Why You Should Start a Company in… Chicago

Chicago may lack the crackling energy of other startup hotspots like Seattle, Austin, Boston or Boulder, and its reputation for back-office, white-collar companies such as the former Andersen Consulting firm doesn't help much. But Chicago is where many Internet mainstays were launched, from the jobs site CareerBuilder and travel service Orbitz to RSS technology innovators Feedburner (bought by Google in 2007) and the online audience measurement outfit comScore. One hot startup right now is the coupon site Groupon.

Health-care companies also have realized great potential in the area, led by Abbott Laboratories. And lest one forget, it was at nearby University of Illinois Urbana-Champaign where Marc Andreessen developed Mosaic, the Web browser that paved the way for the commercial Web. So there's that.

These days Chicago's startup culture is aimed at the steady and sure. As Matt McCall, a partner at New World Ventures and managing director at DFJ Portage, notes, Chicago is home to many of the largest companies in the country, including Accenture, Boeing, Integrys Energy, MillerCoors, McDonald's, ACNielsen, Trans Union, and Fortune Brands. The list is long and comprehensive. For startups, it means a rich source of customers for products that fill a need or enhance their businesses.

McCall spoke with FastCompany.com about what makes Chicago's startup scene so strong.

What makes Chicago a great place for startups?

Chicago has a mixture of a lot of very interesting things. I'll start with the first, which is the customers are here. There are more Fortune 500s in this region than anywhere else in the U.S. And I've noticed this when I'm sitting in board meetings in San Francisco or New York or here. If you ever look at the sales pipeline, the Midwest is almost inevitably always the largest sales region because it's a diverse economy and those companies tend to take care of their own here. So if you have a leading technology here, in almost every single situation, the top customers for those companies were all Midwest corporations. That's the first thing I'd say.

The second is you've got more federal research dollars flowing into the universities here than any other region in the U.S. So if you just look at the federal funding--and this is just for Illinois, Michigan, Wisconsin, those three alone receive over $2 billion a year in U.S. federal funding. And it depends on the year, but they're number three, four and five in the U.S. in research funding.

And the third is the connectivity, which is if you'll look at a lot of successful companies in the valley, almost inevitably a huge percentage of them either went to school or grew up in the Midwest. And that's ranging from [Oracle CEO] Larry Ellison growing up on the south side of Chicago to the YouTube guys.

So number four is you now have critical mass of what we call family trees where you've got entrepreneurs that are fourth generation entrepreneurs. They're on their fourth business. As a result, they played at the big leagues. They've got a mafia of people that they can pull in to the companies. So when you go to recruit teams in certain spaces, you have the talent. Now, where are those spaces? I've always said we try to focus on areas where we are able to produce the number one or number two player in the U.S. or world out of our region and those areas would be interactive marketing, B2C, e-commerce, B2B, Internet enabled B2B, some enterprise software, medical devices and a host of other areas, everything from Archipelago to Think or Swim, OptionsXpress. You've got all kinds of talent, from writing the software platforms to actually creating exchanges.

Would you say that Chicago breeds or attracts entrepreneurs?

My phrase is we've inflected. And so, when you inflect, you start to be able to kind of see the family trees or the number of entrepreneurs. That number is growing pretty significantly and I'll give you some examples. On the B2B space, you've got Brad Keywell and those guys who were involved with launching InnerWorkings. It's a classic Midwest play. Go after boring B2B industry with an Internet infrastructure and disrupt it. That company is public. I don't know what it will do--$500 million, $400 million in revenue after four years?