Is Chicago where startups needing Series B funds come to die?

Seyi Fabode

Here's a cautionary tale of two Chicago tech companies.

Company A, a seeming 'sure thing', was started by a technologist - one of the best I've met in Chicago - and his 'business savvy’ co-founder. They got some early traction and raised a seed round. They hit some milestones, and didn't others - like every business. When it came time to raise a bridge/B round there were no takers. He got nothing from his Chicago-based seed round investors. His company died. He hadn't enjoyed the experience (all he wanted to do was build great products) and left Chicago.

Company B was also started by a technologist along with 2 other co-founders. This startup idea is what you'd call 'A Big Hairy Audacious Goal'. One of those 'unfundable' ideas. An idea, as Paul Graham said, that sounds like a bad idea when you first hear it. If it works it will change healthcare delivery like very few startups could ever do. He knocked on many doors in Chicago but could not get the funding he required. Then he got into one of the accelerators on the West Coast...


The stories above (which I complete in my final paragraph) sound like the recurring narrative about funding in Chicago; it goes something like this: 'it's tough to raise money here and you need to either be almost a sure thing or you have to go outside Chicago to raise big rounds'. But is it true? Instead of continuing to reference anecdotes, I decided to dig into the data. And the answer to the two questions seems to be 'Yes' and 'Yes'. With some help from Paul (watch this space regarding this talented young man) I used data from Built In Chicago, FinSMEs and Crunchbase.

Note: I've tried to clean up the data as much as I can manuallyI've also only used data that contains names of investors and where amounts were declared.The map below shows sources for Seed/Series A and Series B funding for Chicago startups in 2012. It shows

  • In 2012 Chicago Companies raising seed rounds got almost all of their money from Chicago investors . Only 13.2% of seed funding (of $18M reported) came from investors outside of Chicago and 86% from Chicago investors.
  • In the same year, Series B (and above) funding for Chicago companies overwhelmingly came from investors outside of Chicago. Cross-referencing Built in Chicago and Crunchbase data confirms that 75.6% of funding for Chicago companies came from investors outside Chicago.

Using 2008-2013 data from Crunchbase/FinSMEs to dig deeper into the two points above we get the chart below. For e.g. in 2011 6 Chicago companies raised Series B rounds with participation from 8 Chicago investors and 12 outside investors. What this says to me is that

  • Chicago tech companies are typically going to non-Chicago investors for Series B. The past 12 months have been the most revealing of this situation as only 3 Chicago investors participated in a Chicago tech company's Series B, while 19 non-Chicago investors did. Note: this does not track the dollar amount/investor just the number of investors.

This makes you wonder, if Chicago tech companies do so well raising Series B's outside of Chicago, is it because Chicago VCs aren't investing? Interestingly the answer to that seems to be 'No'.

  • Chicago VCs are investing in Series B's.  But, for whatever reason, not the Series B's of Chicago tech companies. From the table below


  • If you look from a Chicago investor’s point of view, Series B investments have gone up. Chicago investors just haven't done much of their Series B investments in Chicago. Since Series B funding in the US has remained flat, things looks even dimmer for Chicago tech companies looking to do Series B fundraising rounds. The Series A crunch that is being talked about looks more like a Series B crunch in Chicago.

So I have two observations/suggestions for the community

  1. Lets swing for more home runs in our home fieldChicago investors are looking elsewhere to disburse money when they do spend it. Let's attempt to hit a few more home runs in our home field, Chicago entrepreneurs can and will deliver if given a shot (see the Braintree's, GoHealth's, Centro's and Grubhub's of Chicago). In the meantime, connecting the seed stage funded startups to the broader investor network across the country benefits the ecosystem.
  2. Make no small plans: If you're a Chicago company stay here and get your seed round done in Chicago. You have a better chance of securing funding. But immediately start to work on building a network outside of Chicago, especially with the help of your current investors (as noted above). This will serve you for your subsequent rounds of funding if you make it that long.


Company A founder is now helping a 'rocketship' build some amazing technology. He's playing his part in growing a well-funded tech company out in the Bay Area. He's having the time of his life.

Company B raised a huge Series A after the accelerator experience. The founder came back and raised his ~$4M Series A from (you guessed it if you read the data above) Chicago investors. The same ones he'd spoken to before he left for the West Coast. He's back out there. That company is currently not considered a Chicago company, and they have no intentions of coming back here, apart from raising money, of course.

The tech ecosystem in Chicago is starting to get its legs thanks to accelerators, incubators, and the likes of 1871.  If we want to continue to build a thriving and sustainable technology community we need to work hard to prevent more of these stories...

Ps: Thanks to Adam for BIC data. Please share any other robust datasets you might have on this topic, we all learn from improving the quality of data for these types of analyses.

I share my thoughts on startups and life at and @Seyi_Fab


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Chris Gladwin
Really great post. Having raised a number of A , B and C rounds and beyond for companies in Chicago, I've always felt and heard that B rounds and beyond were more difficult than for companies in Silicon Valley. Seeing your insightful and thorough analysis really crystallized it.
Jeff Carter
Good points. I think the lines between seed, Series A and B are becoming blurred. Seeing a lot of convertible debt that is supposed to be seed look like a series A, and some Series A looking like a B. For entrepreneurs, I would always recommend looking at getting diverse funding, not just from Chicago post seed. I think the positive development that has happened since 2007 is companies can get seed funding done in Chicago. That wasn't the case before. Now, we need to get the next level. One of the things that needs to happen is successful entrepreneurs investing in, or starting funds that invest at that level. That's how Silicon Valley got going. Some of the most active investors once were entrepreneurs that exited at nice levels. Chicago also doesn't have a lot of exits yet-but it's early in the game.
Erik Severinghaus
Great post! I love when people actually use data instead of getting lazy and referencing a couple anecdotes....
Micky Deming
My company is working to help businesses get that funding they need. A big factor in getting that series B financing is having your accounting in order so that you can confidently show what you're doing and where you are headed. We have a staff of accountants, experienced with overseeing growing businesses that serve at an affordable monthly rate. If you're concerned about how your financials would look to investors/banks, it's worth your time to check it out:
J. A.  Ginsburg
What an interesting post! I looked at a similar issue from a different angle last week, focusing on factors that contribute to self-perpetuating critical mass on the coasts: Talent travels at the speed of an airplane...
Peter Wilkins
Series B funding. Hmmm... I know a lot about it. I think this article is interesting, but I think there is a bigger trend. With more and more incubator and accelerators today, there are more companies getting seed and series A rounds, which increases the market size for VCs to pick from. The number of VCs outside of Chicago is much greater, so this will have an impact too.

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