Silicon Prairie comes into its own
Chicago Tribune - April 20, 1998
Andrew "Flip" Filipowski, chief executive
officer of Platinum Technology Inc. in
Oakbrook Terrace, sees a lot more than
highways and housing developments in the
suburbs surrounding Chicago.
He sees a fertile Silicon Prairie, a natural
habitat for thriving high-tech companies,
cutting-edge research and new business
development that is slowly starting to
compete with California's famed Silicon
Valley.
With a dynamic business ecology that
includes established information technology
companies like Motorola and Ameritech and
hundreds of smaller entrepreneurial firms,
the Chicago area is positioned for rapid
growth, he says.
"We've got everything going for us. Great
geographical position for clients on either
coast, the Midwest work ethic that gives us
great productivity, and excellent research
and development from Illinois universities."
But, Filipowski and other technology leaders
admit, the Silicon Prairie is still a fragile
ecosystem. The area needs more investment
capital for early-stage companies and
continued local support for more established
companies developing a national business.
Trained employees are at premium and
leading Chicago-area companies are
vulnerable to acquisition by conglomerates
from outside the region.
"The landscape has been altered lately with
mergers and acquisitions, but the area is still
a fertile ground for high-tech start-ups, small
companies that are developing new ideas into
exciting new products," Filipowski said.
"However, we have somewhat of a void in
medium-sized companies that can support
the growth of the technology sector in the
area and provide local leadership."
According to the Illinois Coalition, a nonprofit
organization founded in 1989 to develop
public/private partnerships based on new
technology, the Silicon Prairie has taken a
firm foothold by developing marketable
products based on research and development
at Illinois universities and government
laboratories.
In 1997, Illinois overtook Massachusetts in
the number of technology jobs, placing the
state fourth in the country with nearly
200,000 jobs, behind California, New York
and Texas. The technology sector created
about 20,000 new jobs in Illinois last year.
Illinois ranks fifth in the number of patents
filed each year and third in exports of new
technology products overseas. The area also
ranks fifth in the number of science and
engineering doctorates awarded by local
universities.
Along with international giant Motorola in
Schaumburg, with 1997 revenues of nearly
$30 billion, Platinum Technology is one of the
most-watched companies of the Silicon
Prairie, a leading player in the global
software industry. The 11-year-old company
reported $623.5 million in revenues last year,
up 33 percent from 1996. Before after-tax
charges associated with an acquisition spree
in 1997, net income reached $34.9 million, up
from a $12.2 million net loss in 1997. Last
week Platinum announced record
first-quarter revenues of $158.3 million, a 37
percent increase over the first quarter of
1997, and earnings of approximately five
cents a share.
The company completed eight acquisitions in
1997--it's made 39 since 1994--launched
Platinum Pro Vision, a new integrated
database system, and added IBM Global
Services, Ameritech Information Services
and America Online as customers and
strategic business partners. "1997 was a
tremendous year for Platinum," Filipowski
said. "Sales were strong across all business
units. We set aggressive goals and met our
financial objectives. Most importantly, we
continued to build and leverage our most
valuable asset: our tenured sales force."
Platinum also helped seed the Silicon Prairie
with venture capital. Created by Filipowski
and other Platinum executives in 1992,
Platinum Venture Partners Inc. provides
venture capital to technology companies,
primarily in the Midwest. The venture capital
fund recently scored two big hits with
Chicago-based D-Visions Systems, Inc.,
manufacturers of computer-based digital
editing systems, and VREAM Inc.,
developer of virtual reality authoring tools.
Platinum Ventures is one of 35 venture
capital funds actively providing capital to
Silicon Prairie companies, according to
Thomas V. Thornton, president of the Illinois
Coalition. In 1997, 74 companies received
investment from the these funds, totaling
$348 million, down from $375 million in 1996.
The average investment dropped from $6.7
million to $4.7 million last year.
"In terms of investment capital, our numbers
are slipping, though the drop may just be a
hiccup," Thornton said. "However, the
numbers do point to a continuing need for
investment, particularly for start-up and
early-stage companies."
In this regard, the drop in average investment
size may be a positive indicator that venture
capitalists are considering participation in
smaller companies that require capital
contributions of only $250,000 to $1 million,
he said.
Thornton also pointed to the Illinois
Development Fund Authority, which has
seeded 60 new companies, including 8
technology companies last year, and
ACE-Net, an Internet-based bulletin board
that attempts to link start-ups with individual
investors, as positive investment
developments.
The lack of trained information technology
employees may be the single largest
impediment to the growth of Silicon Prairie,
added Ed Denison, executive director of the
Palatine-based Chicago Software
Association. The trade group has 460
high-tech member companies in the Chicago
area and plans to co-sponsor a technology
work force summit conference with the
Illinois Coalition this fall.
Denison said Chicago-area colleges are not
providing enough information technology
graduates to meet the booming needs of
technology companies. Last year
Chicago-area schools graduated fewer than
1,000 computer and information technology
graduates, only a fraction of the local needs.
As a result, many job openings are going
unfilled, he said. "There are 10 or more
regions around the country competing to be
the next Silicon Valley - all of them with a
great need for trained workers. If there is a
race on to fill the human resource needs of
high-tech companies, Chicago is on the verge
of losing - unless we take some action
quickly."
Leadership also remains a concern.
Filipowski said Silicon Prairie needs more
role models, companies that have grown
from local seeding and compete nationally or
internationally. When companies reach that
size, however, they become targets for
acquisition by more mature companies from
other high-tech regions.
Earlier this month, Neoglyphics Media Corp.,
a Chicago-based Internet developer, was
acquired by Renaissance Worldwide Inc., a
Newton, Mass., technology consulting
company. Renaissance paid for the
acquisition with stock valued at $63 million.
The four-year-old Neoglyphics lists Fortune
500 companies among its clients, including
Abbott Laboratories, Allstate Insurance Co.,
Ameritech, Citibank FSB, Ford Motor Co.,
Motorola and Sears, Roebuck and Co.
Gil Zoghlin, Neoglyphics chief financial
officer, said Neoglyphic's client base was
particularly attractive to Renaissance, which
promised to maintain the Internet company's
Chicago operation and add additional
network consulting operations.
"Chicago is uniquely positioned among
technology centers because of its large
corporate base," Zoghlin said. "Silicon Valley
has greater high-tech resources but almost
no corporate client base. New York and
Boston have better corporate resources than
Silicon Valley but less innovative technology
development."
The Neoglyphics acquisition comes less than
one year after 3Com Corp. in Santa Clara,
Calif. merged with U.S. Robotics Corp. in
Skokie, one of the nation's largest
manufacturers of computer modems.
Casey Cowell, chief executive officer of
U.S. Robotics, has been one of the leaders
of the Silicon Prairie movement and an
Illinois Coalition board member, but has been
less active since becoming vice chairman of
3Com after the merger.
Mergers are inevitable as Silicon Prairie
matures, said Platinum's Filipowski, and
aren't necessarily a bad thing.
"Entrepreneurs who have built up their
companies into national competitors and then
take them to the next level through a merger
or acquisition may still be role models for
new companies.
"They will have the time and the resources
to give back to the area and continue to
provide leadership."
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