March - 2001 - issue > Cover Story

Few would deny that Chicago is one of the commercial centers of the United States, but when people think of technology, the windy city doesn’t really ring a bell. Silicon Valley must now acknowledge tech centers like Seattle, Boston, New Jersey, and Austin as legitimate rivals for IT mind share and market share, but could the cultural and economic capital of the Midwest arise as a surprise technology hotbed?


Chicago’s suburbs do boast the worldwide headquarters of wireless giant Motorola. As the economics of the IT revolution become more punishing to tech startups struggling in the highly competitive world of Silicon Valley, more and more entrepreneurs may choose to set up shop in the Midwest rather than pursue the famous Silicon Valley dream. Vic Tyagi is founder of RapidMedia Network, a young company developing a multi-media browser, and suggests, “I think a year ago a lot of folks were thinking of packing their bags and moving out [to west]. Then word started coming out that not all was rosy in the land of opportunity.”


Certainly, entrepreneurs moving to Silicon Valley find an exorbitant cost of living and high operating costs, and a tight job market, with employees who want high pay and often look to jump from job to job. In contrast, the Chicago area offers low rent and a good pool of loyal employees who can afford to be paid less. And it’s not as if Chicago is a wasteland. The area benefits from top professional recruits coming out of prestigious academic institutions like Northwestern University’s Kellogg Graduate School of Management and the University of Chicago, as well as out of local business and industry. Tyagi concludes, “If anything, the Midwest has allowed us to go about building a real business with minimal distractions.”
But tech success is not just a matter of low operating costs and minimal employee turnover. For most IT and IT-related companies, the network of people, customers and investors that surround a company is critical to success. Tech company executives based in Chicago undoubtedly find themselves wedded to the O’Hare-to-San Francisco red-eye, drawn by the fact that their customers, as well as their competitors, are based in Silicon Valley and other technology hubs.


Another problem for Chicago-based startup companies may still be related to personnel. Adarsh Arora, CEO of venture entity Lisle Technology Partners, suggests that even if Chicago sports a wealth of skilled tech workers, on the management level there are simply not as many people who have been through the startup game as there are in Silicon Valley, and therefore not as many qualified startup managers.


Investors, too, do not have the kind of track record demonstrated by Sand Hill Road. Tyagi explains that access to “smart money” remains an issue, and Atul Garg, CEO of GotProgrammers.com, sees the sources of funding as “limited and conservative.”


Keith Bank, managing director at KB partners — a venture firm that focuses on the Chicago area — quite obviously disagrees. Says Bank, “There is plenty of smart money in Chicago. I think the issue is that you have to be a bit more of a technology generalist, and a bit more proactive here, because we are not going to see 20 good router deals, 50 telecom deals, or 100 optical deals in a given year like one might see on the coasts. One has to be more opportunistic and resourceful here. For the most part, those who bemoan the fact that there is too little smart or early stage money here are those who can’t get funded here or anywhere else, due to the fact that the team and/or idea are not strong enough.”


Either way you look at it, there is less happening on the tech front in the Midwest. But it would seem that the Midwest is experiencing real growth. Entrepreneurial and angel funding activity is increasing in the region. Despite its stock woes, Divine Interventures brought publicity to Chicago and a sense that the Midwest could live on the cutting edge. Arora assures us that a good idea and business plan can very well get at least a seed round in Chicago today.


And nobody is asking the Midwest to build hardcore tech companies to compete with those sprouting up in the Valley, and in places like the Boston area, Texas and New Jersey. Notwithstanding Motorola and Lucent’s strong presence in the Chicago area, The Midwest has long been known for the strength of its non-technology businesses, and as a result many of the Internet or technology based companies that are emerging are companies with more of an applications focus, rather than a pure technology focus. Says Arora, “the pure technology creativity is still in the Valley.”


So what are the career prospects for high-tech knowledge workers in Chicago, beyond entrepreneurship? Tech consulting companies like marchFIRST have a strong presence in the Chicago area. Local business — such as a vibrant banking industry — also provide a number of IT jobs.


For now the jury is still out on Chicago as an IT hub. If Divine Interventures brought publicity to Chicago, the troubles experienced by the former media darling raised questions as to the viability of high-tech entrepreneurship and business in the Midwest. As the numerous young companies that have chosen to set up shop on the windy shores of lake Michigan begin to make their mark, the answers will undoubtedly come.