Chicago techies are celebrating a couple of recent nine-figure paydays: Braintree Inc.’s $800 million sale to eBay Inc. and Textura Corp.’s back-to-back stock offerings, which have raised $148 million, giving it a market value of $985 million.
This may be the new normal for the city’s tech sector.
The two companies, which both cashed in (or out) in September, are among perhaps two dozen growth-stage companies ready for a buyout or an IPO over the next year or two. That’s the strongest pipeline since the dot-com boom more than a decade ago and another sign that Chicago is moving, at long last, into the ranks of the nation’s tech centers. “Five or six years ago, I wouldn’t need one hand to count the number of companies anybody would have said are in this category,” says J.B. Pritzker, founder of Pritzker Group Venture Capital (formerly New World Ventures) in Chicago. Now he’d need both hands and feet and then some, he notes: “Right behind them are probably another hundred companies that may have the potential to get into the top tier.”
These growth-stage companies are consequential. They typically have dozens if not hundreds of employees and more than $10 million in annual revenue. They also have earned a seal of approval from venture capitalists (except kCura Corp.). Not all of their founders are looking for an exit, of course. But if they did move along, this group would generate billions of dollars in new wealth, surpassing this year’s big tech IPO, computer vendor CDW Corp., now worth $3.92 billion.
This is Chicago’s hit parade, based on input from entrepreneurs and investors:
Analyte Health Inc., BayRu LLC, Centro Inc., Cleversafe Inc., Fieldglass Inc., GoHealth LLC, GrubHub Seamless Inc., Ifbyphone Inc., kCura, Media-Ocean, Mu Sigma Inc., Networked Insights Inc., Network Merchants LLC, OpinionLab Inc., Savo Group Ltd., SingleHop LLC, Sittercity Inc., SMS Assist LLC, Sportvision Inc., Sprout Social Inc., System Development Integration LLC, Total Attorneys LLC, Trading Technologies International Inc., Trustwave Holdings Inc. and Vibes Media Inc.
“Having been in the Chicago tech community for over 20 years, I’ve never seen such a large group of solid companies ready to take the next big step,” says Chris Gladwin, founder and vice chairman of big-data storage provider Cleversafe. He earlier founded online music seller MusicNow Inc., which was sold in 2004 to Circuit City Stores Inc.
Chicago is getting hotter because investors are tilting toward business-to-business applications rather than piling into consumer-oriented apps. Three-quarters of the growth-stage companies on the city’s watch list are B-to-B ventures.
“We’re seeing increased focus on practical applications of technology,” says Eric Byunn, a San Francisco-based partner at FTV Capital, which invested $22.5 million in Centro, an advertising-tech company, almost three years ago. “And a place like Chicago, that’s something the area’s strong in.”
ROOM FOR IMPROVEMENT
Even so, Chicago trails other big tech centers in exits by venture-backed companies. The city had 22 IPOs, mergers and acquisitions of venture-backed companies between 2011 and mid-2013, according to Dow Jones VentureSource. Austin, Texas, which has one-fifth the population of Chicago, had 23. New York generated 107, and San Francisco/Silicon Valley recorded 338.
But investment rounds of $10 million-plus are becoming more common in Chicago. In fact, Roselle-based Network Merchants, which produces credit-card processing software, raised $100 million last month.
FTV, which manages $1.5 billion, also has invested in Northbrook-based Mu Sigma, a data-analytics company; security-software maker Trustwave of Chicago; and Utopia Inc., a data-services company in Mundelein. Other big VC funds that have done multiple investments here in recent years include Accel Partners of Palo Alto, Calif., New Enterprise Associates of Timonium, Md., and Battery Ventures of Waltham, Mass.
“Large venture and private-equity firms are traveling to town much more frequently,” says Mark O’Connell, CEO of Chicago-based Savo. “It’s really picked up in the past 12 months.”
Another sign that the pool of growth-stage companies is getting bigger: IPOs. After Groupon Inc. went public in November 2011, no other local tech IPOs followed until last June, when Deerfield-based Textura, Itasca-based Gogo Inc. and CDW of Vernon Hills all completed offerings. It was the first time three Chicago-area tech companies went public in a month since 2000, according to New York-based researcher Dealogic.
Today these newly public companies are worth a combined $6.34 billion, more than Hoffman Estates-based Sears Holdings Corp.’s market cap of $5.80 billion.
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