Sep. 8–Despite a wealth of top-notch universities, federal research centers and well-heeled companies and individuals, the Chicago area is generally regarded as inhospitable for entrepreneurs.

A new study conducted by A.T. Kearney for the Chicagoland Chamber of Commerce concludes that a “vicious cycle” has taken hold in the region, in which entrepreneurs avoid it because of its reputation, leading investors elsewhere, which pulls away more entrepreneurs and continues the cycle.

Bill Best, an A.T. Kearney vice president who led the study, said a lack of coordination between the region’s companies, universities and investors has led to a dearth of money and support for startups.

“Chicago has a mindset of ‘I want to do it myself,'” Best said. “We have multiple organizations trying to do the same thing,” but not doing top-notch work because each lacks resources.

David Weinstein, president of the chamber’s Chicagoland Entrepreneurial Center, said small businesses are a key for job creation, and the region needs to nurture more startups by getting area investors, inventors and institutions behind the ventures.

“We just lack a coordinated effort,” he said.

Weinstein noted one statistic in the study: The Chicago metropolitan area has the country’s highest number of households with a net worth of more than $5 million.

“If you can get those people together and organized, you really can make a difference,” he said.

Best also stressed the importance of steering money to local startups, saying area pension funds and localities should direct money to Illinois-based venture capital funds with the understanding that a portion will go to area firms.

“The real issue is funding in my mind,” Best said. “We need to get the money flowing to our entrepreneurs.”

That lack of investment is a constant source of frustration for many business owners, like Bill Maulsby, founder of the BusBank charter bus service in Chicago.

Maulsby, who moved to the region from San Francisco in 1998, noted the Chicago-area’s high quality of life and strong workforce, but said the region’s venture capitalists have too much of an aversion to risk.

“The investment community just has to decide are you going to embrace innovation and really be a beacon of entrepreneurship or just tolerate it,” Maulsby said. “I think it’s more the latter, unfortunately, today.”

So far, Maulsby has funded his businesses by raising $2 million from rich individuals, known as angel investors, and companies that operate in his industry. He said the area lacks “visionary investors” who could help take his business to the next level.

“If they’re here, I haven’t seen them yet,” Maulsby said. “What you have is a few angel investors who step up.”

Rowland Savage, an associate with the early-stage investment firm Arch Development Partners in Chicago, agreed there is a dearth of venture capital money, but noted that more money is going to startups.

“Deals are happening,” Savage said. “We just don’t have the volume that we perhaps could have.”

In addition to the absence of investors, Best pointed to the lack of startups spinning out of large companies in the Chicago area.

“The character of the companies in the region has a tendency to stifle that kind of creativity,” he said.

Whether leaders in the region will rally in support of entrepreneurs is yet to be seen.

“There hasn’t been enough pain in the City of Chicago to coalesce around this point,” Best said.

Still, if job losses continue at troubled area firms like United Airlines and Motorola Inc., Best expects the wakeup call will be heard, though changing attitudes and the direction of investment dollars will take time.

“There are a lot of good intentions” among civic and government leaders in the region, said Barry Moltz, co-founder of the Prairie Angels investment group in Chicago. “Unfortunately, we haven’t had a lot of good success stories to celebrate.”

Both Best and Weinstein said that changing the region’s mindset and generating more funding to local entrepreneurs will require a long-term effort and that tangible results are unlikely to be evident for at least 5 to 10 years.

“We have all the resources,” Best said. “We need some of the civic leaders to step forward and get them organized.”

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(c) 2003, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.

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