time.

~~~
FeeTinesAMady
Have a link to the article which contains your comments about that? I'd like
to read them.

~~~
michaelochurch
[https://news.ycombinator.com/item?id=8764572](https://news.ycombinator.com/item?id=8764572)

Not everyone who downvoted that (admittedly, not well-expressed, insofar as
some thought I was accusing Spiegel of _causing_ the Sony hack rather than
simply benefitting from it) comment was a Speigeloid. The Spiegeloids are the
ones who have been repeatedly downvoting random comments of mine just because
I wrote them. (Or, an alternative explanation would be that the Hacker News
community has suddenly become much meaner... but I doubt that.) In other
words, stalker-downvoting (seeking out someone's comments and, without reading
them, downvoting them).

I have no idea when it comes to their personal identities, but I know that I
have at least 4 stalker-downvoters. They could be sock puppets of one person.
For all I know, it could be Spiegel himself (but I doubt that).

------
_random_
It's interesting what would be 80s/90s person assumption?

"1.6B in funding! Oh boy, robots, life extension, hover cars!"

"Err, no. But you will be targeted with ads about food delivery and HR
services much more precisely!"

~~~
icebraining
Remember, you're talking about the 90s which had as a flagship startup a
company that sold pet food. Broadcast.com alone was purchased for $5.9B (eq.
to $8B of today's money), and all they did was stream video over the Internet.

~~~
hueving
All Youtube does is stream video over the internet. Your argument isn't that
convincing.

~~~
icebraining
Yes, and Youtube isn't making hover cars nor extending life. Are you sure you
read the context of my reply?

------
encoderer
My impression is that in Chicago -- and really everywhere outside the SF BA
and NYC -- has much weaker comp for engineers.

It makes sense, really. By far the majority of SE jobs in these places are in
IT departments writing line of business software. These are Java and .Net
shops usually and anecdotally it seems they pay from $60-90k.

The companies where engineers are profit centers -- web startups and software
companies, etc -- are desirable and attractive. Importantly, these are usually
high margin businesses. In competitive markets, these companies meet engineer
scarcity with attractive pay and equity packages. In places like Chicago, for
every opening at 37 Signals you have 5 applicants from places like Crate &
Barrel.

This is unfortunate especially because even here in SF I think engineers are
not yet paid what they are worth. I reach this conclusion by looking at the
margins of software companies and profitable internet companies. You can
clearly see the value software engineers are creating.

To be clear, I'm sure there are thousands of highly paid software engineers in
the greater Chicago area. it's a very big city and there is a lot of money
there. Hell there may be thousands of highly paid engineers in finance alone.
Chicago is certainly the heart of trading in this country. I'm generalizing.

~~~
ForHackernews
I'm getting $75k as a Python engineer with 5 years experience. Am I absurdly
underpaid?

My job feels easy, I have flexible hours, little oversight, independence to
build cool things, good benefits, and I feel very lucky that anyone would pay
me so much money to sit in a climate controlled office playing with a
computer.

~~~
kasey_junk
As with any market based pricing its hard to say whether the price is right or
wrong. Because the real price is what the market will bear.

I will say, for the broad outlines that you've given that is a low
compensation figure. And projecting a bit, I can probably figure out why.
First you said yourself, that you don't value yourself much more highly than
you are currently getting paid. Why should anyone else?

Secondly, the way you present your product (Python engineer) lowers the
prestige/premium it should cost. First, but least importantly, because Python,
in general, pays slightly less than other technologies. Second, and much more
importantly, being a programming cog to be placed into a programming assembly
line is much less valuable than being a business problem solver that uses and
builds technology.

I'd recommend going over to patio11's blog and reading:

[http://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-
pro...](http://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-programmer/)

------
rhino369
If I weren't a risk averse, cowardly lawyer and was planning on starting my
own business, I'd go to Chicago.

It's a world class city with tons of programmers and engineer. But it's also
much cheaper to live in.

