Regional investing is the topic of many a venture debate. If you are outside the Bay or Boston areas, why even bother? Being a VC from Chicago, I get to hear a variety of jokes from my Valley peers. Have I seen any good meat packing deals lately? Can we leverage the Mob to help a portfolio company close a sale? You can figure out the others. Other regions take similar stereotypical ribbing. My partners and I draw even more stares from people when we tell them that after 27 years of successful investing nationally, we have chosen to focus almost exclusively on the Midwest region.
There has been a great deal written about why the Midwest has not exploded given the wealth of resources here. Other regions have had similar amounts of ink spent. Shannon Clark wrote about this a short while ago in his post "Why I moved to Berkeley, a reaction to the Great Chicago Tech Debate". There have been even more initiatives and studies about how to kick start things here, including what can government do (McKinsey, AT Kearney, etc). Despite all of this, we remain more confident than ever that this is one of the great, untapped venture markets in the US. Why?
Let me give you a personal example and then expand from there. I grew up in La Jolla. When I was young, you were either in the Navy or in real estate if you lived in San Diego. There was lots of sage brush, but no biotech firms to be seen anywhere. Today, San Diego is arguably one of the top three biotech hubs in the world with hundreds of biotech firms. What happened? The simpliest answer is Hybritech. Hybritech was purchased by Eli Lilly and its founders took their new found wealth and started a variety of new companies like La Jolla Pharmaceutical. These firms succeeded and spun off and so on and so on until you had a massive biotech industry. Of course, the 75 degrees every day does not hurt either. Boulder had similar experience in storage when IBM located their storage operations there.
VC’s live or die based upon the timing of their investments hitting the inflection curve. There is the old saying about backing the right product in the wrong decade. So, in essence, we are making a bet not only on our portfolio companies here hitting the curve, but also on the region doing so. What metrics or guidelines do we use in judging where this region is on the curve? We have one simple one, borrowed from Jack Welch. Our companies (or opportunites that we see) have to be #1 or #2 in their space and run by people taken seriously in their respect industry as thought leaders. There is nothing more painful than being the #5 player, trying to explain to your prospective customers why they should buy your product versus one from the other 4. Using this metric, we are seeing an increasing number of opportunities where there are leaders. Examples in our portfolio include: Stereotaxis (the only magnetically guided catheter system in the market), Feedburner (#1 feed manager and RSS ad network in the world), Imago (the #1 player in the 3D atomic probe space…machines that see atoms), Performics (one of the largest online marketing firms) and Cognitive Concepts (#1 auditory process software company…part of Houghton now). Outside our portfolio, you have OptionsExpress, 37 Signal, Univa (#1 grid computing services firm), Navteq, Motorola, etc.
We have the resurgence of Motorola just as wireless applications are exploding, the largest navigation company in the world (Navteq) as location based application are hot, the largest medical device hub in the world (companies representing nearly $80B in sales), one the deepest and best funded university research infrastructures in the world and the largest customer base both in terms of population and corporations. And, more importantly, we have more and more entrepreneurs that are leaders in their field and starting companies here.
I will write in the future about why we see venture capital as being so difficult here (and it is) and what the core challenges to things really taking off here are.
However, I’d highly encourage entrepreneurs and companies to stay put in the Midwest and other regions. The tides are changing. Quality guys & gals like Shannon who have headed to the coasts, the door is always open to come back and join the party, roll up your sleaves and make something happen here!
I agree with Chicago being a hard place. As an entrepreneur who is in search of funding, it is difficult fo find access to VCs and Angels. I see all these investment/entrepreneurial clubs and events in the west and east coast, but it is still very weak here. Instead, we have a lot of older school thinking, industries, and “big company” attitude. That said, there is still a lot of talent here, just culture needs to be increased.
We have found some paths to get investor visibility, but it’s not as readily available or easy to find as other parts of the country.
So to all VCs/angels, I invite you to the midwest, come to Chicago, see what we have to offer! I think there’s a lot of good stuff here ready to explode, we just need the environment cultivated.
I agree with Chicago being a hard place. As an entrepreneur who is in search of funding, it is difficult fo find access to VCs and Angels. I see all these investment/entrepreneurial clubs and events in the west and east coast, but it is still very weak here. Instead, we have a lot of older school thinking, industries, and “big company” attitude. That said, there is still a lot of talent here, just culture needs to be increased.
