Does Cheap Office Space Matter?

Our mayor in Chicago is starting a program to offer cheap office space to startups in order to entice them to locate here.   The co-work spaces participating are great spaces. If you are a startup, you’d like working there.

I remember an interview I saw with Social+Capital VC Chamath Palihapitiya about the rising fixed costs of startups in Silicon Valley. Chamath said, “I don’t want to invest a bunch of money just so real estate brokers get rich.”  Funny, but there is some truth behind that statement.  Real estate costs in the Bay area are painfully high.

In Chicago, the cost of real estate is pretty reasonable compared to both coasts.

I am always encouraged when local politicians lend their vocal support to the startup community.  They can be the best salespeople sometimes.  Mayor Emanuel has been a big backer of the local tech community.  Mayor Emanuel’s retiring Deputy Mayor Steve Koch realized early on that Chicago was losing residents and tech was a way to attract them.  Deputy Mayor Koch did a lot of things behind the scenes to make government more supportive of tech.  I wish him well in his well-deserved retirement.

However, I don’t think that the cost of startup space is hindering the development of the local community.

Silicon Valley is sticky because of two or three things.

  • Network
  • Money
  • Crazy pie in the sky ideas get acceptance and funded

Logan LaHive who runs Chicago Tech Stars is one person trying to change that. When he took over, he mentioned that in Chicago we need more of number 3.  He’s brought in some companies that are doing some crazy stuff that if it works could become big companies.  I have already tried to help out a couple of them with introductions.  I hope you can too.

Chicago needs more money.  We are growing but we need a lot more.  There aren’t any classic big LP funds here like there are in Silicon Valley. By big funds, I mean more than $250M under management.  It can be extraordinarily difficult to raise money in the Midwest for venture.  A lot of Midwestern capital from pension funds, universities and foundations go west.

The other thing Chicago needs is a much deeper network.  We are building it slowly as people who have done startups exit and give their time back.  Often I see Chicago people moving back from Silicon Valley to raise their kids here and they give back.   Those human connections and interactions make a huge difference and they cannot be replaced by email or text messages.  Even in the information age, human face to face contact is necessary.

As a bridge, more of the corporate community in Chicago can help out.  Take meetings with startups and become a customer.  Offer up your expertise on something.  Give them feedback.  Even become an LP in a fund.  I see some interest from corporates, but often they don’t know how to get their aircraft carrier to interact with a tugboat startup.  I understand It’s hard!  However, if you care about Chicago and the local community, the company needs to play an active role.

Another thing politicians can do is make government a lot more hospitable to startups.  They can become customers.  Spending local taxpayer dollars on local startups helps.  When a startup tells me they are going to target the government I run.  Sales cycles are forever and revenue never comes.

Chicago is on a good trajectory when it comes to building a local tech community.  Chicago will never be Silicon Valley or anyplace else.  It’s unique.  There are strengths here that you just don’t find in other places.  It’s Chicago, just like our hot dogs and Italian beef with giardiniera.