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In our recent weekly dealflow reports, we’ve noted on multiple occasions that Illinois has been breaking into the ranks of the top five on a dollars invested or deals basis. The top 3 spots, of course, remain locked up by the tri-fecta of California, Massachusetts and New York. The expected four and five spots typically go to some combination of Texas, Washington, New Jersey or Colorado. But those expected areas have been unsettled by Illinois on at least a couple of occasions in the recent past.
Interestingly, CB Insights’ data for Illinois’ shows the jumps in investment activity has not been relegated to a couple of isolated weeks. The last four quarters including Q2 2010 results-to-date are showing a steady climb in investment deals and dollars. Of course, recent figures reflect Groupon’s significant investment rounds, but the strength in dollars and deals goes beyond just Groupon.
And with this jump, could it be that Illinois (and Chicago most specifically) is on the precipice of becoming a favorite for venture capitalists and angel investors? While the data we just cited looks promising, becoming an investment juggernaut (whether for venture capital or angel investment) doesn’t happen quickly.
In his essay entitled “How to be Silicon Valley“, Paul Graham of Y-Combinator put forward a thesis in which he said that an area needed “nerds” and “rich people” (although he also speaks of a variety of other factors, these two were the essence of his argument) to build a thriving startup ecosystem. While there are likely hundreds of other factors one can figure into the equation, Graham’s simple and fairly intuitive framework is a good first test.
Dimension #1 – Chicago’s nerd community.
On this front, the city seemingly has access to some pools of talent via nearby universities with strong computer science programs. Per US News rankings of top computer science programs, the University of Illinois at Urbana-Champaign is the 5th ranked program in the US. Not too far away (200+ miles) is the University of Michigan’s computer science program (ranked 13th). Even Carnegie Mellon which is the #1 ranked program might be a talent pool although it is a bit distant (460 miles).
Dimension #2 – Chicago’s rich people
Here is where Groupon’s ultimate potential exit may be a catalyst in the creation of the “right type” of rich person in Chicago whether it is the founders or employees of Groupon. As Graham noted “Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money.”
It is these individuals that go back and either invest their new riches in startup ventures (as angels presumably or under the auspices of a fund) or go and start their own new companies and based on their past success, they become more ‘fundable’ by angels and/or venture capital firms. And in some cases, they do both – angel invest and start their own companies. It’s already beginning to occur to some extent via the creation of Lightbank, a $100 million fund to seed Chicago startups founded by two of the folks behind Groupon.
And although Groupon has not had an exit, its breakneck growth in awareness, fundraising and valuation and the associated optimism it is bringing may already be serving as a catalyst for Chicago venture capital and angel investment as evidence by the recent data trends. Of course, time will tell, and the team at CB Insights will continue to monitor Chicago and Illinois venture capital and angel investment scenes.
For those engaged in the Chicago and larger state of Illinois’ entrepreneurial ecosystem, we look forward to hearing from you on why you feel deal and dollar investment has grown in the area? And how much is Groupon’s success contributing to this activity? And ultimately why you feel (or don’t), the area may be poised to be another startup hub?
Of course, to keep on top of high growth private company funding and entrepreneurial activity in Chicago and Illinois, logon to CB Insights.