$1.6B in funding and $7B in exits: Chicago tech just had its best year ever
builtinchicago.org
builtinchicago.org
1) Lots of mediocre entrepreneurs that seem to have the same story:
- Little to no hard skills.
- Probably got an MBA from a good B-school
- Did a stint at a consulting firm and is going to outsmart
the competition with all the wisdom they gained at
Accenture, McKinsey, BCG, Bain, or some big IL firm.
- Does NOT have a technical co-founder but is being advised
by some guy with a similar pedigree that attended a coding
bootcamp/wrote a crappy iOS app/got a CS degree...
but has written <10,000 lines of code in their life.
- This person will interview you by giving you a fizz
buzz test followed by "lateral thinking" brain-teaser
questions). Very 90s.
2) Developer compensation is roughly 10% lower (when adjusted for CoL) than it should be. And in terms of equity compensation Chicago isn't even in the same league as SV today. Getting >0.25% as the initial engineering hire is extremely rare here - even at companies that lack a technical co-founder.
This causes younger talent to get sucked to the coasts.
3) Many of the startups do not actively cultivate a technology or engineering culture. I think this largely stems from Point #1 - you really do need a tech co-founder to drive that side of the company.
The equity thing needs to be addressed badly, my theory is that it's the result of our manufacturing past. We still have those manager/worker cultural remnants. I talked to one woman who said she "couldn't wait to turn 30 so people would take her seriously." We probably have some of the best engineers in the world here, but most of them aren't in startups, they're building corporate IT or middleware. You're not seeing a ton of new spinoffs from Groupon because the equity was so concentrated pre-ipo. Until we get a virtuous feedback loop of young guns spinning out of companies WITH some cash, it's probably not going to change. The VC community here is risk averse and typically only buys revenue.
I disagree with point #3. Rails, Django, 8th light, Groupon, etc... have done more for craftsman culture than anywhere else I can think of. The midwest work ethic and quality standards have a lot to do with that.
It's a flood of NWU/Kellogg and UC/Booth MBA grads that continually stream into the market and slosh around the consulting firms before filling up the lobby at 1871 trying to catch the eye of a Pritzker.
I left a Chicago-area startup that ticked off about 90% of your boxes above. It was a nightmare. The company is still going and the CEO is still busy running around talking about being a startup CEO instead of shipping the damned product.
Finance is also an extremely tempting lure. The pay is quite good (e.g., significantly better than Google), the hours are better, and the firms are generally supportive of external work. Many of the finance firms my friends work at (I've lived in the Chicago area most of my life) allow/encourage/hire people to serve on the C++ standardization committee, were co-founders of major open source projects such as R, etc.
It's hard to lure people away from jobs like that where you're paid a lot and have a ton of freedom for a potential exit that's smaller than what you currently make, unless your startup becomes Google.
Anyone trying to attract talented STEM employees in Chicago should read these to see what they're up against:
It's because Chicago's culture is excessively risk averse. There seems to be a tendency to seek permission or acceptance from peers and others before taking a risk (either in business, fashion, life, whatever).
This is actually great for bootstrapping, because it keeps you in touch with the real world and immediate customer demand.
But it leads to fewer qualified, technical people there with no history of 'business' thinking that striking off on their own and starting a company is a good idea.
The people who do start companies there are often the ones who have gone through some kind of training program (MBA, work experience, etc.) that in their minds has qualified them to start a company.
So I propose that it's not that the MBA types are overrepresented, it's that technical folks and others are underrepresented, because they're tending to not start companies.
Disclaimer: totally conjecture, based on living in Chicago for eight years, but being from California and now living in NYC. In moving from Chicago to NYC the most striking difference (for me), other than the diversity, was the spirit that no one cares about you or what you do, so you might as well do whatever you want or think you can. For some that means starting companies.
Again this seems like selection bias at play. Chicago's history is actually built on the back of excessive risk taking, not risk aversion. Its a cultural touchstone that is built into the cities image.
