which is a crude way of saying that culture is the reason Chicago has very few startups.
Some have suggested that it is lack of venture funding- I don’t believe that. While there are some VCs that won’t go outside their backyard, ultimately capital is mobile. When I worked at a VC we loved to find companies in Chicago or Atlanta or Virginia because they were an easy flight from Boston and were often overlooked. Ultimately geography may be a big enough barrier to knock a bit off your valuation but it is not a bit enough barrier to keep you from getting funded.
Some say it is because West Coast investors understand startups better - Ok, maybe, but capital is still pretty mobile and west coast VCs invest in other cities all the time.
Some says that it is because of coincidence - then why are there so many more successful startups in the Bay Area?
I believe the real reason is culture. Starting a business has a high degree of randomness. It is very difficult to reliably predict the success of a new business accurately. Even the pros (venture capitalists) are very poor at predicting success. Their business model only works because the rewards from being right are so much larger than the cost of being wrong, so they can afford to only be right 1/10 of the time.
Consequently, as an entrepreneur, even if you are smart, have a good idea and work hard you will still likely fail. Entrepreneurship is not the only business like this; authors, artists, academics and actors are all in the same boat. In LA if you are a struggling actor there are a lot of other people around in the same situation. They realize that many people have the talent to be a star and are just one opportunity or lucky break away. You can still be cool and be a struggling actor. In Chicago there are no struggling actors and, if there are, they are probably not very happy.
The entrepreneur is the same as the actor. The successful ones are revered everywhere, Milwaukee in addition to the Bay Area. But the unsuccessful ones look really stupid in Milwaukee. They are less likely to get a second chance and they are are more likely to suffer emotionally and socially.
The Bay Area is an artists colony for techies who want to change the world. Your social worth is determined by how techie and revolutionary you are in addition to your level of success.
Boston is an artists colony for academia. Your social worth is determined by how smart and academic you are (in addition to your success), which has significant overlap with starting new companies.
Chicago and New York do not have a significant startup subculture where you can still be maintain social esteem as an unsuccessful entrepreneur, which is a huge barrier to entry in starting a company, much bigger than capital because all the entrepreneurial people either give up and join a big organization or move to the Bay Area.