~~~
bunderbunder
Heh, just don't come here looking to start a law practice. Three major law
schools plus a couple less-major ones, every one of them churning out way more
JDs than the local job market can soak up. I'm pretty sure the acronym now
stands for Java Dispenser.

~~~
rhino369
I went to Northwester but fled to DC for a job. I'm all too aware
unfortunately.

------
eldavido
Chicago has a significant advantage: it's more "normal" in that it's more
representative of the United States, than the Bay Area. This provides a
fertile ground for new companies to emerge:

    
    
      - Childcare / anything to do with children (e.g. Sittercity)
      - Things for people without college degrees -- SF has 48%    [1] degreed workforce vs. 28% [2] nationally.
      - People in Chicago/the rest of the US have houses; over 80% of SF's population lives in apartments. There's tons of businesses involving housing including lawn care, general home improvement, construction, contracting, etc.
      - People in Chicago have cars; many people in SF don't drive (surprised Uber came from here? I'm not)
      - Anything involving small business
      - Also, world-class financial center
    

There are other things, the point is to focus on your strengths, not try to be
a knock-off of something else (an idea from Richard Florida's "Who's Your
City", a book about the relative strengths of various cities)

[1] Saw this in Business Insider a while ago [2] "Coming Apart" by Charles
Murray

~~~
michaelochurch
Silicon Valley is somewhat of an aberration at this point. There's an S-curve
to concentration (whether in talent, resources, or attention) and while the
bulk of American cities are hurting due to a lack of software talent, Silicon
Valley is hurting in its own way. It has a lot of engineering talent but a
collective lack of political talent (which is what prevents engineers from
organizing and getting real equity instead of fucking 1% for the first
engineer) and such abysmal HR/management that an exclusionary macho brogrammer
culture (that wouldn't fly outside of VC-funded startups) has been allowed to
emerge.

So, trying to replicate Silicon Valley isn't a good strategy. It's not very
desirable. It's also not possible. Not for New York, not for Chicago, not for
Seattle, not for Austin. Should these cities be grabbing a greater share of
the new-technology action? Yeah, absolutely. But trying to replicate the
culture of a sexist, racist suburban shithole whose high priests think it's OK
to block off public beach access (cf. Vinod Khosla) is undesirable. It's
happening slowly, but that shit is _dying_ (although it will take two to four
decades). Why does the contemporary Valley put such a high premium on
pedigree? Because when a society goes into decline, nostalgia dominates. When
the Valley was coming up, it didn't matter if you went to Stanford or UC-
Irvine or a community college in Nebraska, so long as you were smart and could
code. In its decline phase, you see the Stanford Welfare of Clinkle and
Snapchat getting funded.

Talent has a natural desire to concentrate, and that might limit us to ~10
strong tech cities in the US, but Silicon Valley has blown past that natural
inclination toward concentration. It's deep into the "congested" territory.

What makes Silicon Valley is that it's a condensation point for passive
capital. Passive capitalists (teachers' pension funds that invest in VC firms)
want returns, and don't seem to strongly care about where or how the capital
is deployed. The priesthood that is trusted (in error) to do so are VCs who
mostly live in California, and who almost never fund companies more than 30
miles from where they live, so the job and wealth creation is limited to a
small geographic area (in which it's almost impossible for an engineer, if
he's starting now or recently, to make wealth due to astronomical real estate
costs) far away from where the passive capitalists live. Now, if the passive
capitalists had a vote, they probably wouldn't want _all_ of their money being
directed at a small geographical area where most of them could never afford to
live. All being equal-- and by "all", I mostly mean "return on investment"\--
Nebraska police officers would rather their pensions be invested in Nebraska
businesses and create jobs there... rather than have that money be funneled
off to California. Of course, they'd be completely happy to have their money
invested in California if that would bring better returns... but VC has been a
low-performing asset class for a decade-- the VCs focus on their own careers
rather than building great companies or generating returns on the portfolio--
so the passive capitalists are arguably getting screwed. If concentrating the
passive capital in Silicon Valley was generating decent returns, then there'd
be no reasonable argue against it, but it's not.