And if you look at areas outside of the web, there have been huge payouts for risk taking very recently (trading is the most obvious one).
I suspect that what people are saying is "Chicago doesn't do as good a job of building SV style startups as SV. The kind that is based on a constant flood of inexperienced dev talent, high turn over, and equity based compensation. Due to this there are very few blockbuster technology firms and relatively fewer people with that kind of experience to lean on when trying to emulate the SV model."
I think that is probably a fair assessment, but I also think that it is generally a bad idea to try to emulate the SV model, when for the price of a cross country voyage, you could be in SV.
SV has similar problems in the reverse direction. Talk to bootstrapped founders there some time. They walk around feeling like they have 3 heads. And don't get me started about the misconceptions of the way capital markets work. Having been pitched a couple of SV startups that were going to disrupt commodities trading, I can assure you misconceptions about how "business" works go both ways.
I don't know if the culture is that much more risk averse than SF, but rather that the risk calculation is different. There's such a big tech ecosystem out in SF that "failure" as an entrepreneur might mean raising more money for the next project, or failing that BigCos fighting to hire you. Without the same depth of tech infrastructure, the downside risk is much higher in Chicago (or really, anywhere that's not SF).
Any time you replace objective evaluation of people with subjective holistic evaluations, you get a system that seems more humane and less sharp-cornered, but you also get corruption. It's the question of which is better: sheer cold fairness or sticky warm humanness that can devolve into corruption or even a reputation economy (meaning, "extortion system") if the powerful abuse their roles in the judgment of others.
You can look at it charitably and say that the VCs are doing good by caring more about the reason for failure than the fact of it. Or you can look at it negatively and say that it creates a culture where (a) slimy operators good at creating impressions can play politics and let their companies rot, knowing that their backers will see their failures as "good faith" regardless of the facts, and (b) those with power over the "holistic" element of evaluation evolve into reputation-making and -breaking extortionists. The "right answer" is somewhere between the two.
With Chicago, I think the problem isn't that there's a lack of good jobs for technical people, but that the job-hopper stigma is still very strong in finance (and that's true everywhere; it's not geographical, and the attitude is similar in SF finance). So it's hard for a trader to bounce back if the startup doesn't work.
If hedge funds were willing to hire people with typical startup/tech CVs-- those tend to show the brutally honest behavior of job-hopping (even at 2 years, or 6 months) if one's career is stagnating, rather than sticking around for 5-6 playing the system or slacking like white-collar people are "supposed" to do when passed over, because it's somehow more disloyal to leave than to slack for years-- then people would less afraid to do startups. The fault isn't with Chicago per se. It's with finance and the F500 world and their anachronistic hatred of the "job hopper".
There's a lot that I don't like about California startup culture but I think job hopping is a good thing. If you're ambitious and it's clear that you've been passed over for advancement, it's better for everyone to move on than to stick around and suck out a salary and play against the system for 5+ years because the white-collar world thinks you're "supposed" to show "staying power" or "loyalty".
At any rate, I think you're completely right. I don't think that California is more or less risk averse than the rest of the country, nor do I necessarily think that risk seeking is even a virtue. California entrepreneurs get to look more risk-friendly just because there's such a high frequency managed outcomes (acqui-hires and executive positions made available if the VCs judge you to have failed in good faith) that VC-funded entrepreneurs can count on one. Where it's pernicious is when these founders justify massive equity disparities (compared to the 0.5% that the first engineer gets) because they "took all the risk" when, in fact, most of these VC-funded founders don't take any more risk than any other corporate employee.
Going away to do a startup doesn't send the same signal. I'd gladly hire someone who did that.
You're wrong. I can make the same argument against people with long tenures. Some people, when they realize that they've been passed over for a promotion or that they're not being groomed for the role they want in the future, bounce (external promotion). That's the honest thing to do. Others stick around, play politics, work the system, slack, and wait for others to fail so they can capitalize on the chaos and move up the ranks. In other words, one could make the argument that the able, confident, ethical, honest people job hop and the political actors stick around and climb the ladder.