We have found some paths to get investor visibility, but it’s not as readily available or easy to find as other parts of the country.
So to all VCs/angels, I invite you to the midwest, come to Chicago, see what we have to offer! I think there’s a lot of good stuff here ready to explode, we just need the environment cultivated.
Fully agree.
Also, I forgot to note that I originally came across the idea for this post from Shannon’s blog that was featured and discussed in the Ron May Report (www.themayreport.com).
Fully agree.
Also, I forgot to note that I originally came across the idea for this post from Shannon’s blog that was featured and discussed in the Ron May Report (www.themayreport.com).
Matt – fantastic read! It is also a very timely post, as we are having our own regional deal flow / capital woes down here in Atlanta. As I mentioned to you in email the other day, I have been working on a rather lengthy piece about the venture scene down here in Georgia. Link below:
http://www.scottburkett.com/index.php/archives/166
Glad to see that you’re finally on the blog train with the rest of us! I am looking forward to reading your ramblings moving forward.
I will say that IMHO Portage has made some good picks with its current crop of investments. I like the shift you’ve taken …
Cheers.
Scott
Matt – fantastic read! It is also a very timely post, as we are having our own regional deal flow / capital woes down here in Atlanta. As I mentioned to you in email the other day, I have been working on a rather lengthy piece about the venture scene down here in Georgia. Link below:
http://www.scottburkett.com/index.php/archives/166
Glad to see that you’re finally on the blog train with the rest of us! I am looking forward to reading your ramblings moving forward.
I will say that IMHO Portage has made some good picks with its current crop of investments. I like the shift you’ve taken …
Cheers.
Scott
Nice post, Scott. It inspired me to put down a few of my thoughts on doing a tech startup in Chicago.
– Rich
Nice post, Scott. It inspired me to put down a few of my thoughts on doing a tech startup in Chicago.
– Rich
And, thanks to you, Matt, for getting the topic rolling!!
And, thanks to you, Matt, for getting the topic rolling!!
Matt,
I am so excited about your starting a blog that I was dreaming about it last night. It is high time and there is no one better locally to do it. You care. I have seen you hang out at meetings until the bitter end and you never shy away from talking to people. Other VCs, like Ellen Carnahan, also do that, but they generally show up when they are on the panel. Many times at TiE and other meetings I have seen you when you were not featured as a speaker.
You are the model VC for Chicago. And I hope that this thing cascades. I will track your comments. Stephen Meade told me today that he blames the entrepreneurs as well as the angels for the problem in valuation that you cited. Entrepreneurs should be aware of the fact that they may be overpricing themselves for the market when they jump at inflated valuations.
Stefania Aulicino also stresses that point. An entrepreneur needs a long term plan.
Many people have told me to start a blog and they say it will create more interaction. I will be watching your blog to see what happens. One of my concerns is that comments are generally directed as responses to the blogger’s comments, but I have stressed an open forum so that people can bring up just about anything. I still am stuck in 1999. You know, inertia. Once you are used to doing things one way, change is scary.
I would like to talk to you for suggestions on how the blog can be set up sometime in the near future.
I think your comments on San Diego are dead on. It was not a tech hub until fairly recently and that happened organically from what you and others have said.
Since you know nanotech, and I now understand what Questek does, maybe moreso than I would like, I would love to get your read on that firm. Also, at last Thursday’s nano conference, Aatish Salvi mentioned a local firm: [from TMR] “The local firms that came up in his talk included American Pharmaceutical Partners which has recently come up with abraxane which is a means of delivering paquapaxil (spelling???) which heretofore had to be delivered in a toxic solvent.”
Have you heard of American Pharmaceutical Partners? I know nothing about them.
One last point. I know that you know about Amgen, and I am on kidney dialysis, and I get 20,000 units of Epogen three times a week to keep my hemoglobin up. The technology behind Epogen and for that matter Amgen was developed here, at the University of Chicago. It was when Chicago lost out on the drug that they started ARCH Venture Partners.
I may be skipping a step or two.
Lastly, I read your bio and Matt, you and I have something in common. When I was five, in the summer of 1961, long before you were born, my father loaded up the family in his used Cadillac and off we went from Columbia, MO. to Williams College. We spent the whole summer there, I played just about every day in the park and caused plenty of trouble with all the relatives who came up to visit from New York. I loved it. That is such a nice town, even if I was only five. My dad was a marketing professor and it was a summer seminar sponsored by U. of C. which was run by people like Harry Roberts, Harry Davis and Irving Schweiger. I know he enjoyed it and as a result he was asked to write an article for the Journal of Business.