This is a long-form way of saying that I agree with you. Replicating Silicon
Valley is a backward-looking strategy that won't work in Chicago or New York.
These cities, instead, should focus on their own assets. I think Chicago (or
Seattle, or Boulder, or for a longer shot, Minneapolis) is a contender for
being a different kind of technical leader in, say, 2030... because Chicago
has an unusual advantage of a perceived playing-from-behind while actually not
being that far behind; that's fairly antithetical to the Valley's Dunning-
Kruger smug cloud... but it won't look like the existing Valley. It'll be
something different.

~~~
oamasood
Let's say Chicago (or Seattle, or New York) become tech hubs comparable to
Silicon Valley. What's stopping the same bro culture from developing there?

Isn't the misogynistic bro culture a function of a sheltered, narrow
upbringing and a nationwide cultural infatuation with "apps" (which only the
talented, sought-after Software Engineers can provide)?

From my experience, the bros come from all across the US and Canada, and not
just the San Francisco Bay Area. I've lived and worked here all my life, and
most people in the tech industry actually moved here from other states. So
what's to say they all won't move to Chicago as well?

------
the_vincedent
As a Chicagoan and software engineer, here's my honest opinion of tech in
Chicago: it's a sad, sorry place to be right now. I grew up in Chicago, went
to college in Chicago and work in Chicago. It's been a roller coaster love-
hate relationship for 30 years.

There's two major reasons I say it's so sad and sorry: a total lack of
experienced, aggressive VC here, and a massive deficit of university-business
partnership.

1\. Chicago, sans VC

There's a lot of money in this city. There's also a fair amount of capital
being thrown around at start ups and small businesses. However, this place
lacks having a couple well established VC firms and proper incubators. Without
having direct access to solid investors and capital, many of the companies
I've seen here flounder and fail. Their boards are comprised of investors who
haven't a single clue about how to advise and lead tech companies.

Additionally, tech as a whole is looked as a cheap commodity in Chicago. The
salaries are weak, the benefits are meager, and the chance to grow is
basically nonexistent. The overwhelming majority of developers I know are
either miserable at large companies (banks, trading firms, healthcare, etc) or
are being worked to death with virtually no acceptable future benefit at start
ups.

2\. Universities vs. Business

Let's look at this for what it is in Chicago: the business community and
universities do not work with each other. There are so few partnerships for
STEM students that it's basically pointless to go to college in Chicago if
you're looking for curricula that is directly informed by industry. There's
very little in the way of research being done with the guidance of industry or
even an objective to productionize/market any of the work.

The universities themselves are also woefully underwhelming: Loyola, De Paul
and UIC are basically glorified baby sitting campuses that blindly churn out
subpar programmers. UChicago, on the other hand, has a solid engineering
school but doesn't promote it at all. UIUC has one of the best engineering
schools in the country, but it's two hours south of the city in the middle of
a barren corn field. There's also a massive number of smaller liberal arts
colleges in the burbs, but they lack exposure, the funding to recruit STEM
students and have fewer still business connections in the city.

/rant; begin pep talk:

There's a lot of potential in Chicago, however (which is part of why I've
stayed here). All it takes is an honest, concerted effort to get things
rolling. As an example, what's happening in the Merchandise Mart and 1871 is a
glimmer of hope of turning things around. It's far from perfect, but it's
added a small amount of polish and professionalism to a stumbling tech sector
in Chicago.

The article also cites a few large exits - which is nice and all, but it's
still yet to be seen what is done with that money. Groupon (who I can't stand)
turned their capital into a VC and have been building up start ups in the West
Loop for a while. Again, it's not amazing, but it's encouraging to see people
invest back into Chicago instead of splitting for the coasts.

The talent that is in Chicago is also top tier. One of the other reasons I've
stayed here is because most developers in Chicago are very passionate,
dedicated professionals. I've been all over the country and met other
developers and interviewed in numerous places. I can honestly say that the
caliber of talent here is on par with any other more prominent tech scene.
What wins it is soft skills: Chicago is made of people who know how to be
people. (New York is close second, though)

I believe that Chicago can be reborn as a tech hub, but it's going to take a
lot of time, money and commitment to make it happen. This is going to require
a lot from the local and state government, business, and universities. But
most importantly, it's going to take people believing that it can happen.

