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Groupon ignites Chicago startup boom

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Now that the dust has settled and it’s clear the online discount company Groupon has reportedly walked away from six billion bucks from Google, we wanted to find out what else is going on in Chicago’s tech scene. Turns out, the hog butcher for the world may in fact be moving toward a cyber future.

Ashish Rangnekar unlocks a door in Groupon’s sprawling headquarters in the old Montgomery Ward building.

He’s leading me to the office of Watermelon Express, his test-prep software company.

RANGNEKAR: And then we are here.

In this building, Watermelon Express is like a tiny barnacle stuck to the side of the Groupon battleship.

It’s an example of how Groupon is transforming the culture of Chicago, creating the right atmosphere for small companies like this one to get a start.

RANGNEKAR: I would say the last nine months have been phenomenal. I would not want to be in any other city but Chicago right now.

And here’s the lineage to Groupon.

Eric Lefkofsky and Brad Keywell are serial entrepreneurs who bankrolled Groupon.

They discovered Rangnekar at the University of Chicago business school and funded his company in July.

It’s one of eight startups they’ve invested in this year out of a new $100 million dollar fund.

Keywell says Chicago’s tech scene is starting to get the ego it needs to rival Silicon Valley.

KEYWELL: There are enough successes now in our community that young entrepreneurs can look at those successes and say to themselves I can absolutely do it here, I can do it here in a unique way that I probably couldn’t do it on the West Coast, and time to go, let’s do it.

And that’s a big change.

This city has long trailed Silicon Valley, New York, DC, even Dallas-Fort Worth in tech jobs.

And get a load of this – Netscape, PayPal, YouTube – those could have been Chicago companies.

Their founders studied at the University of Illinois but then quickly left for Silicon Valley.

Groupon founder Andrew Mason says Chicago lacks a kind of entrepreneurial savvy and he says that even applies to himself.

MASON: It didn’t even really occur to me that there were people out there who would give you money on the promise that maybe someday it would turn into more money. I just was lucky enough to work for Eric Lefkofsky, who heard about one of my ideas and said hey, stupid, why don’t you drop out of school and we can turn this into a company together?

There are lots of theories about why the city’s lacked that entrepreneurial spark… everything from an aversion to risk to a fear of failure.

But now long-time observers like Steve Kaplan say Chicago is becoming more of a place to launch great business ideas.

He’s a professor of entrepreneurship at the University of Chicago.

KAPLAN: I’ve had in my office a couple of East Coast venture capital firms saying we now view Chicago as a place to look for businesses – that didn’t happen, that hasn’t happened in my memory.

Chicago investors are also getting in on the action.

INVESTOR: I may have blanked out but did you say how much money you’re looking for and what you’re going to do with it?
BUSINESS OWNER: Yeah, we’ll be looking for approximately $500,000.

At this event called the Funding Feeding Frenzy, CEOs pitched their ideas to investors.

Scenes like this have been taking place a lot this year in Chicago.

As for what it would take for Chicago to become the next Silicon Valley, Andrew Mason of Groupon has this characteristically goofy take.

Remember, he’s the kind of CEO who once hired a man to walk around the office in a tutu just for laughs.

MASON: What’s made Silicon Valley Silicon Valley is the fact that there have been a lot of great companies that start there and then they get big and they get too big and they become a sucky place to work and then all those really smart people that learned so much go off to start their own things. So I think for Chicago to really develop a strong technology community, we need companies like Groupon to get really big and then start to suck and then for all our people to go off and do other things. So I’m actually against the idea of Chicago becoming a technology hub. I just want everybody to work for us and never leave.

He’s mostly joking, but he has hired almost 900 people in Chicago this year.

That alone isn’t enough to create another Silicon Valley, but with other new companies cropping up, it’s a good start.

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