Chicago Inno takes an inside look at the city’s ecosystem, talent, successes, and flaws
By Jim Dallke and Karis Hustad, Originally published by ChicagoInno.com
Lately, there’s been a lot of talk about Chicago’s tech community and its perceived flaws. Crain’s asked “What’s wrong with Chicago tech startups?” after Cleversafe sold to IBM. Forbes wrote “Howto fix Chicago’s tech industry.” And the Chicago Tribune wrote a Sunday cover story in October titled “Chicago tech talent often grows away,” which examined, among other things, the “brain drain” that occurs when local university students–especially University of Illinois students–leave the state for Silicon Valley.
The Tribune piece in particular ignited criticism from many in the tech community who believe it painted a narrative about Chicago that’s dated and incomplete. Is there something wrong with Chicago tech? Are other cities like Boston, Austin, and Seattle making strides in technology where Chicago is not? Does Chicago’s tech talent really grow away?
The answers require more nuance than “Here’s what’s wrong with Chicago tech” or “Illinois has a brain drain problem.”
Chicago tech had one of its best years ever in 2014 with $1.6 billion in funding and $7 billion in exits. Chicago is home to four tech companies valued at $1 billion or more–and it’s the only city not on a coast to even have one. Hundreds of entrepreneurs are working to build businesses, create jobs, and grow the local economy, without needing to leave the state to flourish; there are more than 3,200 digital companies in Chicagoland that employ more than 54,000 people, up from 33,000 in 2012.
Not to mention, Chicago was recently ranked the 7th best tech hub in the world in the 2015 Global Startup Ecosystem Rankings.
“We’ve basically gone from nothing to number 7 in the world. And that’s pretty good,” said Jeffrey Carter, the co-founder of Hyde Park Angels.
It’s not a matter of whether Chicago is “the greatest” tech hub in the country. And it’s not about asking what’s wrong with Chicago tech or admonishing the community because some people have left. When we find ourselves comparing Chicago to Silicon Valley, have we missed the point? Let’s ask instead: Is Chicago “a great” place to build, launch, and scale a business? And to many in Chicago who have done that, and are continuing to do that, the answer is yes.
That’s why over the past few weeks, we’ve interviewed a dozen of the city’s startup founders, investors, educators, and researchers about this perception, why they chose Chicago, and the pros and cons of the Chicago ecosystem. And we’ve gathered talent migration and other university data to create a more robust and nuanced understanding of the tech foundation Chicago has laid thus far.
Does Chicago’s tech talent grow away? Sure. But it also grows. And, if you ask the entrepreneurs building companies in Chicago, the community today is stronger than it’s ever been.
Brian Fitzpatrick never gave Google a choice.
The Silicon Valley search giant, looking to hire Fitzpatrick in 2005 to its engineering team, wanted him to leave Chicago for its Mountain View office. Fitzpatrick, a New Orleans native who graduated from Loyola Chicago, landed engineering jobs in the Chicago offices of Apple and Silicon Valley-based CollabNet before Google came calling.
But Fitzpatrick just spent four years restoring a 100-year-old home with his wife in Chicago and had no intentions of relocating to California.
“Neither one of us was going to be moving to Silicon Valley,” Fitzpatrick said. “I could give a fuck about Silicon Valley.”
It was out of Fitzpatrick’s stubbornness and love for his adopted city that led to Google agreeing to open an engineering office in Chicago in 2005, where he and Ben Collins-Sussman became the first two Google engineers in Chicago.
Today, Google’s Chicago office has grown to over 650 employees, with over 100 engineers, and the team is working on things like search, ads, and Google’s privacy terms right from Chicago–a testament to the work Fitzpatrick and Collins-Sussman began 10 years ago.
“Really, what it came down to for me is, I love Chicago, and I figured there is plenty of stuff to do here,” Fitzpatrick said.
The “stuff” he’s referring to are opportunities in technology. And not just opportunities to launch a startup. But opportunities for technologists and software makers to sink their teeth into complex problems. To solve difficult issues, and work with entrepreneurs building transformative technology companies.
Fitzpatrick, who has since left Google to join Alinea’s Nick Kokonas at fast-growing restaurant ticketing startup Tock, is one of the many technologist and entrepreneurs who’ve chosen Chicago over the Valley. And many of those in Chicago feel that the narrative being portrayed about the tech community by local media is an incorrect one, especially after the Chicago Tribune’s front page story.
“I was embarrassed to read the story that was on the front page of the Tribune, because I thought it was positioned incorrectly. I thought it had bad data, and I thought it didn’t reflect the environment of Chicago,” said Mark Tebbe, serial entrepreneur and the chairman of ChicagoNEXT, a council of technology leaders in charge of growing the tech, startup, and innovation community in Chicago.
