Predicting the future is never easy, especially when it comes to business. Based on the economy, politics and other factors, guessing what industries will thrive or take a back seat can be difficult.
But to try to get a sense of what to expect in 2018, Chicago Inno talked to five Chicago venture capitalists to help gauge what might happen in the coming year. Their answers varied, but they mostly agreed that health tech and fintech startups will flourish, and that Chicago startups across all industries will see even more funding in 2018, especially since the area has seen a steady uptick in fundings over the last five years.
When asked about what surprised them this year, VCs pointed to Outcome Health's difficulties. After raising more than $500 million in May, the company now faces allegations reported in a Wall Street Journal story this fall that they misled advertisers by manipulating data and inflating the performance of ads. As a result, some of Outcome’s investors are now suing the company for fraud, and in November, the company cut its staff by more than a third.
But even with Outcome’s rocky year, all the VCs we talked to agreed that the news won’t taint Chicago’s tech scene long-term or ward off future investments.
“It’s a risk, but I think the issues there were very idiosyncratic, and hopefully lessons will be learned, both from founders and investors,” said Jonathan Ellis, the founder and managing principal at Sandalphon Capital, which primarily invests in B2B startups in the real estate, fintech and healthcare space.
Outcome's major funding news earlier this year was a testament to how much potential there is in Chicago's healthtech industry, and VCs have noticed.
Victor Gutwein, managing director at M25 Group, said the biggest trend he’s anticipating next year is an influx of healthcare tech startups. He said that considering the work that’s taking place at the healthtech incubator MATTER, Chicago entrepreneurs looking to launch companies in the industry have the resources to do so. He also sees Outcome’s fragility contributing to this.
“I think this is something that’s actually going to be aided by Outcome Health because Outcome attracts a lot of talent, and all that talent is now looking for jobs,” Gutwein said.
But besides healthcare, Gutwein said that fintech startups, and especially insurance tech startups will continue to grow next year. M25 has invested in several local insure tech startups, such as Kin and Datacubes.
“All of those are experiencing growth,” Gutwein said. “They have a lot of connections, being in Chicago. The groundwork has been laid for them to come out strong in 2018.”
And M25 isn’t the only VC firm investing in fintech. Peter Christman, a senior associate at Chicago Ventures, said that his firm is constantly looking for opportunities to fund a sprouting fintech company.
“We are actively investing in fintech companies across the spectrum,” Christman said. “That ranges from consumer lending to a platform that enables macro hedge fund managers to trade on political volatility. That’s a category that we get excited about.”
The third industry that VCs said might shine in 2018 is logistics. Ira Weiss, co-founder and general partner at Hyde Park Venture Partners and a clinical professor of accounting and entrepreneurship at the University of Chicago’s Booth School of Business, said logistics startups could prosper in 2018 because there's already some momentum in the space, pointing to local companies like FourKites, Shipbob and Project44.
“The next year, I believe, will be a breakout year for some of the logistics startups in Chicago,” Weiss said. “Many of them have been doing really well. They’re gaining a lot of momentum. We’ll see more big financings and it might be an industry that helps get Chicago on the technology map.”
Healthtech, fintech and logistics are three industries that mainly fall under the B2B category, which goes hand in hand with Chicago's reputation as a B2B tech ecosystem. But Matt McCall, a partner at Pritzker Group Venture Capital, thinks that could change. He said that we could see more consumer-facing startups next year as shopping behaviors change, adding that blockchain technology and bitcoin currency will continue to gain traction.
“It’s here to stay,” he said.
