Why Top VCs from Outside the Midwest Want In
As the Midwest startup ecosystem continues to grow, top investors from outside the region increasingly show that they are watching and want in — especially when a repeat entrepreneur is at the helm of a budding startup.
To validate this assertion, my firm, Hyde Park Angels, decided to dig into the numbers. Between 2016 and today, coastal firms have invested in Midwest startups 5.5x more than they did during the previous 3 years (2013 through 2015). We also discovered another pattern that is very encouraging for the Midwest ecosystem: strong coastal VC firms that saw successful Midwest returns increasingly come back to repeat those successes.
A good case study of this trend is NEA, which has offices in Menlo Park, California, and Chevy Chase, Maryland, and is fresh off of closing its $3.3B fund last year. NEA has become a regular investor in Chicago with an impressive track record of success. Since Groupon’s IPO, Cleversafe’s $1.3B acquisition by IBM, and Braintree’s $800M acquisition by PayPal, NEA has invested in at least a dozen more Midwest startups, including Raise, a rapidly growing online gift marketplace led by first-time founder George Bousis.
Unlike their backing of Raise and Bousis, several of NEA's investments involve repeat entrepreneurs. For example, NEA invested in Catalytic (which my firm also invested in). Catalytic’s co-founder Sean Chou was the founding CTO at Fieldglass, a company that SAP acquired in 2014 for more than $1B. And just a few months ago, NEA made another investment in Chicago-based startup Tempus, a company founded by Groupon co-founder Eric Lefkofsky. This is not the first time that NEA has backed Lefkofsky. NEA was an early Groupon investor and also recently invested in Uptake, a startup that Lefkofsky co-founded with fellow Groupon co-founder Brad Keywell.
NEA is not the only major firm looking to repeat its Midwest investment successes. Billion-dollar fund Accel previously invested in Groupon, Braintree, and Wyzant. Since then, it has invested in at least 6 more Midwest-based startups, including Raise (mentioned earlier and also includes Bessemer Venture Partners as an investor), G2 Crowd, and Michigan’s Trove AI, to name a few.
And similar to the pattern we see with NEA, several of Accel’s investments are in startups with repeat entrepreneurs. For example, Trove AI was founded by Guy Suter, Lindsay Snider, and Ian Berry, who together founded BitLeap. Barracuda Networks acquired BitLeap in 2008. Similarly, G2 Crowd was founded by Godard Abel, who previously led SteelBrick (acquired by Salesforce in 2015 for $360M) as well as BigMachines (acquired by Oracle in 2013 for $400M). It is worth noting that Emergence Capital also backed the G2 Crowd founding team’s past venture, SteelBrick, and has since invested in another Midwest startup, Project44.
August Capital, which saw success from its Avant investment, has since funded Avant co-founder John Sun’s newest startup, Spring Labs, which has offices in both Chicago and Los Angeles. Speaking of the factors that drove their confidence in the Spring Labs investment, August Capital General Partner Eric Carlborg noted the founding team’s past successes, including having Avant’s CEO on the company’s board of directors. August Capital’s investments are not specific to their own relationships with past founders, however. The firm also recently led investments in Kin and FourKites, a startup that my firm invested in as well.
Another investor in FourKites is Bain Capital Ventures, which has steadily increased its investments in the Midwest. In the last two years alone, the firm has invested in Hireology, Doc Halo, Sansoro Health, FourKites, and ShipBob (which my firm also invested in).
The fact that these investors from outside of the region — some with funds that exceed billions of dollars — are extending their reach into the Midwest on a regular basis is a very strong signal that the ecosystem is healthy and maturing.
This story originally appeared in Forbes on May 31, 2018.