While Tebbe acknowledged the existence of “brain drain” from Illinois universities to the coasts, he said the situation is not as bleak as many people, particularly in the media, perceive it to be.
“I think Chicago is a lot more vibrant and alive today than it has ever been before,” he said.
The fear of “brain drain” is by no means a Chicago-specific issue, as places from Boston to New York to New Jersey have all worried about losing talented graduates to other states. But how does the problem in Illinois stack up to the rest of the US?
It’s true that tech talent that studies here has been known to leave. Venture capitalist Marc Andreessen, PayPal founder Max Levchin, and YouTube founders Steve Chen and Jawed Karim all began their career at the University of Illinois.
But how bad is brain drain really? According to the Illinois Science and Technology Coalition (ISTC), more than two-thirds (68%) of startups founded in Illinois universities from 2009 to 2014 remain in the state today. The ISTC’s study found that a total of 576 university startups were created during that time, and 78% are active today.
Looking specifically at University of Illinois’ engineering students, almost half of all graduates (47%) stay in state, with the next biggest recipient of talent being California at 10%. This migration isn’t necessarily surprising given that UIUC’s engineering program is ranked 4th in the world. UIUC College of Engineering Dean Andreas Cangellaris noted that companies from all over the world vie for these grads, and students often have their choice of many strong offers out of school.
“Top talent is a free agent, they will go wherever the opportunity is best for them,” said Cangellaris, who wrote a frustrated response to the Tribune piece for UIUC. “You need to compete for that top talent. All year round we have companies from California, from the East Coast, even international visit the UC campus and make sure our students consider them as an option.”
It’s hard to know whether to praise or criticize this job placement data without some context. According to a Payscale study, Illinois is the 14th best state in the country for retaining its public university graduates, with 53% of its alumni still here. The University of Washington is No. 1 with 74% of its graduates remaining in state, while West Virginia is the worst–it keeps just 28%.
So, comparatively speaking, you could say Illinois is good–but not great–at holding on to its college grads. But what about retaining the talent that chooses to stay here after school? A study by the Boston Redevelopment Authority–which set out to look at college graduate retention in Boston–found that 92% of 22-25 year olds in Chicago with four years of college or more remained in the region the following year. That number is higher than Boston (88%), Los Angeles (91%), D.C. (87%), and Philadelphia (88%), but lower than New York and San Francisco, which had the retention rates of 96% and 94% respectively.
There’s another group of tech talent to consider in this equation as well: mid-level tech workers who decide to move back to the Midwest. That’s what World Business Chicago is working to find in a LinkedIn study they are currently conducting. The study looks to uncover Chicago’s talent migration patterns by analyzing over 3.4 million Chicago LinkedIn profiles. And while the WBC and LinkedIn study is still in progress, WBC found, “Big Ten alumni tend to return to Chicago 5-10 years out of school,” and “Chicago internet, software, and infotech companies have above-average retention rates.”
“We see people that after college go out to the coast for a period of 5-6 years, but then as they start thinking about how they want to live their life, they want to start building a family,” Tebbe said. “They want to start settling down. We find more and more people are coming back to Chicago than ever before.”
When Cleversafe founder Chris Gladwin had the idea for a large scale data storage technology in 2004, he didn’t pick up and head out to Silicon Valley. He moved to Illinois Institute of Technology’s research park in Bronzeville.
“We had to decide how we were going to approach development, and one of the decisions we made was to do the development here,” he said. “We really don’t outsource anything, we don’t license anything. All that core technology, which is primarily software, is built by the software development team that we have here in downtown Chicago.”
Gladwin sold Cleversafe to IBM this year, with the acquisition rumored to be in the $1 billion range.
Or take Al Goldstein. The UIUC alum didn’t have to leave Chicago to create a billion-dollar tech startup. The Avant CEO has raised $600 million in equity and $1.1 billion in debt since the company launched in 2012, and Goldstein says his online consumer lending platform can be a “$50 billion or $100 billion (company) based on the size of the market opportunity.”
“We never even thought about (leaving Chicago),” Goldstein said. “We were lucky enough to have success here from a capital-raising perspective.”
Zach Kaplan launched his company Inventables, a maker of 3D carving machines, in 2002, well before Chicago’s tech ecosystem began to hit its stride. He describes watching the tech evolution happen as a moment where entrepreneurs stopped worrying about becoming Silicon Valley, and focusing on what they do best.
“I don’t know exactly what year it was, but there was some point where people just moved past the fact that we weren’t the Valley and just started doing stuff,” said Kaplan, who also launched a venture fund with Match Group CEO Sam Yagan and other entrepreneurs. “And then we started having successes. And examples of success bred more success.”
