PitchBook Releases Report on the Chicago VC Ecosystem


Chicago Leads in ROI by 10x Compared to Every Other City in the Nation

See full report here.

U.S. News recently detailed why Chicago has become a top city for startups and entrepreneurs.1  Behind the scenes and fueling these entrepreneurial fires are investors who see Chicago as a leader in VC opportunity. Chicago surpasses every other city in the nation—including the Bay Area—in one important metric that is key to VCs: return on investment (ROI). According to PitchBook, nearly half of Chicago investments (45%) have provided a 10x ROI, compared to 25% of investments in the Bay.

It is through these successful investment outcomes that the city’s ecosystem of investors, entrepreneurs and mentors continues to strengthen. In fact, 2017 marked the fifth straight year of record-setting Chicago investments, at $3.8 billion invested across 623 deals. The city has become a startup powerhouse—but that didn’t happen overnight.


“It is through these successful investment outcomes that the city’s ecosystem of investors, entrepreneurs and mentors continues to strengthen. In fact, 2017 marked the fifth straight year of record-setting Chicago investments, at $3.8 billion invested across 623 deals. The city has become a startup powerhouse”

– Mark Tebbe, Chairman of ChicagoNext


Chicago’s startup scene is the result of long-term sustainability, committed reinvestment and truly diverse startup opportunities across a breadth of industries. It is particularly strong in B2B sectors, including fintech, food, software, logistics, healthcare, and service industries. That breadth of opportunity is directly tied to the strength and resiliency of Chicago’s overall economy, where no single industry employs more than 14% of the total workforce.

So what’s helping to drive Chicago’s ecosystem and high ROIs?

First, Chicago’s startup scene focuses on business opportunities that tend to fly under most consumers’ radars. Many of our strongest startups are in logistics, insurance, healthcare, and back-office efficiencies. While these businesses don’t grab broad consumer attention, they do deeply impact consumers’ lives. As a result, they provide unique opportunities for investors.

Second, because the Windy City isn’t as awash in capital as our coastal counterparts, investors here tended to be more conservative. Our financiers like to see signs of success before they invest, including customer acquisition, product execution, and revenue. That’s the opposite of the Bay Area, where investors tend to bet on promising ideas more than traction in the market. The result, as VentureBeat notes, is that our exit valuations are among the highest in the nation.2 And many of the entrepreneurs behind these high-value exits continually return to the Chicago market to repeat their successes here.

Third, startups are just one part of Chicago’s sprawling economy. For example, the tech industry gets roughly the same amount of press as any other industry here. In fact, our diverse economy is reflected even within the tech ecosystem itself, where there are more than 15 innovation hubs, each specializing in a different sector of technology, such as food innovation, manufacturing, and healthcare.


“Recognizing this wealth of talent (and our lower operating expenses), established tech companies like Google, Salesforce, and Facebook have grown their operations in Chicago. As a result, these well-known companies infuse even more talent, experience and success into our ecosystem, which provides our startup entrepreneurs even more reasons (i.e. resources) to set up shop and stay here.”


Finally, Chicago has a ready talent pool. With the exception of Boston, Chicago has more four-year universities than any other US city. These universities are also fueling the startup ecosystem by driving entrepreneurship through accelerator and innovation programs (you can learn more about them in Forbes).3 Chicago is also a magnet for graduates of other top Midwestern universities, such as Illinois, Indiana, Michigan, Michigan State, Purdue, Northwestern, and Wisconsin. We have more graduates from those universities than any other city in the world. And the lower cost of living, compared to similar US cities and particularly the Bay Area, keeps those graduates here.

Recognizing this wealth of talent (and our lower operating expenses), established tech companies like Google, Salesforce, and Facebook have grown their operations in Chicago. As a result, these well-known companies infuse even more talent, experience and success into our ecosystem, which provides our startup entrepreneurs even more reasons (i.e. resources) to set up shop and stay here.

All of these stakeholders in Chicago’s ecosystem work together to help startups leverage the city’s abundant resources and opportunities in the nation’s most diverse economy. And we celebrate that work annually at the Chicago Venture Summit, where investors from coast to coast combine with Chicago entrepreneurs and community builders to showcase the best and brightest of the Midwest ecosystem. It’s an opportunity to nurture our entrepreneurial ecosystem and recognize its growth, and it’s a prime time for investors to scout new opportunities to maximize their returns.


Mark Tebbe is chairman of ChicagoNEXT, the technology arm of World Business Chicago and organizer of the Chicago Venture Summit. He has more than 30 years of entrepreneurial and startup experience, included the co-founding of two NASDAQ-listed publicly traded corporations.  


*This article first appeared in the Pitchbook 2018 Chicago VC Ecosystem report released this month in conjunction with the 2018 Chicago Venture Summit.

 

1: “Tech Companies Are Choosing Chicago,” U.S. News, Anna Marie Kukec, September 20, 2018

2: “How Chicago’s startup exits stack up against 4 other major cities,” VentureBeat, Pete Wilkins & Hyde Park Angels, May 12, 2018

3: “How Illinois Universities Power The Chicago Startup Ecosystem,” Forbes, Pete Wilkins, February 20, 2018 

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