Tech execs put money in Chicago companies
Ask Farmer’s Fridge CEO Luke Saunders about raising money from investors for a startup, and he’ll tell you it’s a numbers game: A company founder might have to talk to a hundred venture capital firms before one says yes.
“In Chicago, where there are way less funds (than on the coasts), that numbers game gets a lot harder,” said Saunders, who founded the Chicago-based company, which sells salads and other meals from vending machines. “You need to talk to a lot more people than are even available to talk to in Chicago.”
Local investors are helpful: The networks they provide are often crucial to young companies, and they’re active in town as mentors and sources of funding. The amount of money flowing into Chicago-area startups through deals with at least one local investor hit $1.2 billion in 2017, a six-year high, according to data from deal-tracking site Pitchbook.
But the pool of capital available in Chicago isn’t big enough to help some startups reach the next level of growth, so local companies are grabbing the attention of venture capitalists on the coasts.
Farmer’s Fridge closed a $30 million financing round last month that was led by Innovation Endeavors, a venture capital fund co-founded by former Google CEO Eric Schmidt. Innovation Endeavors has offices in New York City, Silicon Valley and Tel Aviv, Israel. Farmer’s Fridge will use the money to add more fridges in new Midwestern cities and hire more employees to help the company grow.
Chicago-based e-commerce logistics company ShipBob also raised out-of-state venture capital as part of $40 million in new investments announced last month. ShipBob recently opened a new fulfillment warehouse in Cicero and is pushing to hire 100 people in the next year. Existing investors including Chicago-based Hyde Park Venture Partners participated in the funding round, but California-based Menlo Ventures led it. One of the firm’s partners, Shawn Carolan, joined ShipBob’s board of directors. Carolan also helped with Menlo Ventures’ investment in Uber.
“For later stages, you need much bigger funds,” ShipBob co-founder and Chief Operating Officer Divey Gulati said. “If you think about a $50 (million), $60 (million), $70 million round, that’s when your
options are very limited in Chicago.”
Here’s a look at some other high-profile coastal venture capitalists who have homed in on Chicago’s startup scene. Steve Case: AOL co-founder AOL co-founder Steve Case launched an investment firm called Revolution in 2005. The firm is based in Washington, D.C., but in the past year, Case has had his eye on Midwestern companies. Revolution operates three funds: Revolution Growth, Rise of the Rest Seed Fund and Revolution Ventures. The firm made its first entree into Chicago with an investment in learning platform BenchPrep in 2012, through its Revolution Ventures fund. Since then, the Revolution Growth fund has made repeated investments in serial entrepreneur Brad Keywell’s data analytics company Uptake Technologies and Tempus, a cancer-fighting startup from another well-known Chicago entrepreneur, Eric Lefkofsky. But it’s not just the fastgrowing, more well-known tech companies in Chicago that have grabbed the attention of Case’s firm. In March, the Revolution Ventures fund invested in Paro, which is working to create a freelance platform for finance professionals. “In the Midwest, there’s a perspective or the tendency to take a little bit longerterm view. There’s a tendency to be more humble — sometimes to a fault,” Case said. “There’s a tendency to try to forge partnerships that could be win-win.” Revolution’s Rise of the Rest Seed Fund also has a stake in four Chicago companies and is on the hunt for more. Case was in Chicago in September to promote the $150 million fund, which aims to invest in cities like Chicago that aren’t attracting as much venture capital as the coasts.
J.D. Vance: Author of New York Times bestseller ‘Hillbilly Elegy’
Revolution last year hired J.D. Vance, who is based in Cincinnati, to be a managing partner of its Rise of the Rest Seed Fund. Vance, who grew up in a Rust Belt town in Ohio, moved back to the Midwest from Silicon Valley after writing his bestselling book, “Hillbilly Elegy.” (Ron Howard is reportedly directing and producing a movie adaptation.)
In his new role, Vance is working to “invest in places where there’s a misalignment between access to capital and quality of entrepreneurs,” he said. In other words, places like Chicago.
So far this year, the fund has invested in Chicagobased startups Foxtrot, which delivers food and other market items; Codeverse, a studio that teaches kids to code; and Peanut Butter, which aims to help people tackle student debt. Rise of the Rest also invested in PartySlate, a platform that helps connect party planners with vendors.
The startup announced Wednesday that it has raised $2.1 million in new funding and is working to raise more.
The fund typically writes checks for under $1 million, Vance said. It’s looking for companies with products or ideas that are still being developed and which coastal investors aren’t paying attention to yet.
“As advanced as Chicago is, we still think that the quality of the entrepreneur outweighs the access to capital, so there’s a real opportunity for investors like us to come here, spend time here and meet some good companies here,” Vance said during a September visit.
Other notable investors in the Rise of the Rest Seed Fund include Uptake’s Keywell, Schmidt, Starbucks founder Howard Schultz and Morningstar Chairman Joe Mansueto. New Enterprise Associates
New Enterprise Associates, or NEA, calls itself one of the world’s most active venture capital firms, and that extends to Chicago. The firm has done more than 30 deals with Chicagoarea companies in the past five years, according to Pitchbook data. That made it the most active out-ofstate venture capital firm in town during that time.
The 40-year-old firm is headquartered on both coasts, with offices in New York City; Menlo Park, Calif.; and Chevy Chase, Md. It has always had Chicago ties, and the local companies in its portfolio have delivered strong outcomes, said Northbrook native Jordan Shapiro, one of the firm’s New York-based associates.
The firm has invested in transportation management company Echo Global Logistics, which went public in 2009; big-data storage company Cleversafe, which sold to IBM for more than $1 billion in 2015; and payments processing company Braintree, which PayPal acquired in 2013 for $800 million, to name a few.
It also invested in Groupon, which went public in 2011, and Lightbank, the Chicago-based venture capital firm started by Lefkofsky and Keywell, two of Groupon’s co-founders.
Other Chicago companies NEA invests in include Tempus and Uptake, both of which are unicorns, an industry term for startups valued at $1 billion or more; BenchPrep; social media management company Sprout Social; and artificial intelligence startup Catalytic.
The NEA team spends a lot of time with the firm’s Chicago companies, Shapiro said. Someone from the firm is in town at least once a month, on average. On one level, there’s no difference between Chicago companies and those on the East or West coast, Shapiro said.
“We’re always looking for outstanding companies with amazing products and technology. That’s one of the reasons we’re in Chicago in the first place,” he said.
“Those companies are equally likely to pop up in Chicago as they are in the coasts.”