Chicago FinTech Incubator

Some people are mulling about putting a FinTech incubator in Chicago.  The futures industry built the city of Chicago.  Without it, Chicago would have probably lost to St. Louis as the hub of the Midwest.

Chicago has been a financial hub for a lot of industries besides futures.  Clearly, accounting is one.  The Big 4 accounting firms are either headquartered here or have a very very large presence.  They recruit heavily at the University of Illinois.

High frequency trading firms are probably where most of the budding startup talent is housed.  HFT firms employ quants and geeks.  I love quants and geeks. They are the backbone of any entrepreneurial ecosystem.  As Brad Feld pointed out in Startup Communities, “great startup ecosystems are entrepreneur lead.”  They need to be shown how their skills are directly applicable to startups.

Jason Heinrichs runs The Startup Institute.  He has been doing some work with Fintech over the past couple of years in Chicago.  He sees potential in a lot of areas for Chicago to build a fintech community.

I have some thoughts on how to set a Fintech incubator up.  First, it needs enough backing financially to be sustainable for a minimum of five to ten years.  It will take some time to recruit talent, and get startups off the ground.  Second, whoever is picked to lead it should have been an entrepreneur at some point in their background.  This person should not be a politically connected bureaucrat or a corporate person.  Their core motto should be “give before you get” and the position should not be a stepping stone to lining their pockets somewhere else.  They need to be a Johnny Appleseed of capitalism.  Third, the stuff that often comes out of incubators that have corporate backing is linear in nature.  Corporations are deathly afraid of creative destruction.  Suppose something like IEX were started here.  Would it get the support it needed to succeed from the incubator or would the corporations and firms ignore it?  Fourth, There are undercurrents of innovation in finance right now that potentially could blow up the existing structure.  Bitcoin seems like an out there idea to 99% of the population but if it works it will be huge.  Paraphrasing Ben Horowitz, “The most investible venture capital ideas are the ones that are totally stupid, but if they actually worked it would be pretty cool.”  Fifth, startups are going to need access to capital.  Chicago is the #7 startup ecosystem in the world right now but there is not nearly enough seed stage capital for companies now.  Some of the innovations in finance have high startup costs because of federal regulations.  For example, if you want to start a new regulated exchange, the legal costs begin at $350,000.

We talk a lot about how cheap it is to startup companies.  It is.  But, it’s getting more and more expensive for customer acquisition.  It’s also getting more expensive to attract talent and sustain them.

Chicago, and the state of Illinois are in a world of hurt fiscally.  Startups are the way out-but it’s not a short term fix.  The blunt reality is you have to fund a gazillion of them to find the 3-4 that can become “platform companies”.  It also takes a minimum of 10 years for a startup to realize that sort of scale.

There are only two cities in the US where dedicated finance incubators have the mentors, firms, and inherent local DNA at their fingertips to make a fundamental difference at an early stage; New York and Chicago.  New York has a Fin Tech innovation lab, and TechStars has partnered with Barclays for an accelerator there.

 

 

  • CliffElam

    That sounds like a good plan and a great idea.

    I might suggest taking a look at having some on-point academic advisors help with the organizational design – people have done research on what seems to work and what doesn’t. Probably good to avoid the “don’t work” things.

    If I were looking for accelerator do/don’t lessons I’d find people at Stanford and Babson to talk to.

    -XC

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