~~~
xasos
I agree with the statement the most (also a Chicagoan). Chicago isn't a tech
hub, and people need to stop saying it is. Why is it that our flagship
university (UIUC) sends more people to Silicon Valley/Seattle than Chicago,
which is only 2 hours away? They need to focus on bringing in some more mature
tech companies (engineering teams, for one), and that can help potentially
bring some more startups here.

~~~
tedkalaw
There's actually a UIUC alum center in SF -
[http://www.sfbayillini.org/](http://www.sfbayillini.org/). The last estimate
I heard was that there are somewhere around 40,000-50,000 UIUC graduates in
the Bay Area.

I grew up in Chicago, graduated from UIUC, and I live in SF and work in
Silicon Valley. When I moved here, I didn't need to make any new friends if I
didn't want to - when I got here, my entire friend group and extended UIUC
social network was already here. Shit, my girlfriend (also from UIUC) works at
a startup in FiDi where both founders are from UIUC and there are many alums.

It's just too damn easy to move here for us.

~~~
trentmb
Dumb question- is the SF alum center open to non-CoE folks?

I was a math major that took a handful of CS classes... and am in desperate
need of employment, but no one seems interested in giving entry-level dev
work.

~~~
xasos
I would guess so. There are tons of startups out there, you just have to find
one. Try Angelist[1] or Crunchbase[2] and you should be able to find
something. If not, contract work isn't bad either.

[1] [http://angel.co](http://angel.co)

[2] [http://crunchbase.com](http://crunchbase.com)

------
Zarkonnen
Is funding and exits how we measure success now?

~~~
ChuckMcM
Do you have an alternative metric? I suppose we could count jobs created. My
experience in the Bay Area is that as long as exits >> (funding * 2), it means
that there are non-investors making some money and going on to create
additional opportunities (sort of the criticality threshold for
entrepreneurism).

~~~
FLUX-YOU
Number of customers? Years in business? Profitable quarters? Going from
startup to long-term business? Uhh, military contracts awarded? (okay, maybe
not..)

Are the majority of startups only ever going to be short term ventures?

------
atom_enger
Speaking of Chicago based startups, Reverb.com is hiring :)

[http://reverb.com/page/jobs](http://reverb.com/page/jobs)

Check out our engineering blog at:
[http://product.reverb.com](http://product.reverb.com)

------
mathattack
Chicago's a great city, and I've spent a lot of time there. But....

\- It's cold.

\- The academic environment itself is better in general business. Two top MBA
programs, but the best engineering school is far down state.

\- It has winter.

\- The ecosystem supports growth, but not hypergrowth. Companies like BaseCRM
do well starting there, but move to Silicon Valley when it's time to explode.

\- Snow without mountains

\- Not as socially, ethnically or culturally diverse as many other tech hubs.

\- Did I mention that it's cold?

All that said, I love to visit in the summer.

~~~
ingenieros
"Not as socially, ethnically or culturally diverse as many other tech hubs."
Chicago has world class museums, music venues, restaurants and ethnic enclaves
like Ukrainian Village, Maxwell St., Devon, Pilsen.. and you mean to tell me
there's more diversity up in the bay area? LOL

~~~
mathattack
Your chances of seeing multi-ethnic couples, kids and neighborhoods is 10X in
the Bay Area than Chicago. (And yes, I've lived in both)

~~~
kasey_junk
I'd be very curious to see actual statistics around that. This is a belief
that is highly subject to selection bias.

I myself don't like the Bay Area for my own perception of the lack of
diversity there, but again I would not be surprised if that is my bias showing
through.

(and for instance I live in a neighborhood that has a history of multi-ethnic
families that goes back to before that was socially acceptable nearly anywhere
else in America)

~~~
xasos
Chicago is pretty segregated as whole. The North side is predominantly
Caucasian and the south side (save for a few neighborhoods) is predominantly
African-American and Latino.

~~~
kasey_junk
Sure Chicago is segregated (though I find the North/South boundary, like all
generalizations misses a considerable amount of complexity) but this is true
of all US cities.

San Francisco for instance is segregated pretty dramatically with the Asian
population (and a mixture of Latinos) pushed to the western edge and the white
population centrally located. Not to mention the elephant in the room of
Oakland.

When we start talking about diversity of other sorts such as income,
education, nationality etc the picture is similar.

That is to say, my experience of San Francisco was one of homogeny, the
opposite of my experience of Chicago. But I've experienced Chicago more
broadly as well, so as I say I'd like some numbers to backup the assertion
that San Francisco is more welcoming of inter racial families.

------
evanvar
coming over!