See ya around.
Matt,
I am so excited about your starting a blog that I was dreaming about it last night. It is high time and there is no one better locally to do it. You care. I have seen you hang out at meetings until the bitter end and you never shy away from talking to people. Other VCs, like Ellen Carnahan, also do that, but they generally show up when they are on the panel. Many times at TiE and other meetings I have seen you when you were not featured as a speaker.
You are the model VC for Chicago. And I hope that this thing cascades. I will track your comments. Stephen Meade told me today that he blames the entrepreneurs as well as the angels for the problem in valuation that you cited. Entrepreneurs should be aware of the fact that they may be overpricing themselves for the market when they jump at inflated valuations.
Stefania Aulicino also stresses that point. An entrepreneur needs a long term plan.
Many people have told me to start a blog and they say it will create more interaction. I will be watching your blog to see what happens. One of my concerns is that comments are generally directed as responses to the blogger’s comments, but I have stressed an open forum so that people can bring up just about anything. I still am stuck in 1999. You know, inertia. Once you are used to doing things one way, change is scary.
I would like to talk to you for suggestions on how the blog can be set up sometime in the near future.
I think your comments on San Diego are dead on. It was not a tech hub until fairly recently and that happened organically from what you and others have said.
Since you know nanotech, and I now understand what Questek does, maybe moreso than I would like, I would love to get your read on that firm. Also, at last Thursday’s nano conference, Aatish Salvi mentioned a local firm: [from TMR] “The local firms that came up in his talk included American Pharmaceutical Partners which has recently come up with abraxane which is a means of delivering paquapaxil (spelling???) which heretofore had to be delivered in a toxic solvent.”
Have you heard of American Pharmaceutical Partners? I know nothing about them.
One last point. I know that you know about Amgen, and I am on kidney dialysis, and I get 20,000 units of Epogen three times a week to keep my hemoglobin up. The technology behind Epogen and for that matter Amgen was developed here, at the University of Chicago. It was when Chicago lost out on the drug that they started ARCH Venture Partners.
I may be skipping a step or two.
Lastly, I read your bio and Matt, you and I have something in common. When I was five, in the summer of 1961, long before you were born, my father loaded up the family in his used Cadillac and off we went from Columbia, MO. to Williams College. We spent the whole summer there, I played just about every day in the park and caused plenty of trouble with all the relatives who came up to visit from New York. I loved it. That is such a nice town, even if I was only five. My dad was a marketing professor and it was a summer seminar sponsored by U. of C. which was run by people like Harry Roberts, Harry Davis and Irving Schweiger. I know he enjoyed it and as a result he was asked to write an article for the Journal of Business.
See ya around.
Ron,
It would be great to see you blogging. You can get up and running pretty quickly. I use Typepad (www.typepad.com) which I like a lot, but there are a couple of other simple ones like blogger that also work. They walk you through the set up process which is template driven. You then go to feedburner to register the feed. You can go to the “publicize” tab and using the chicklet choser and email services, put different subscription options on your blog…and you are off to the races. You can link it to your website so it all works together.
Williamstown is beautiful place. I am glad you had a chance to visit.
We will see how the blogging goes! 🙂
Ron,
It would be great to see you blogging. You can get up and running pretty quickly. I use Typepad (www.typepad.com) which I like a lot, but there are a couple of other simple ones like blogger that also work. They walk you through the set up process which is template driven. You then go to feedburner to register the feed. You can go to the “publicize” tab and using the chicklet choser and email services, put different subscription options on your blog…and you are off to the races. You can link it to your website so it all works together.
Williamstown is beautiful place. I am glad you had a chance to visit.
We will see how the blogging goes! 🙂
Hey Ron,
Great to see you! We met a few times in the past and it’s great to see you again! Hope all’s well with you and our health is well.
Thanks.
Manish
Hey Ron,
Great to see you! We met a few times in the past and it’s great to see you again! Hope all’s well with you and our health is well.
Thanks.
Manish
First of all, I want to say that I have really appreciated your blogs so far. It is very refreshing to see someone who has clearly been successful, write about the goodness of people, charity and general morals. This is especially true for me as I am beginning my financial career at a time of the Enrons and Tycos.
