I was at the Chicago Venture Summit this week. It was a good event where the Chicago venture community came together. There were some VCs there from outside of Chicago. It was nice to see them and I am glad they came.
Hopefully next year it will attract fund of funds from outside the state. Institutional capital is what makes a sustainable venture fund.
Some facts and figures were talked about that you might have already known. I have blogged about them from time to time as have others. Chicago had the best ROI of any venture community. You can argue with how they did the numbers, but the fact is if you don’t have money on the ground here, you are losing out.
Of course, Professor Steve Kaplan from Chicago Booth put out a study in the last year that shows venture capital as the best performing asset class in the last 20 years. Returns were better there than private equity, real estate, and the stock market.
Some other things I didn’t know:
- Outside of Boston, no other American city has as many four year colleges inside it’s borders.
- Chicagoans are better educated than the American population.
- If you draw a radius 3 hours outside of Chicago, it has the most colleges. That’s basically the historical Big Ten.
- Chicago is economically diverse. No industry makes up more than 16% of it’s local economy.
- Chicago is the only city in the world where American, United and Southwest have a hub of operations.
- It’s the #1 city for female entrepreneurs (Thanks Bertha Palmer)
- UIllinois, UChicago, and Northwestern are among tops in the country for churning out entrepreneurs. I know since we started Hyde Park Angels, UChicago’s top concentration at Booth has switched from Finance to Entrepreneurship.
As I circulate around the country talking to people, the biggest question I get asked is why I should be in Chicago at early stages.
The answer is that the ecosystem has arrived. It’s reached a tipping point. Successful entrepreneurs are starting new companies.
Chicago certainly does do very different companies than any other ecosystem. It’s a B2B place. The businesses don’t follow traditional pattern matching that other ecosystems have. It requires a certain familiarity with an industry to understand the nuts and bolts that are being disrupted.
If you get a portfolio of companies from here, you won’t be able to feature them at a cocktail party. They aren’t apps on your phone or sexy apps that make people laugh. Instead, they are companies that make the underbelly of business go.
I know in the B2B Fin Tech space I have been asked about exits. When companies are attacking the huge markets they are attacking and charging bps on AUM you can bet that it’s going to be a gigantic exit if they can execute.
An established fin tech company like a bank or insurance company cannot raise prices too much more. They have developed the customer acquisition apps and tried to smooth their UX. 67% of their COGS is in the back office, in their processes. That can be automated. That’s where Chicago shines.