“I think at one point I probably knew everybody in the Chicago tech community,” Kaplan added. “And now I’m constantly meeting people and hearing about people that I’ve never heard of, or people getting funded that I’ve never heard of–and I have a fund.“
Kaplan called Chicago the “center of gravity” for the digital manufacturing movement that’s taking place and said it would be “silly” to take his business to Silicon Valley.
“If people focused on what’s actually going on here … I think the narrative would change,” he said. “You’re starting to see a change in the narrative, but its slow because it’s got to hit everybody. The people who are writing these stories aren’t necessarily in it, so to speak. So it takes even longer to hit them to have enough physical examples.”
The physical examples include companies such as Fieldglass, Braintree, Trunk Club, Trustwave, and Coyote Logistics, who’ve seen $350M or greater exits in the last few years. The physical examples extend even to Silicon Valley giants. For example, open-source framework Django, which anchors Pinterest and Instagram, was developed in Chicago and Ruby on Rails, which was built by Chicago’s Basecamp, served as the early foundation of Twitter.
But even down to the individual level–people who have chosen Chicago over Silicon Valley–the examples start to pile up. You can point to how Harper Reed built a groundbreaking tech team in Chicago that helped elect a president and changed how political campaigns are run (and many of those technologists are still in Chicago). Or how Dag Kittlaus, the founder of Siri, and Charles Adler, the founder of Kickstarter, made their way back to Chicago. You can look at the CMO of GrubHub Barbara Martin Coppola, who spent seven years at Google leading things like Google Express, YouTube, and Chromecast before coming to Chicago. Or Kenneth Fuchs, who left his executive role Yahoo to become the CEO of Chicago sports tech giant STATS. Or Mark Achler, who was one of the early leaders at Apple before coming to Chicago to work at Redbox and MATH Venture Partners. Or Luke Shepard who was on the team that developed Facebook Mobile but was drawn to David Vinca’s vision at eSpark Learning, which has been based in Chicago since 2010.
Or Rob Chesney, the COO of Trunk Club who was previously a VP at eBay. Or George Bousis, a first time founder, is building a soon-to-be unicorn in gift card marketplace Raise. Or Rishi Shah and Shradha Agarwal who have bootstrapped a massively successful health tech company at Context Media. Or Brad Keywell, the Groupon co-founder whose less than two-year-old company Uptake is already worth $1.1 billion and single handedly kept Caterpillar from leaving the state.
“I don’t know why (journalists) are obsessed about writing about (tech talent moving away),” Kaplan said. “Why is that even a conversation? Where did this even come from? I don’t understand the obsession with it. But regardless, there are lots of interesting things happening here for us to talk about. Does nobody care about those?”
The conversation Kaplan’s referring to, whether right or wrong, often begins and ends with the city’s pipeline: its universities. So, while the above examples, at the very least, serve as a rebuttal to the indication that “Chicago’s talent grows away,” let’s take a look at where the “brain drain” chatter starts.
Cleversafe’s Chris Gladwin is perhaps the best example of building a thriving tech company with local engineering talent.
“We lived the example of how hard it is to attract and retain talent here,” he said. “Other people who have talked about it, maybe they were at it a couple years and maybe they tried to hire one or two people. We’ve been at it for 11 years, and we have a hundred people on our development team. We can tell you in extreme detail what it is exactly like.”
“I think it is an advantage to build and retain tech talent here,” he said. “At every level.”
Gladwin initially hired extensively from the surrounding Illinois Tech campus. Since then, their yearly retention numbers have always been above 90 percent and are often upwards of 95 percent. He adds “when we see top talent we hire it, no matter what.” The top schools they recruit from include (in this order) Illinois Tech, University of Illinois Urbana-Champaign, and University of Chicago, then a variety of Midwest schools.
“When we have people visit us from Boston or the West Coast and they see our people and understand how long they have been here, I have CEOs of other tech companies pull me aside and say literally, ‘I cannot believe the quality of talent you have. I could never attract and retain these kind of people.'”
Though that’s just one anecdote, Gladwin is actually representative of the majority of startups to come out of Illinois universities.
“[Of] startups coming out of universities, the vast majority of them are staying in Illinois to build and grow their company,” said Mark Harris, head of ISTC. “That to us is a very strong and positive sign that the pieces are in place, whether that is talent, funding, networks, customers, are here in the region, and companies are able to grow as a result of that.”
