CHICAGO — One night a few summers ago, Cameo co-founder Steven Galanis and a few colleagues were working late in their office at Chicago tech hub 1871 when someone knocked on their door.
The elevators to 1871 had stopped running for the night, but the man at the door was too new to know the elevator schedule. He’d started working just down the hall at venture capital firm Chicago Ventures.
Galanis helped him, offered him one of the Italian beef sandwiches his mom had just dropped off, and told him about Cameo, a platform that lets users book video shoutouts from celebrities. The man, Jackson Jhin, relayed the conversation to his boss, setting in motion a $100,000 investment in Cameo from Chicago Ventures.
For years, tech incubators like 1871 have offered startup companies office space, entrepreneurial programming and networking opportunities. Much of that guidance has moved online during the pandemic. But there’s one amenity tech hubs have struggled to replace in a virtual environment: the random collision.
The casual run-ins that occur at incubators as entrepreneurs stand in line for coffee or pass one another in a hallway can lead to connections, funding and inspiration. Long-term loss of that ethos could stymie Chicago’s tech startup scene.
“How do we create the chance collisions online, virtually?” said Betsy Ziegler, CEO of 1871. “We haven’t figured that out, and that’s the piece that really is core of the magic of a place like 1871.”
In Cameo’s case, the incidental run-in with Jhin led to the first venture capital money the startup received, and Chicago Ventures went on to become one of its biggest investors. Cameo has raised more than $65 million, and Jhin is now the company’s CFO.
“It started with him getting locked in an elevator,” Galanis said.
It’s not just potential funding opportunities that are lost when entrepreneurs have no place to gather. Innovation suffers as well, said Brad Henderson, CEO of P33, a Chicago-based nonprofit working to boost Chicago’s tech standing.
“You cannot create a viable business in your basement,” Henderson said. “So much of it is the surprise that comes from being in a space, grabbing a cup of coffee.”
Those random collisions aren’t the only aspect of entrepreneurship that has been upended by the pandemic. Funding is harder to come by, and some startups have had to pivot. Entrepreneurs must navigate those challenges without the structure and in-person support that’s found at incubators.
“There’s so much loneliness in the early days of being an entrepreneur. … You’re literally trying to take something from zero to one and make it happen by a force of nature,” Galanis said. “Being at 1871, you didn’t feel like you were at it alone. For me that was a really important feeling.”
There were more than 3,300 startups in Chicago in 2018, up from about 900 a decade earlier, according to the most recent data available from Center for an Urban Future, a New York-based think tank.
The city’s tech hubs, like 1871, health tech incubator Matter, and manufacturing innovation center mHub, have helped make Chicago’s tech pipeline stronger than it was a decade ago, Henderson said.
Since 1871 launched 8 years ago, the alumni companies of 1871, mHub and Matter have created 16,500 jobs. Alumni of 1871 include parking platform SpotHero and test prep software company BenchPrep.
The shared spaces provide a home for startups that may be too small to rent their own office, or have grown out of a college incubator.
The incubators also connect startups with corporate partners. Matter, for example, just wrapped up a program with Roche Diabetes Care that connected the medical company with startups to help it find solutions for diabetes management.
Roche wanted to identify new technologies and potential business partners, said Matter CEO Steven Collens. After narrowing the participants, Matter spent three months helping the final four startups refine their approaches and technologies. Collens said Roche is likely to move forward with all four startups.
Such partnerships might prove more vital amid the pandemic, he said. Established companies forced to rethink business models could find solutions in a startup, and startups looking for ways to become profitable might need to team up with a large company earlier than in the past.
But Collens said he worries about how the economic uncertainty will affect the incubator in 2021.
About 70% of Matter’s revenue comes from partnerships with companies and health systems, and Collens is concerned those projects might be cut from strained budgets.
“The next few months will be really significant to helping us understand what 2021 is going to look like,” he said. “So far, I’m optimistic, but you look around the country, it’s not like, ‘Oh, this is almost behind us.’”
Matter received a $300,000 loan through the Paycheck Protection Program,, and has not had to lay off any of its 20 staffers, Collens said. Neither have 1871 or mHub, which also received loans from that program, of $470,400 and $317,000, respectively.
In May, the three nonprofits announced they raised $1.55 million from the Searle Funds at the Chicago Community Trust, the Chicago-based Walder Foundation and Bank of America.
The money in part went to startups that needed economic help amid the pandemic, and toward creating technologies to help fight the coronavirus.
Matter, mHub and 1871 also are supporting workers who lost their jobs during the pandemic with retraining, and helping small businesses go digital.
“We’ve got to keep the pump primed to make sure we’re supporting these entrepreneurs and startups that will create the next wave of jobs and wealth and intellectual property,” Allen said.
At the same time, they’re working to keep startups engaged, and membership numbers stable.
In some cases, that has meant major shifts in the the way the tech hubs operate. 1871 had shifted its programming and events online by mid-March, Ziegler said. As revenue from physical events and tenancy declines, the nonprofit is doubling down on fundraising and corporate partnerships.
“I can’t count on space being part of the draw over the next 12 months,” she said. “1871 has always been more than just space, clearly. But the space has always been part of it, and now the space isn’t part of it because there’s very few people that are there.”
Chicago’s tech incubators remain cautiously optimistic. Virtual programming means they can reach entrepreneurs outside the Chicago area. Membership is holding steady, and in some cases, growing. But they still face challenges, Allen said.
“None of us are out of the woods yet,” he said. “All of our members are month-to-month and they could cancel in an instant. We’re making sure we’re finding new ways to create value for them.”
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