If there’s no particular industry that comes to mind when you think of Chicago startups, then you’ve probably got it right.
The Midwestern metropolis is known for having one of the most varied economies of any major U.S. city, with a heavy dose of health care, education, finance, manufacturing, retail and tech. That breadth of expertise seeps into the entrepreneurial culture as well.
“Chicago’s startup scene is super diversified,” said Allison Weil Lechnir, a partner at Hyde Park Venture Partners, a Chicago-based seed and early-stage software investor with a local portfolio that spans industries including health care, logistics, legaltech and landscaping.
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A look at top venture-funded Windy City companies underscores this point. To illustrate, we put together a list below of nine of the most heavily funded private companies that raised financing in the past year:
As you can see, it’s a diverse bunch. The two most heavily funded hail from the biotech and logistics spaces: Precision medicine developer Tempus and supply chain software unicorn project44. The list also includes a couple of fintechs, Avant and Amount, and even a mini golf startup, Puttshack.
Funding peaked a year ago
Across North America, startup funding to most sectors peaked in 2021 and early 2022, and has been declining ever since. Chicago did not buck this trend, Crunchbase data shows, with record-setting investment a few quarters ago giving way to a much more sluggish environment today.
For perspective, we charted out annual funding to companies headquartered in Chicago city limits from 2018 until today:
For funding from 2021 until now, we expanded the dataset to look at the broader Chicago metro area, which includes Evanston, Schaumburg and other towns and cities known for tech talent. Here, as illustrated below, funding follows a similar pattern:
As shown above, funding to Chicago-area startups was on fire in 2021 and the first half of 2022. Investors poured over $5 billion into the metro area in 2021, a record-setting year for U.S. venture funding. In 2022, funding slowed but remained robust, with $4.4 billion invested.
Chicago churned out multiple newly minted unicorns during that peak funding period. This includes 12 new unicorns in 2021 alone.
Lately, however, investors have been hitting the brakes. For 2023, just over $200 million had gone to local startups as of late February, on track for the lowest annual total in years. The slowdown reflects national trends, with U.S. startup investment falling especially hard at late-stage and pre-IPO funding.
Poised for growth, when it returns
Given the national trends, Weil Lechnir doesn’t believe the recent local funding slowdown has anything to do with Chicago’s desirability as a startup hub. And while many late-stage investors have taken a pause, she said, seed and early stage remain pretty active.
There’s also stepped-up activity by local investors and institutions to bolster infrastructure and support for startups, which could help boost funding down the road. This includes life sciences, a field in which Chicago has long been a contender but not a leading hub.
John Flavin, CEO of Portal Innovations, a Chicago life sciences investor, is banking that one key element to boosting the region’s muscle is providing startups with local access to wet lab space and advanced equipment.
“This is work you can’t do in your garage at home,” Flavin said, noting that in the past, Chicago was more of an exporter of biotech talent, much of it going to more established hubs like San Francisco, San Diego and Boston. That’s shifting, with Chicago life sciences funding sharply on the rise up until just a few months ago.
Universities are also working to play a bigger role in building startups. This year, for instance, the University of Chicago’s Polsky Center for Entrepreneurship announced Transform, a new accelerator for startups focused on data science and artificial intelligence. A couple years earlier, Polsky launched Duality, dedicated to quantum science and technology companies.
Startup momentum is particularly concentrated downtown, said Weil Lechnir, with most workers either living in the city or commuting from the suburbs via transit. That’s where the networking happens too, including 1871, a downtown nonprofit that bills itself as an innovation hub.
Chicago also benefits by being the major metropolis of the Midwest, which helps draw talent from neighboring cities and states, per Weil Lechnir, who noted: “Everyone young and ambitious living in the Midwest, there’s a very good chance they’re going to make a stop in Chicago professionally at some point in time.”
Photo: Sea Cow, Public domain, via Wikimedia Commons.
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