By: Mark Glennon*
Chicago area companies raised $2.2 billion of venture capital in 2019 according recently released reports. That’s up from $1.9 billion in 2018, $2 billion in 2017 and $1.3 billion in 2016.
Those are particularly large and welcome numbers when you consider that the vast majority of that funding goes straight into payroll – for cutting edge jobs that people enjoy in innovative, young companies. And data indicate that returns for venture capital have been better in our area than in other tech centers. If you want to list things going well in Chicagoland, venture capital and the tech startups they fund are surely among them.
The sector’s expansion over the last couple decades has been remarkable, which I talked about with Maura O’Hara, Executive Director of the Illinois Venture Capital Association. Fifteen or twenty years ago, “a good year saw 50 companies funded,” she said. “To now have almost 300 companies funded and to recognize that companies at all stages are finding VC investors signals a new age of maturity in our tech ecosystem.”
Things were still more sparse if you go back even earlier. In 1997 I started and ran for a few years a regular conference connecting startups with venture capital investors – sort of an early, bigger version of Shark Tank. We struggled each year to find 15 or so worthy companies. Investors had to help train the entrepreneurs how to make a pitch to investors – something it seems like every high school kid knows today.
How did the sector grow from that to what it is now?
It wasn’t the vision of a central planner in City Hall, Springfield or Washington. Minimal taxpayer money went into the effort. In fact, with only a few exceptions, government at all levels helped by staying away.
It resulted, instead, from the force described so perfectly forty years ago by economist Milton Friedman, summarized in a two-minute video. “Not a single person in the world” could make a pencil, he said. “Literally thousands of people cooperated to make it…. There was no commissar sending out orders from some central office. It was the magic of the price system: the impersonal operation of prices that brought them together and got them to cooperate.”
If you’ve never seen the short video, watch it below. It’s among the finest lessons ever in economics.
Like Friedman’s pencil, thousands of people collaborated to make Chicago’s startup sector. They came from from service providers, universities, corporations and more. Most important, an assemblage of determined, talented people in the startups themselves, particularly in recent years, lifted the sector to an entirely new level and perfected the ecosystem.
It was the free market that brought them together and directed their efforts.
They’re still at it. It’s still working.
*Mark Glennon is founder of Wirepoints.