I don't actually believe that most people with long tenures are unethical. I'd put the correlation right around zero, to be honest about the whole thing. I think that there are patterns that cause good people to have long tenures and bad people to have short ones, and also patterns that cause good people to have short tenures and bad people to have long ones.
First, if this guy is really so great, why has he flamed out of 3 firms in 5 years?
Maybe he's technically excellent but bad at playing the politics. Perhaps he's an overperformer, like McNulty on The Wire. Maybe he's just unlucky. Maybe he didn't flame out, but each move was a major promotion that he wouldn't have been able to get internally.
Second, do I really want a guy who's bounced from firm-to-firm glomming up ideas and IP? Won't he do the same thing to me?
The problem isn't "job hoppers". It's attrition. When people leave, it's disruptive (and the internal disruption to your own processes is so much more of a threat than IP leakage, unless someone's actually stealing code and then it goes to the courts, that the latter is a rounding error). You can control attrition by treating people well and making sure that ambitious people have appropriate opportunities get promoted on time. It has little to do with the people you hire, and much more to do with how you manage them.
The anti-"job hopper" sentiment isn't really about IP. It's about being mean-spirited, and the IP justification is just made to back-fill an already-formed prejudice.
Not everyone who downvoted that (admittedly, not well-expressed, insofar as some thought I was accusing Spiegel of causing the Sony hack rather than simply benefitting from it) comment was a Speigeloid. The Spiegeloids are the ones who have been repeatedly downvoting random comments of mine just because I wrote them. (Or, an alternative explanation would be that the Hacker News community has suddenly become much meaner... but I doubt that.) In other words, stalker-downvoting (seeking out someone's comments and, without reading them, downvoting them).
I have no idea when it comes to their personal identities, but I know that I have at least 4 stalker-downvoters. They could be sock puppets of one person. For all I know, it could be Spiegel himself (but I doubt that).
Absolutely. Many of the early startups were based on needs that could serve people and corporate partners. We don't have a lot of app based businesses.
They attract the top STEM talent in Chicago and can pay them extremely well through profit sharing. There are a lot of engineers and "Xs who program" (where X ~= trader/researcher) taking home high-six and low-seven figure bonuses at the best groups. The people are usually very entrepreneurial and the firms have a "tech culture" where good code isn't a cost center. Why would guys getting market base, upside that pays yearly or quarterly, and autonomy trade that for $90k and a lottery ticket to build some glad-hander's dream?
Markets are slow and competition is fierce, so I think you will see a lot guys from these Getco-ish firms leaving because the opportunity just isn't there anymore or the firm culture has changed. Most of these people keep a low profile and have cash socked away. Some will end up bootstrapping their own businesses here in Chicago, building them in the image of the firms where they cut their teeth: nimble, revenue-focused, scientific, and sharing success with employees.
Maybe I run in the wrong circles, but developer compensation is actually slightly elevated due to the trading houses. This is cyclic to some degree but when trading houses are flush they tend to be able to just come over the top of other businesses (and they have a culture of doing so). I think that also depresses the value of "equity" compensation. Lots and lots of developers in Chicago actually know how options work (how to price them etc) and are weaned on a diet of cash bonuses. It makes equity packages unattractive to that class of developer. Maybe that has a trickle down effect that causes equity to not be a major compensation component?
"1.6B in funding! Oh boy, robots, life extension, hover cars!"
"Err, no. But you will be targeted with ads about food delivery and HR services much more precisely!"
It makes sense, really. By far the majority of SE jobs in these places are in IT departments writing line of business software. These are Java and .Net shops usually and anecdotally it seems they pay from $60-90k.
The companies where engineers are profit centers -- web startups and software companies, etc -- are desirable and attractive. Importantly, these are usually high margin businesses. In competitive markets, these companies meet engineer scarcity with attractive pay and equity packages. In places like Chicago, for every opening at 37 Signals you have 5 applicants from places like Crate & Barrel.
