Chicago's High Tech Prospects - Investors Business Daily

Chicago Quest: Toddlin' Tech Travel Town

December 18, 2003
By Doug Tsuruoka

Chicago hopes to take off as a tech center - with help from Web travel firm Orbitz Inc.

City officials are using the Orbitz initial public offering as an engine to fire up its efforts to turn the Windy City into a tech - especially travel tech - mecca. They hope the area can catch an updraft as technology and the economy rebound.

"The Orbitz IPO raises Chicago's visibility for growing a world-class tech operation," said David Weinstein, a top tech adviser to Chicago Mayor Richard Daley. "We want to see more things like this."

The nation's third largest city has long been a transportation hub. Besides Orbitz, it's home base for such travel industry kingpins as United Airlines parent UAL Corp, and Boeing Corp., which relocated its corporate offices from Seattle in 2001. The area is headquarters to other tech stalwarts, such as Motorola Inc. Other big names that call the area home include McDonald's Corp., Abbott Laboratories, Kraft Foods Inc. and Allstate Corp.

But the city's quest faces hurdles. The city lacks a big local venture capital community and, in general, a well-oiled network to promote tech startups, observers say. And it has fewer local tech start-ups in which VCs can invest.

"The amount of venture capital that flows out of Chicago is far greater than the money we place in our own companies," said Ron May, publisher of the May Report, a Chicago tech newsletter.

Few Commitments Yet

More than that, few of its large companies have committed to the effort, which counts largely on volunteer donations from the companies to spark investment in tech start-ups and projects.

Still, the area's concentration of travel-related companies, some say, makes it a natural gathering point for traveling technologies.

"Chicago's a travel hub," Weinstein said. "It's the home of the largest airline, the biggest plane builder and O'Hare, a major international airport. These are synergies people in the city want to tie together."

The city's had the goal of becoming a travel tech hub for several years. But officials hope that the Orbitz IPO, with its hint of new jobs and facilities, will stir more interest in developing the local tech center.

"A successful Orbitz IPO provides a good example to the public and financial industry. It provides momentum," said David Wilhelm, a senior adviser to Illinois Gov. Rod Blagojevich, a Chicago native.

One piece of the tech plan is to push a city bond-financing program. It's used to lure all companies, not just tech, to Chicago and to keep them there. The program uses an approach called tax increment financing, which raises cash through public bond sales. Some of the money is turned over to select developers and property owners.

A newer tool is a proposed $200 million Illinois Opportunity Fund. It's designed to provide seed money for start-ups. Much of that would come from corporations doing business in the state. The twist is that if the fund loses money, tax cuts would help the companies offset their investment losses.

The bill authorizing the fund has been put on hold as the state deals with a big budget deficit this year. But Wilhelm hopes state lawmakers approve the measure in 2004.

He says the fund could, in theory, help fund start-ups working on such travel technologies as software for travel web sites and computer systems to assist in aircraft design and repair.

A city survey concluded that Chicago is home to 11,600 technology companies, a number that has stayed about the same since the tech downturn began in 2000. A recent University of Minnesota study says the Chicago area has 347,100 high-tech jobs, more than Seattle or Boston.

Yet venture and other investments in local tech companies has lagged those in other areas, says Ken Gaebler, president of Gaebler Ventures. He hopes the Orbitz IPO "will get people to put money behind their mouths."

Fiber's In Its Corner

Chicago has another point in its favor toward the goal of becoming a tech mecca - a good supply of fiber-optic networks. The Midwestern city has always been a railway center, and the long railroad lines have rights of way, handy for builders of fiber-optic networks to use.

As phone, cable and Internet companies upgrade these optical networks, some analysts say the city could attract more telecom and Internet software development, especially if the state and local governments provide incentives.

Also, the city houses top colleges like the University of Chicago and Northwestern University's Kellogg School of Management. Northwestern is known for nanotech or molecular device research.

But Chicago's tech travel boosters have a long way. Besides other drawbacks, many city officials are wary of pouring too much cash into tech-related promotion projects at this time of budget crises.

City officials remember some tech failures that followed the dot-com bust that started in 2000. Chicago didn't suffer as badly as dot-com centers like New York, but officials fear being caught in the bursting of any more tech bubbles.

One case in point is the January 2003 bankruptcy of Divine Inc., a Chicago-based internet incubator. Formed in 1999 by entrepreneur Andrew "Flip" Filipowski with backers such as basketball legend Michael Jordan and Microsoft Corp., the company went public in July 2000 - just as the dot-bust took hold. Newsletter publisher May says Divine wiped out over $1 billion in local capital.

"A lot of political leaders in Chicago ended up with egg on their face," May said.

Will the Orbitz IPO send the city's tech plans soaring? Backers are hopeful.

"We were late to the party on the last tech boom," said VCer Gaebler. "But the Orbitz IPO and the city's fundamentals will make Chicago a great player in the future."