Having grown up in Chicago and recently graduated from an in-state school, the dilemma of pursuing a financial career in Chicago is something I am familiar with. I personally believe that an investigation into the main reasons the financial environment of this great city has not thrived should start at the bottom. The amount of job opportunities in top level finance positions is extremely limited to students coming out of Midwestern schools. This includes the types of jobs, the amount of recruiters coming down to each university and the spots allocated to Midwestern students. This perception of the Midwest continues when switching from the first job to the next (that is, at the junior level). Juniors from NYC jobs are generally viewed as more experienced, more developed and ultimately better candidates for the respective position.
While many of my friends ran straight to New York City out of college, I wanted to begin my financial career right here in Chicago. I joined the M&A group of a bulge bracket Investment Bank. Even though many people say that you truly need to work out in NYC to start off your career, I decided to stay in the Midwest for a couple of important reasons. First, having grown up in Chicago I feel a lot of loyalty to this city and will always consider it the best. Second, my family is the most important thing in my life and banking doesn’t really give you the time to fly away for a weekend and visit them. Finally, even though I know that NYC is the financial capital of the world, I felt that joining a fully-executable office would put meet at the same level as my peers in NYC.
That being said, after only 1 year I have already noticed a difference in the experience a junior employee gets here in Chicago and over in New York. To begin with, the deal flow is much smaller in Chicago. Many times when a “sexy” deal comes along, everyone one wants to get involved and right away everything gets moved to NYC. While this might mean less work, much more importantly, it means that the responsibility, chance to learn and chance to distinguish yourself also get moved. I find myself doing a lot of work that NY does not want to do and thus is put off to us. On several occasions, after completing a successful pitch, our mandated deal was moved to a group in NYC. I believe this stems from the fact that many Senior level people do not mind if the work gets moved to NY, because they will ultimately still be involved and be able to put their name on the transaction. While this may not happen at all banks, firms or funds, after speaking with others who decided to stay in Chicago, it is a common reoccurrence.
Thus, I already feel as if the next step in my career will have to be in NY, Palo Alto, Boston, Greenwhich or London, depending on the industry. While there are great firms in Chicago, people with experience in NYC are always hired everywhere, while people with experience in Chicago are not generally sought after in other cities. Even though my point may differ a little bit from the main idea behind “Sweet Home Chicago,” as a junior person is looking for different aspects to a job than a senior person, I truly believe that this is where the problem begins. Many talented individuals feel that even though they want to stay in Chicago, for career purposes they cannot. So they go out to NYC planning to stay for a couple of years and then coming back. However what happens is that the next opportunity available is again in NY and the cycle perpetuates itself until the person has created too many contacts and friends and adapted to a lifestyle and does not look to come back.
I am not exactly sure what the solution is, however I feel that Chicago can offer recent graduates and other junior position people incentives that are already part of Chicago’s strongest features. These features include an overall more personable environment, closer relationships, more responsibility, trust and most importantly loyalty. By this I mean teaching, cultivating and building a long-term relationship rather than following the two-to-three year pods that most junior people now are forced to follow (i.e. – Banking, P/E, MBA, etc…). In my opinion, this causes both the employer and employee to lose in the end. Maybe I am an idealist, but hopefully we can start somewhere.
First of all, I want to say that I have really appreciated your blogs so far. It is very refreshing to see someone who has clearly been successful, write about the goodness of people, charity and general morals. This is especially true for me as I am beginning my financial career at a time of the Enrons and Tycos.
Having grown up in Chicago and recently graduated from an in-state school, the dilemma of pursuing a financial career in Chicago is something I am familiar with. I personally believe that an investigation into the main reasons the financial environment of this great city has not thrived should start at the bottom. The amount of job opportunities in top level finance positions is extremely limited to students coming out of Midwestern schools. This includes the types of jobs, the amount of recruiters coming down to each university and the spots allocated to Midwestern students. This perception of the Midwest continues when switching from the first job to the next (that is, at the junior level). Juniors from NYC jobs are generally viewed as more experienced, more developed and ultimately better candidates for the respective position.
While many of my friends ran straight to New York City out of college, I wanted to begin my financial career right here in Chicago. I joined the M&A group of a bulge bracket Investment Bank. Even though many people say that you truly need to work out in NYC to start off your career, I decided to stay in the Midwest for a couple of important reasons. First, having grown up in Chicago I feel a lot of loyalty to this city and will always consider it the best. Second, my family is the most important thing in my life and banking doesn’t really give you the time to fly away for a weekend and visit them. Finally, even though I know that NYC is the financial capital of the world, I felt that joining a fully-executable office would put meet at the same level as my peers in NYC.
