5 Midwest Industry Trends That Will Shape VC Investing in 2018
So far in 2017, the Midwest has seen considerable deal activity across states, industries, and stages.
At my firm, Hyde Park Angels, we analyze market trends to predict growth areas and opportunities for investment. By collecting data from various private company databases, new outlets, and our own datasets, we are able to understand the major 2017 fundraising trends and patterns in Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.
Our analysis uncovered five broad industry trends we expect to shape VC investing in 2018.
1) Artificial Intelligence (AI) Will Continue Powering Advances in Other Industries
Artificial Intelligence is one the biggest national and global industry trends. A recent Gartner study found that 41% of organizations have piloted or adopted AI solutions. AI is Chicago’s second largest sector in VC in dollars and plays a pervasive role across the Midwest region for a unique reason. It interconnects with virtually every other industry.
AI solutions can optimize healthcare, logistics, and FinTech companies, along with a host of others. The widespread nature of AI and its ability to improve and reinvent business models positions it for continued adoption in 2018.
2) Consumer Products in the Food and Beverage Space Will Continue to Consolidate
2017 seen several acquisitions and exits in the food and beverage space, both in the Midwest and nationally.
Nationally, Plated sold to Albertson’s for $200M earlier this year, and in Chicago, RXBar was acquired by Kellogg’s for $600M. On a smaller scale, Chicago-based startup and YCombinator alum Tovala recently acquired with Radish, representing consolidation across the industry at all stages.
As consumers demand simple, clean ingredients in the food and beverage category, all the while being more convenient and easy to make and eat, we anticipate this consolidation will continue. Big name brands like Albertson’s and Kellogg’s will tap into startups to meet consumer needs and less mature companies will merge to increase their capabilities and their competitive advantages.
We expect the Midwest to be a site of this industry trend, especially because of the region’s unique mashup of technology and more traditional CPG.
3) Healthcare Is Ripe for Disruption and Startups Will Continue Fueling It
80% of the Midwest biggest deals were in the healthcare technology space. These deals attracted investors like Greycroft, NEA, and Bessemer, and made a major economic impact on the region overall.
In Minnesota, 89% of exits and 55% of its rounds were in healthcare. In fact, Minnesota experienced strong deal flow across different areas within healthcare, including life sciences, healthcare insurance, and healthcare software.
Similarly, 58% of deals in Ohio were in the healthcare space. Cleveland alone invested $233M in life science deals in the first three quarters of this year.
We expect this level of activity won’t slow down for a few reasons. The healthcare market is antiquated and has just begun truly technologizing, meaning that virtually every major stakeholder has something to gain from modernization and change. Additionally, healthcare truly affects every life, motivating entrepreneurs to strive for impact and investors to recognize the upside to putting dollars behind them.
4) Internet of Things (IOT) Will Boom as Big Enterprises Build Infrastructure and Use Data
The rise of cheap sensors and infrastructure has led to an explosion of the IOT space. Although initial market projections for the IOT market have not materialized, key components of the market have matured enough to encourage large-scale adoption.
Large telecommunications players such as Verizon, AT&T, and Cisco have entered into the IOT space, deploying large sums of capital into areas such as 5G implementation and edge computing – Verizon has committed to $1.05B in 5G infrastructure investment.
In the Midwest, Uptake has led the charge in IOT and become Chicago’s fastest growing unicorn company by servicing major corporations looking to drive results with IOT technologies. Uptake’s valuation grew from $1.1B in 2015 to $2B today. We expect Uptake to continue fueling growth in the IOT space and paving the way for solutions like Hologram and Xaptum (which my venture firm Hyde Park Angels invested in) to grow in 2018.
5) Logistics Leaders Will Bring More Investors to the Midwest
Logistics has seen a surge in high-growth companies in the Midwest. With bigger players like Echo Global Logistics and Coyote Logisticsestablishing the Midwest as a logistics hub, companies like Project44, Logiwa, and FourKites and ShipBob (which my venture firm invested in) have been able to attract investment from major Midwest and national investors while gaining market traction and early adoption quickly.
These companies are poised to scale, which will continue attracting capital to the Midwest in 2018 and influence entrepreneurs looking at the market to enter a space that is ready for tech-enabled optimization.