This is unfortunate especially because even here in SF I think engineers are not yet paid what they are worth. I reach this conclusion by looking at the margins of software companies and profitable internet companies. You can clearly see the value software engineers are creating.
To be clear, I'm sure there are thousands of highly paid software engineers in the greater Chicago area. it's a very big city and there is a lot of money there. Hell there may be thousands of highly paid engineers in finance alone. Chicago is certainly the heart of trading in this country. I'm generalizing.
The 60-90k number sounds absurd to me. Having worked in Chicago for quite some time, 60k is what a new graduate could have earned 10 or 12 years ago in the middle of the last bubble burst. 90k seems like a plausible starting point now for an entry level Java developer.
The last time I worked in a .NET shop, we would not have been able to hire any of our targeted developers for anywhere near those numbers and that was 5 or so years ago.
Now I make the average salary of a web developer in Chicago according to glassdoor. I have 5 years experience as a dev, with a ton of holes in my resume (because my heart is in doing my own startups). Just thought add that anecdote.
My job feels easy, I have flexible hours, little oversight, independence to build cool things, good benefits, and I feel very lucky that anyone would pay me so much money to sit in a climate controlled office playing with a computer.
I will say, for the broad outlines that you've given that is a low compensation figure. And projecting a bit, I can probably figure out why. First you said yourself, that you don't value yourself much more highly than you are currently getting paid. Why should anyone else?
Secondly, the way you present your product (Python engineer) lowers the prestige/premium it should cost. First, but least importantly, because Python, in general, pays slightly less than other technologies. Second, and much more importantly, being a programming cog to be placed into a programming assembly line is much less valuable than being a business problem solver that uses and builds technology.
I'd recommend going over to patio11's blog and reading:
http://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pro...
My understanding is that most of the big and medium names in the Bay are offering at least what I started out for people with no experience.
That said, my house cost almost $2M, and it is not a terribly nice house by the standards of anywhere but here. So . . . do with that what you will.
I'm not agreeing or disagreeing, but curious where this idea came from.
It's a world class city with tons of programmers and engineer. But it's also much cheaper to live in.
- Childcare / anything to do with children (e.g. Sittercity)
- Things for people without college degrees -- SF has 48% [1] degreed workforce vs. 28% [2] nationally.
- People in Chicago/the rest of the US have houses; over 80% of SF's population lives in apartments. There's tons of businesses involving housing including lawn care, general home improvement, construction, contracting, etc.
- People in Chicago have cars; many people in SF don't drive (surprised Uber came from here? I'm not)
- Anything involving small business
- Also, world-class financial center
[1] Saw this in Business Insider a while ago [2] "Coming Apart" by Charles Murray
So, trying to replicate Silicon Valley isn't a good strategy. It's not very desirable. It's also not possible. Not for New York, not for Chicago, not for Seattle, not for Austin. Should these cities be grabbing a greater share of the new-technology action? Yeah, absolutely. But trying to replicate the culture of a sexist, racist suburban shithole whose high priests think it's OK to block off public beach access (cf. Vinod Khosla) is undesirable. It's happening slowly, but that shit is dying (although it will take two to four decades). Why does the contemporary Valley put such a high premium on pedigree? Because when a society goes into decline, nostalgia dominates. When the Valley was coming up, it didn't matter if you went to Stanford or UC-Irvine or a community college in Nebraska, so long as you were smart and could code. In its decline phase, you see the Stanford Welfare of Clinkle and Snapchat getting funded.
Talent has a natural desire to concentrate, and that might limit us to ~10 strong tech cities in the US, but Silicon Valley has blown past that natural inclination toward concentration. It's deep into the "congested" territory.