That being said, after only 1 year I have already noticed a difference in the experience a junior employee gets here in Chicago and over in New York. To begin with, the deal flow is much smaller in Chicago. Many times when a “sexy” deal comes along, everyone one wants to get involved and right away everything gets moved to NYC. While this might mean less work, much more importantly, it means that the responsibility, chance to learn and chance to distinguish yourself also get moved. I find myself doing a lot of work that NY does not want to do and thus is put off to us. On several occasions, after completing a successful pitch, our mandated deal was moved to a group in NYC. I believe this stems from the fact that many Senior level people do not mind if the work gets moved to NY, because they will ultimately still be involved and be able to put their name on the transaction. While this may not happen at all banks, firms or funds, after speaking with others who decided to stay in Chicago, it is a common reoccurrence.
Thus, I already feel as if the next step in my career will have to be in NY, Palo Alto, Boston, Greenwhich or London, depending on the industry. While there are great firms in Chicago, people with experience in NYC are always hired everywhere, while people with experience in Chicago are not generally sought after in other cities. Even though my point may differ a little bit from the main idea behind “Sweet Home Chicago,” as a junior person is looking for different aspects to a job than a senior person, I truly believe that this is where the problem begins. Many talented individuals feel that even though they want to stay in Chicago, for career purposes they cannot. So they go out to NYC planning to stay for a couple of years and then coming back. However what happens is that the next opportunity available is again in NY and the cycle perpetuates itself until the person has created too many contacts and friends and adapted to a lifestyle and does not look to come back.
I am not exactly sure what the solution is, however I feel that Chicago can offer recent graduates and other junior position people incentives that are already part of Chicago’s strongest features. These features include an overall more personable environment, closer relationships, more responsibility, trust and most importantly loyalty. By this I mean teaching, cultivating and building a long-term relationship rather than following the two-to-three year pods that most junior people now are forced to follow (i.e. – Banking, P/E, MBA, etc…). In my opinion, this causes both the employer and employee to lose in the end. Maybe I am an idealist, but hopefully we can start somewhere.
PB,
It is unfortunate that all of our large national banking institutions have sold to other players (usually NYC). Having worked on Wall Street, I experienced the differential you are talking about. Interestingly enough, many of the customers/clients are in the Midwest. I would hope, over time, that we begin to see a repatriation of talent from the coasts back here. On the entrepreneurial side, we are seeing either a) savvy entrepreneurs like Dick Costolo stay here but have built out a national network (and also spend considerable time traveling) or b) have been on the coasts and have come back. The reality is that many of the customers are here. If you can build out your network, you can be advantaged geographically being here. It is the network affect that is the tricky part but getting better.
—–
PING:
TITLE: Chicago and entrepreneurial technology culture
URL: http://telematique.typepad.com/twf/2006/03/chicago_and_ent.html
IP: 204.9.178.8
BLOG NAME: Telematique, water and fire.
DATE: 03/17/2006 08:07:28 AM
Matt McCall posts Sweet Home Chicago in his ‘blog VC Confidential. As a part-time resident of Chicago for the past two years, while putting a technology startup in place, I’ve had occasion to hear the same jokes, the incredulity
PB,
It is unfortunate that all of our large national banking institutions have sold to other players (usually NYC). Having worked on Wall Street, I experienced the differential you are talking about. Interestingly enough, many of the customers/clients are in the Midwest. I would hope, over time, that we begin to see a repatriation of talent from the coasts back here. On the entrepreneurial side, we are seeing either a) savvy entrepreneurs like Dick Costolo stay here but have built out a national network (and also spend considerable time traveling) or b) have been on the coasts and have come back. The reality is that many of the customers are here. If you can build out your network, you can be advantaged geographically being here. It is the network affect that is the tricky part but getting better.
—–
PING:
TITLE: Chicago and entrepreneurial technology culture
URL: http://telematique.typepad.com/twf/2006/03/chicago_and_ent.html
IP: 204.9.178.8
BLOG NAME: Telematique, water and fire.
DATE: 03/17/2006 08:07:28 AM
Matt McCall posts Sweet Home Chicago in his ‘blog VC Confidential. As a part-time resident of Chicago for the past two years, while putting a technology startup in place, I’ve had occasion to hear the same jokes, the incredulity