For tech investors who prioritize return on investment, the Chicago ecosystem might warrant a second look.
That’s the key takeaway from a new report released by Hyde Park Angels on Thursday. Based on a combination of data from Pitchbook, the government and its own internal numbers, the firm found that Chicago is more likely to provide a 10x return on a tech investment than any other city in the country, with a whopping 45 percent of exits providing a tenfold return to investors.
Comparable numbers for Los Angeles, the Bay Area and New York were 29 percent, 25 percent and 22 percent, respectively.
The total dollar amount secured through Chicago exit events over the past five years was $10.7 billion. That number beats those of Seattle, Boston and Los Angeles, and virtually ties New York City’s $10.8 billion.
Alida Miranda-Wolff, who is director of platform at Hyde Park Angels, said Chicago’s culture and overall business climate are some of the tech ecosystem’s biggest differentiators.
“Chicago's culture privileges hard work, customer delight and results,” said Miranda-Wolff. “This attitude also pairs well with more reasonable valuations and a larger number of profitable companies. When you see this manifest in actual companies, you see B2B companies that took a longer path to success that focused on value creation for Fortune 500s and similar large enterprises such as Braintree, Trustwave and SMS Assist.”
Miranda-Wolff points to the large number of potential enterprise clients headquartered in or near Chicago as one major upside to launching a company here. Chicago is home to 36 of the Fortune 500, and a solid 111 of the Fortune 500 are headquartered in the Midwest region.
Lower operational costs also helps Chicago come out on top, said Miranda-Wolff.
“If you look at the data in our study, you'll see that it costs 42 percent less to operate a business in Chicago than San Francisco, 25 percent less than in New York and 21 percent less than in Boston,” she said. “We often get asked why it's less expensive to do business here. There are a number of reasons, but a big part is that both real estate and talent, which are huge operational costs for any business, are simply lower here.”
The report’s authors also found that local investment patterns are shifting toward fewer and bigger deals. That trend holds true in tech ecosystems across the nation.
“A great example is OutcomeHealth's recent raise,” said Miranda-Wolff. “Investors are increasingly focusing capital into top-performing companies, especially in the later stages.”
You can download the full report here.
Image via Shutterstock.