What makes Silicon Valley is that it's a condensation point for passive capital. Passive capitalists (teachers' pension funds that invest in VC firms) want returns, and don't seem to strongly care about where or how the capital is deployed. The priesthood that is trusted (in error) to do so are VCs who mostly live in California, and who almost never fund companies more than 30 miles from where they live, so the job and wealth creation is limited to a small geographic area (in which it's almost impossible for an engineer, if he's starting now or recently, to make wealth due to astronomical real estate costs) far away from where the passive capitalists live. Now, if the passive capitalists had a vote, they probably wouldn't want all of their money being directed at a small geographical area where most of them could never afford to live. All being equal-- and by "all", I mostly mean "return on investment"-- Nebraska police officers would rather their pensions be invested in Nebraska businesses and create jobs there... rather than have that money be funneled off to California. Of course, they'd be completely happy to have their money invested in California if that would bring better returns... but VC has been a low-performing asset class for a decade-- the VCs focus on their own careers rather than building great companies or generating returns on the portfolio-- so the passive capitalists are arguably getting screwed. If concentrating the passive capital in Silicon Valley was generating decent returns, then there'd be no reasonable argue against it, but it's not.
This is a long-form way of saying that I agree with you. Replicating Silicon Valley is a backward-looking strategy that won't work in Chicago or New York. These cities, instead, should focus on their own assets. I think Chicago (or Seattle, or Boulder, or for a longer shot, Minneapolis) is a contender for being a different kind of technical leader in, say, 2030... because Chicago has an unusual advantage of a perceived playing-from-behind while actually not being that far behind; that's fairly antithetical to the Valley's Dunning-Kruger smug cloud... but it won't look like the existing Valley. It'll be something different.
Isn't the misogynistic bro culture a function of a sheltered, narrow upbringing and a nationwide cultural infatuation with "apps" (which only the talented, sought-after Software Engineers can provide)?
From my experience, the bros come from all across the US and Canada, and not just the San Francisco Bay Area. I've lived and worked here all my life, and most people in the tech industry actually moved here from other states. So what's to say they all won't move to Chicago as well?
There's two major reasons I say it's so sad and sorry: a total lack of experienced, aggressive VC here, and a massive deficit of university-business partnership.
1. Chicago, sans VC
There's a lot of money in this city. There's also a fair amount of capital being thrown around at start ups and small businesses. However, this place lacks having a couple well established VC firms and proper incubators. Without having direct access to solid investors and capital, many of the companies I've seen here flounder and fail. Their boards are comprised of investors who haven't a single clue about how to advise and lead tech companies.
Additionally, tech as a whole is looked as a cheap commodity in Chicago. The salaries are weak, the benefits are meager, and the chance to grow is basically nonexistent. The overwhelming majority of developers I know are either miserable at large companies (banks, trading firms, healthcare, etc) or are being worked to death with virtually no acceptable future benefit at start ups.
2. Universities vs. Business
Let's look at this for what it is in Chicago: the business community and universities do not work with each other. There are so few partnerships for STEM students that it's basically pointless to go to college in Chicago if you're looking for curricula that is directly informed by industry. There's very little in the way of research being done with the guidance of industry or even an objective to productionize/market any of the work.
The universities themselves are also woefully underwhelming: Loyola, De Paul and UIC are basically glorified baby sitting campuses that blindly churn out subpar programmers. UChicago, on the other hand, has a solid engineering school but doesn't promote it at all. UIUC has one of the best engineering schools in the country, but it's two hours south of the city in the middle of a barren corn field. There's also a massive number of smaller liberal arts colleges in the burbs, but they lack exposure, the funding to recruit STEM students and have fewer still business connections in the city.
/rant; begin pep talk:
There's a lot of potential in Chicago, however (which is part of why I've stayed here). All it takes is an honest, concerted effort to get things rolling. As an example, what's happening in the Merchandise Mart and 1871 is a glimmer of hope of turning things around. It's far from perfect, but it's added a small amount of polish and professionalism to a stumbling tech sector in Chicago.
The article also cites a few large exits - which is nice and all, but it's still yet to be seen what is done with that money. Groupon (who I can't stand) turned their capital into a VC and have been building up start ups in the West Loop for a while. Again, it's not amazing, but it's encouraging to see people invest back into Chicago instead of splitting for the coasts.