Universities have started to further incentivize tech talent to innovate and grow their businesses in Chicago as well. DePaul University and University of Illinois-Chicago have annual startup competitions. Entrepreneurship non-profit Future Founders has made it a mission to foster entrepreneurship at a high school, college, and post-grad level, providing resources to young founders such as Reliefwatch’s Daniel Yu and ZipTank’s Kaeya Majmundar. Northwestern started a venture challenge in 2009 that awarded $200,000 in cash and prizes this year. Most recently, University of Chicago’s top ranked annual new venture challenge launched GrubHub and Braintree, in addition to a host of other venture-backed startups that stuck around Chicago, such as Simple Mills.
“It’s been so easy for us to meet other people around town that could be potential investors in us, and have experience in consumer products,” said Simple Mills founder Katlin Smith, who chose to get her MBA at Booth because of its entrepreneurship program. “People are so willing to help too…I’m just not sure if it was another town people would be that open. I think it’s part of that Midwestern culture.”
“It’s nice from a recruiting standpoint,” she added. “There are a lot of people interested in getting into something more entrepreneurial…so we’ve found some really great individuals to join our team.”
Northwestern, University of Chicago, and UIUC are all ranked top 10 for venture-backed entrepreneurs, a recent Pitchbook survey found. And Urbana-Champaign, a central Illinois college town with a population of about 230,000 ranked in the top 10 for venture deals per capita, according to City Lab. 1871, which has dedicated space for six universities in its sprawling Merchandise Mart space, was recently named the top university-affiliated incubator in the United States.
These nascent resources have started to change students’ conversations around post-grad life said Carter Cast, entrepreneurship professor at Northwestern Kellogg and venture capitalist at Pritzker Group Venture Capital. He’s seen this both from the entrepreneur and educator’s perspective. After stints at Blue Nile and Walmart, he headed to Silicon Valley to launch online retail startup Hayneedle, but came back to Chicago in 2011. Since then, he said he’s been amazed at how the ecosystem has changed, and how that has impacted the conversations he has with students deciding what to do post-graduation.
“You have hubs and you have a great assortment of mentors and coaches and seed companies and angel investors and venture capitalists all in the same area together,” he pointed out. “There still for some people is the allure of the Bay Area but [Chicago is] in the conversation because of the infrastructure we’ve built, with 1871, with educators, with venture capitalists, with so many support networks here,” he said.
“If I would have experienced that in 2007 I wouldn’t have left,” he said.
Despite Chicago’s recent string of tech success, it would be naive to think the city can’t do more to foster a better ecosystem for startups. Jeffrey Carter mentioned the need for more seed funding. Brian Fitzpatrick said the city needs more engineering leadership.
But the reason tech talent leaves for the Valley, aside from a higher salary, is the abundance of available tech jobs at large, household-name companies. Chicago has yet to reach the point of “critical mass,” as Avant CEO Al Goldstein explained, where people can hop from transformative tech company to transformative tech company.
“In the Valley, the beauty is that if you are not happy where you are or you lose your job, you can just go across the street to another company that’s just as dynamic and just as cool,” Goldstein said. “And that’s what we need. We need critical mass. And I think when we reach critical mass, we’re going to be much more successful at keeping that kind of talent.”
And whether Chicago likes it or not, Silicon Valley is still the center of tech where all the industry’s superstars live and work. Cangellaris, the UIUC engineering dean, described a conversation he had with a student who was deciding between Illinois and Silicon Valley. The student excitedly recounted how in the Bay Area he stood in line behind Google co-founder Larry Page at Starbucks, an experience he’d never have in Chicago.
“We need the Larry Pages to be in Chicago. It’s not easy, we need to work very hard. Young people get excited about these things,” Cangellaris said.
And if you’ve got a resource like the UIUC’s engineering school, you better use it, Tebbe added.
“Shame on our businesses for not going down to U of I to get to know these students and nurture the relationship and build reasons for them to want to come to work in Chicago,” Tebbe said. “That’s our problem in Chicago.”
So what does the future hold for Chicago tech? Will we begin to retain more of our university graduates? Can we reach a critical mass of thriving tech companies? Will the narrative ever change? Can a “great” place to build a business keep getting “greater?”
“It’s interesting to think, what is our ideal scenario for the technology world in 10-20 years in Chicago?” mused Luke Shepard, CTO at eSpark Learning, a UChicago alum who led development of Facebook mobile before moving back to Chicago. “I don’t think that we’re following a mold, where it looks like Silicon Valley does today. It’s not like we’re on the same path, but we’re just behind. I think we’ll carve out a speciality…I would hope that in 10-20 years we have a series of big success that we can point to, so that when we go through Chicago’s top companies we’re not just listing off the old financial and food service business firms.”
Additional reporting by Will Flanagan
Creative Commons Image by Tim Sackton