Finding the next Groupon

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Updated: August 4, 2011 4:20PM

The Chicago-area high-tech community, home to 25 meet-up and incubator groups dedicated to nourishing the next Groupon, Google or Microsoft, has attracted a Silicon Valley-based incubator intent on cultivating 50 companies, creating up to 1,400 high-paying technology jobs and raising $100 million in venture capital in its first two years.

To position itself as a Midwestern hub, Plug and Play Tech Center is seeking 50,000 to 100,000 square feet of space near downtown Chicago.

And that’s just for starters.

Plug and Play Tech Center aims to ramp up its new-business cultivation in Chicago to 50 startups and $100 million in VC funding each year, and to partner with civic, business, higher-education, government and fellow entrepreneurial-building leaders to attract entrepreneurs from the eight-state region (Illinois, Indiana, Iowa, Kentucky, Michigan, Missouri, Ohio and Wisconsin).

“We need to make it safe in Chicago for entrepreneurs to say, ‘Hey, I’ve got this great idea written on this napkin. Who can I see and what can I do with this idea to make it a reality?” said Chris Sorensen, the man driving Plug and Play Chicago.

Sorensen, a Lake Forest native who lives in Silicon Valley, directed strategy at art and framing e-tailer Art.com before the Chicago-based company was sold for $115 million to Getty Images in 1999. He is meeting in the next few weeks with Chicago technology leaders to pitch Plug and Play’s plans.

A glaring gap in the local tech culture is a lack of early-stage capital — provided by angel investors or wealthy backers — who are willing to risk money on the people doing the napkin scribbling, Sorensen said.

Plug and Play intends to help fill the area’s early-stage funding gap by working with startup companies to develop business plans, staff up their executive ranks, and introduce them to mentors and Silicon Valley venture capital companies.

“The idea is to import Silicon Valley venture capital and contacts to grow startups here,” Sorensen said.

The Chicago linchpin in implementing the ambitious goals is executive-reinvention firm Shields Meneley Partners, where founding partner Gail R. Meneley started a think tank two years ago to focus on keeping local innovators, known for running off to the East and West coasts, happily at home. Meneley’s co-founding partner is Hugh A. Shields.

Meneley concedes the obstacles: Local incubators and tech leaders who prefer to maintain their power rather than share their expertise; investors who lost money and harbor resentment — even fear? — over the bankruptcy eight years ago of divine interVentures led by Andrew “Flip” Filipowski, and an absence of a recognizable leader to take charge of organizing Chicago’s scattered tech community.

“Someone has to make this happen,” Meneley said.

Sorensen is frustrated that Chicago sat on the sidelines during the last wave of tech innovation 10 years ago. Though Chicago is starting to attract angel and early-stage risk capital, Sorensen believes the Second City can do better.

He and others who support Plug and Play Tech Center cite studies showing Chicago losing 5 percent, or 8,200 high-tech jobs in 2009 from a year earlier; Illinois’ ranking 41st nationwide in creating start-up companies, and Gov. Pat Quinn’s Economic Recovery Commission report in June repeating what Mayor Daley concluded a decade ago — that Illinois needs to increase access to seed and early-stage venture capital for startup companies and to create public-private partnerships to “develop a new culture of innovation.”

Scott Mordell, CEO of consultancy Forrader Group and former Arlington Park CEO, said Plug and Play Tech Center is one of many initiatives required if Chicago is to share in the global race for wealth creation through innovation. He noted that the stakes are particularly high since Chicago lost 8 percent of its mostly unionized manufacturing jobs in the past decade, and Illinois is raising taxes to combat its fiscal crisis while experiencing the lowest population growth rate in the Midwest.

“Now is a crucial time to grow our way out of the current situation, since we are starting to see critical mass,” Mordell said.

Said Ed Longanecker, executive director of TechAmerica, said, “It’s time to get serious, to capitalize on our strengths, and to drive an aggressive strategy.”

Plug and Play Tech Center was founded by Saeed Amidi, who left his native Iran 31 years ago and became a successful entrepreneur and incubator guru in Silicon Valley, gaining a reputation for nurturing then-startups Google and PayPal.

Plug and Play lets startups rent a cubicle at a time for $500 a month and add space as they need it. No yearly lease is required. It recruits renowned Silicon Valley experts, founders and investors to participate in seminars, a startup boot camp, business-plan pitch competitions and networking events for specific industries such as “clean” tech and cloud computing.

The Silicon Valley incubator houses 200 to 300 startups, and has incubated 500 companies since it opened its first site in 2006. Plug and Play has helped startups pitch investors for more than $750 million in venture capital.

Among the newest efforts to partner Chicago entrepreneurs with investors is Funding Feeding Frenzy. The entrepreneurs behind Funding Feeding Frenzy are Bob Bock, a 48-year-old Highland, Ind., native who operates RJB Investments real-estate business in La Grange, and his fellow real-estate investors Andy Nadler and David Culver. The trio created Extraordinary Success to help entrepreneurs realize their dreams and to host Funding Frenzy events.

Funding Feeding Frenzy invites entrepreneurs to meet with a wide range of specialists — sales consultants and intellectual-property attorneys as well as venture capitalists and private-equity sources. The first Frenzy event got off the ground on Dec. 8. Another meeting is slated for May 4, and networking events called “Sip at the SYNC” take place each Friday from 3:30 p.m. to 6:30 p.m. at the SYNC Technology Center at 322 S. Green St. in the West Loop.

“We saw a challenge in this economy for small and startup companies to get traditional loans from banks and the Small Business Administration, and we saw credit-card companies cutting entrepreneurs’ lines of credit,” said Culver, 43, of the need for new ways of finding capital.

Culver and Nadler, 33, understand the situation first-hand because they run their own e-commerce companies. Culver co-founded UEO Ventures, whose most popular site is MyHealthyPuppy.com, which sells organic and eco-friendly dog treats, beds, toys and other products. Nadler started Forward Momentum, which sells sports-themed garden gnomes at GnomeFrenzy.com and has branched out to run MascotFrenzy.com and UltimateSportsDecor.com, and to create, design and manufacture garden products. Forward Momentum’s latest venture is creating garden statues for a major movie studio based on movie characters. Nadler is prohibited from naming the movie or the studio.

These efforts are particularly meaningful, given that small and startup companies have accounted for nearly all of the job growth for the past 30 years, as the economy has taken dramatic shifts toward one based on services and the Web, according to recent studies.

One reason is because the United States is home to so many companies less than five years old, and the other is that, by definition, a new company cannot destroy jobs, said Dane Strangler, research manager for the Kauffman Foundation, a Kansas City-based private foundation that promotes education and entrepreneurship.

Said Strangler, “This country has so many startups — on average, 500,000 new firms are created each year. And small companies are necessary to provide services to large companies so that the big companies can create jobs.”