The talent that is in Chicago is also top tier. One of the other reasons I've stayed here is because most developers in Chicago are very passionate, dedicated professionals. I've been all over the country and met other developers and interviewed in numerous places. I can honestly say that the caliber of talent here is on par with any other more prominent tech scene. What wins it is soft skills: Chicago is made of people who know how to be people. (New York is close second, though)
I believe that Chicago can be reborn as a tech hub, but it's going to take a lot of time, money and commitment to make it happen. This is going to require a lot from the local and state government, business, and universities. But most importantly, it's going to take people believing that it can happen.
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I grew up in Chicago, graduated from UIUC, and I live in SF and work in Silicon Valley. When I moved here, I didn't need to make any new friends if I didn't want to - when I got here, my entire friend group and extended UIUC social network was already here. Shit, my girlfriend (also from UIUC) works at a startup in FiDi where both founders are from UIUC and there are many alums.
It's just too damn easy to move here for us.
I was a math major that took a handful of CS classes... and am in desperate need of employment, but no one seems interested in giving entry-level dev work.
[1] http://angel.co
UChicago does not have an engineering school. The U of C considers itself a university in the classical liberal arts mold, and that means they don't bother themselves with applied programs like engineering.
[1]http://cps.edu/News/Press_releases/Pages/PR1_03_19_2014.aspx
Are the majority of startups only ever going to be short term ventures?
Check out our engineering blog at: http://product.reverb.com
- It's cold.
- The academic environment itself is better in general business. Two top MBA programs, but the best engineering school is far down state.
- It has winter.
- The ecosystem supports growth, but not hypergrowth. Companies like BaseCRM do well starting there, but move to Silicon Valley when it's time to explode.
- Snow without mountains
- Not as socially, ethnically or culturally diverse as many other tech hubs.
- Did I mention that it's cold?
All that said, I love to visit in the summer.
Chicago's hypercentralized layout may play a part there, too - the downtown area where tourists go is really just for tourists, and to some extent it's particularly for tourists making weekend trips from the suburbs. With the possible exception of Chinatown, all those great neighborhoods you're mentioning are pretty far off the beaten path for a visitor.
That $2k-ish per month is entirely eaten up by the cost of housing. Median rent for a 2BR in SF is $4,000/mo. Chicago is a little over half that. Not to mention much lower taxes than in California.
To give perspective in Chicago $4k a month can you get a modern 3,000 sqft home or the penthouse in a swanky building vs a studio/ 1br in SF.
I myself don't like the Bay Area for my own perception of the lack of diversity there, but again I would not be surprised if that is my bias showing through.
(and for instance I live in a neighborhood that has a history of multi-ethnic families that goes back to before that was socially acceptable nearly anywhere else in America)
San Francisco for instance is segregated pretty dramatically with the Asian population (and a mixture of Latinos) pushed to the western edge and the white population centrally located. Not to mention the elephant in the room of Oakland.
When we start talking about diversity of other sorts such as income, education, nationality etc the picture is similar.
That is to say, my experience of San Francisco was one of homogeny, the opposite of my experience of Chicago. But I've experienced Chicago more broadly as well, so as I say I'd like some numbers to backup the assertion that San Francisco is more welcoming of inter racial families.
Chicago is almost an even mix of white/black/Hispanic, and has old money patronage that supports cultural amenities that go beyond what you have in SF. And there's no single social group that overwhelms Chicago's culture, like tech is doing to San Francisco and the Bay Area. Last time I got a haircut in Palo Alto, the woman cutting my hair was talking about startups.
The engineering school issue is definitely a fair point.
You could probably rewrite that as "not Silicon Valley". Or is there some other location you have in mind that could also support "hypergrowth"?
Also, if you think the weather is bad here try living Cleveland - 4 month gig there was more than enough for me. I opted to move back during a blizzard.