There were a few bright spots for Chicago startups in the third quarter of 2023, according to the latest Venture Monitor report, but the city's tech sector couldn't overcome what continues to be a down market.
U.S. venture capital firms raised just $42.7 billion through the first three quarters of 2023 and are currently on pace to see the least venture capital raised sine 2017. The decline is most pronounced in the late and venture-growth stages, and Chicago startups seem to be reacting accordingly.
A number of the largest startup deals in Chicago were extensions, including the largest one in the quarter — a trend that is playing out nationally as well, as more startups continue to approach today's market with caution.
"More companies are taking bridge, continuation or down rounds; inside rounds are at multiyear highs; and there are fewer rounds with a new lead investor obtaining a board seat than at any time in at least a decade," said the Venture Monitor report, which is compiled by PitchBook and the National Venture Capital Association.
The continued mismatch of founder and investor valuation expectations has led more founders to opt for extension rounds, where expectations are more pliable than when going for a more formal Series A or B raise.
PitchBook Data's latest quarterly report on VC activity showed a nearly 27% decline in deal value for Chicago startups in the third quarter from the prior one.
VC firms invested $626 million in Chicago companies across 60 deals in Q3 2023, which is down from the $857 million invested in the second quarter of the year, and significantly down from the 116 deals closed for more than $1.1 billion in Q3 2022.
While some sectors, like software, have hit a multiyear low for investment share, others, like life sciences, are faring much better in today's market. Nationally, life sciences is at the highest relative investment level since 2020. Of the top 10 deals for Chicago startups in Q3, seven of them were in the health care space.
In the third quarter, U.S. biotechnology startups collectively raised $5.8 billion across 197 funding rounds, according to the report, which is comparatively higher than it was in Q1 and Q2 but with a much lower deal count, indicating that while the sizes of funding rounds are growing, fewer startups are bringing them in.
"The median venture growth-stage deal size is at its lowest annual point since 2016, while valuations for the stage have fallen to 2018 levels," according to PitchBook VC analyst Kyle Stanford. "The continued slow exit market is causing increasing pressure on the stage which sits closest to the exit markets. The pullback from large institutional investors that have been vital to supporting companies late in their venture lifecycle has made it increasingly difficult for deals to get done, let alone the large-sized deals that many companies need."
There have also been fewer unicorn deals nationally — 167 deals so far this year, representing 1.7% of the total VC deals. There were 384 unicorn deals (2.2% of total VC deals) in 2022 and 570 unicorn deals in 2021 (3.0% of total VC deals).
Here's a look at the top 10 Chicago-area venture capital funding deals from Q3, all but three of which closed in September:
- Kin Insurance — $142 million later-stage Series D at a $1 billion post-value valuation.
- Pixis — $85 million later-stage Series C1.
- Evozyne — $81 million early-stage Series B.
- Vivante Health — $31 million later-stage Series B.
- Synapse Health — $25 million later-stage venture capital.
- Dentologie — $23.9 million later-stage Series B at a $100 million post-value valuation.
- Artisight — $21.5 million later-stage Series B1 at a $160 million post-value valuation.
- Third Eye Health — $19.8 million later-stage Series B at a $38.8 million post-value valuation.
- Laconic — $19.1 million early-stage venture capital.
- Guidelight Heatlh — $16.4 million early-stage venture capital.
This story has been updated to reflect that VC firms invested $857 million in Chicago companies in the second quarter (not the first), and more than $1.1 billion in Q3 2022 (not 2023).
