Groupon Reignites Chicago Dream of Tapping Silicon Prairie Money

By Brian Louis

Nov. 7 (Bloomberg) -- Groupon Inc.’s impact on Chicago reaches far beyond the daily-deal coupons e-mailed to its customers in the third-largest U.S. city that it calls home.

In little more than two years, the company’s total employees have surged to more than 10,000 from 37. Hundreds of those workers live in the Chicago area, a modest boost to a local economy where the most recent unemployment rate was 10.5 percent compared with 9 percent in October for the nation. Groupon’s growth also has raised the city’s profile with technology investors.

While earlier Internet companies in Chicago spawned talk of creating a Silicon Prairie, none of them ever boasted the global recognition of Groupon. The company’s expansion and initial public offering that raised $700 million offers startup companies something they can aspire to -- and is refashioning how Chicago sees itself.

“We were never identified as a tech city,” said former Chicago Mayor Richard M. Daley, a Groupon booster who’s now associated with the Chicago-based international law firm Katten Muchin Rosenman LLP. “We’ve identified the city as a city with tech people, creative people, risk takers, and it’s changed the whole image.”

Its success legitimizes Chicago and the Midwest as an incubator for technology companies, said Orlando Saez, deputy director of the state’s Office of Entrepreneurship, Innovation and Technology, part of the Illinois Department of Commerce & Economic Opportunity.

A New Generation

Regardless of its IPO’s success, the company has inspired a new generation of business innovators, said Jerry Roper, chief executive officer of the Chicagoland Chamber of Commerce.

“Groupon has helped to wake up the aspiring entrepreneurs,” Roper said. “That has sparked a lot of excitement.”

The company, which sold 35 million shares at $20 each on Nov. 3, saw its stock rise 31 percent to $26.11 in its first day of trading Nov. 4.

Groupon has more than 2,400 employees in its North America operation, many of whom work at its headquarters at 600 W. Chicago Ave. The 1.5 million-square-foot (139,000-square-meter) building is the former distribution center for the catalog operation of Montgomery Ward, and sits on the banks of the Chicago River north of downtown. Newton, Massachusetts-based CommonWealth REIT in August paid $390 million for the property, the eighth-largest U.S. commercial real estate deal in the third quarter, according to data from Real Capital Analytics Inc., a New York-based real estate research firm.

Buying Wrigley

Two of Groupon’s co-founders, Eric Lefkofsky and Brad Keywell, along with other investors, bought Chicago’s landmark Wrigley Building in September for $33 million. Groupon has no “immediate plans” to relocate to the Michigan Avenue property, according to a statement announcing the sale. Lefkofsky is executive chairman of Groupon’s board and Keywell is a director, according to a regulatory filing.

Even before Groupon, Lefkofsky and Keywell were successful entrepreneurs. Both co-founded Echo Global Logistics Inc., a public company, and closely held MediaBank LLC. They’re also managing partners of Lightbank, a venture capital firm. All of the companies are based at 600 W. Chicago.

Groupon, founded in 2008 by Lefkofsky, Keywell and Andrew Mason, its chief executive officer, remains unprofitable. In September, the company restated its revenue figures to exclude sales passed on to merchants and announced the departure of its second operating chief in six months. Last month, Groupon said it had a net loss of $214.5 million for the first three quarters of 2011.

Drawing Angels

Those figures haven’t discouraged a growing number of “angel investors” who are helping to fund the city’s startups. The investors, who provide money to companies that are too small for venture capital firms, are from an emerging roster of successful entrepreneurs who are now giving back, said Matt McCall, a partner at New World Ventures, a technology investment firm that’s part of the Pritzker Group.

Chicago has had some well-known technology companies, including Archipelago Holdings, an all-electronic stock exchange that was bought in 2006 by what is now NYSE Euronext. The city also is home to Orbitz Worldwide Inc., a travel website; CareerBuilder.com., an online job-search service; and NAVTEQ Corp., a mapmaker used in car-navigation equipment that was bought by Nokia Oyj in 2008.

Beyond Groupon

While Chicago has made strides in attracting investment for its startup companies, it’s overshadowed by Massachusetts, New York and Silicon Valley in California, recipients of the majority of money going to startup technology companies, said Anand Sanwal, co-founder of New York-based venture capital research company CB Insights.

Groupon’s success won’t necessarily vault Chicago into those ranks, Sanwal said, because an area needs “more than one win” to establish itself as a technology center.

“At this point for Chicago, it’s a Groupon story,” he said. “It’ll be interesting to see if there’s any other companies that emerge from the market that would help solidify it.”

--With assistance from Ari Levy in San Francisco. Editors: Flynn McRoberts, Christine Maurus

To contact the reporter on this story: Brian Louis in Chicago at [email protected]

To contact the editor responsible for this story: Kara Wetzel at [email protected]