2018 Midwest Startup and Venture Capital Market AnalysisHyde Park Angels Exclusive Report

Table of Contents

1 Introduction, page 3

2 The Great Lakes Leads Among Tier 2 Regions, page 5

3 Midwest Investment Activity, page 7

4 Advantages of Illinois in the National Venture Capital Market, page 15

5 Conclusion, page 19

Introduction After the success of our 2017 Midwest Startup and Venture Capital Market Analysis, we sought out to investigate the venture and startup landscape in the region once more, paying special attention to where the market has most significantly changed. In our analysis, we uncovered a number of new patterns and trends, many of which demonstrate an increased strengthening of our ecosystem.

Specifically, the Great Lakes region has seen an increase in both dollars and deals since last year. In particular, Illinois experienced a marked increase in investment and deal activity, with $1.94B invested in 227 deals in 2017 versus $1.34B in 171 deals in 2016.

We hope these new insights will help contextualize the market in our region and create more opportunities for growth and opportunity.

–The Hyde Park Angels Team

3

Overview

The Hyde Park Angels team conducted a deep dive analysis into the Midwest Venture Capital ecosystem by aggregating and analyzing data from Pitchbook, the U.S. Census, the Bureau of Economic Analysis, the Illinois Venture Capital Association, and proprietary sources. We defined the Midwest, also classified as the Great Lakes Region, as Illinois, Indiana, Ohio, Michigan, Minnesota, and Wisconsin.

Our analysis uncovered many notable findings, including:

The Midwest Is the Biggest Venture Capital Presence Outside of California Chicago leads the nation with the largest number of exits that produced returns over 10x.

Illinois Leads the Midwest Venture Capital Ecosystem At $1.94B in dollars invested across 227 deals in 2017, Illinois startups received more investment than all other Midwest states combined.

Illinois Sees Greater Investor Returns and Lower Company Operating Costs Than Rest of Nation This trend has been going on since 2014 and represents a flight to quality.

4

The Great Lakes Among Top in Tier 2 RegionsBased on our analysis, in 2017, California led the nation in venture capital investments, but the Great Lakes region was one of the most active regions outside of California. In fact, the Great Lakes increased its deal activity from last year, jumping from 462 deals last year to 623 this year.

4.7%Pacific

Northwest(373 Deals)

Great Lakes(623 Deals)

New York(993 Deals)

Boston(623 Deals)

Texas(341 Deals)

California(3,036 Deals)

4.3%

7.9%

7.9%

12.6%

38.5%

2017 Deals

*Source: Pitchbook, 2017 data5

2.8%Pacific

Northwest($2.5B)

Great Lakes($3.8B)

New York($12.4B)

Boston($8.9B)

Texas($2.2B)

California($45.7B)

2.4%

4.3%

10.1%

14.1%

51.7%

*Source: Pitchbook, 2017 data

2017 Dollars

Dollars InvestedWhile the Great Lakes region accounted for fewer dollars invested than deals done, further analysis demonstrates this trend is tied to the fact that investors there receive lower valuations and greater overall value for deals done. Additionally, the percentage of dollars invested in the Great Lakes went from $2.7B in 2016 to $3.8B in 2017, accounting for a sizeable $1.1B increase.

6

Midwest Investment Activity: Chicago Leads the Region In the Midwest, the Chicago Metro area received more venture capital investment than all other Great Lakes states combined, with $1.94B invested in 227 deals in 2017. This was a marked increase from 2016, where $1.34B was invested in 171 deals.

*Source: Pitchbook, 2017 data

2017 VC Activity

49

72

88

109

78

227

$110M

$145M

$311M

$523M

$730M

$1,944M

Wisconsin

Indiana

Michigan

Ohio

Minnesota

Illinois

Dollars Deals

7

Hyde Park Angels is the Most Active Chicago InvestorIn 2017, Hyde Park Angels continued to lead in new deals done and overall deals (a number which includes follow-on investments) after topping the list in 2016. From 2016 to 2017, Pritzker increased its investments, moving from fourth to second place, while OCA Ventures and Method Capital made their first appearances on the list.

*Source: Pitchbook, 2017 data **This data reflects investment groups with fund sizes over $15M.

Total 2017 Deals

5

5

7

9

13

15

Method Capital

OCA Ventures

Hyde Park Venture Partners

Chicago Ventures

Pritzker Group Venture Capital

Hyde Park Angels

8

SMS Assist($150M)

24 Deals from$5M – $10M

51 Deals from$1M – $5M

12 Deals from$10M – $15M

64 Deals under $1M

Aptinyx($65M)

Maestro Health($59M)

Sprout Social($42M)

Everspring($28M)

Civis Analytics

($22M)

Swap.com($20M)

SpringCM($18M)

Geofeedia($17M)

KennaSecurity

($17M)InContext Solutions

($15M)

FourKites($13M)

Wickr($34M)

Endotronix($32M)

Signal($30M)

4C Insights($26M)

ParkWhiz($24M)

Higi($40M)

Home Chef($40M)

16 deals from$10M – $15M

61 deals from$1M– $5M

17 deals from$5M-$10M

Uptake Series A($117M)

Uptake Series B($90M)

Aptinyx($70M)

Tempus($70M)

Greenlight Planet($60M)

Yello ($31M)

SpotHero ($30M)Fusion Risk

($41M)

Raise($60M)

AMP America($47M)

Evie Health($43M)

GTreasury($42M)

G2 Crowd ($30M)

Networked Insigths ($30M)

SpringCM ($25M)

EnvoyGlobal ($21M)

Label Insight ($21M)

Exicure ($20M)

Jellyvision ($20M)

Shiftgig ($20M)

CloudCraze ($20M)

Vital Proteins ($19M)

Aquilon Energy ($19M)

ShipBob ($17.5M)

Reverb ($15M)

ForeverCar ($15M)

NRG eSports ($15M)

67 Deals under $1M

OutcomeHealth

($500M)**

2016 Deals 2017 Deals

*Source: Pitchbook, 2018 data **Outcome Health raised $500M in May of 2017, but was charged with falsifying data by its investors. Reports in 2018 confirmed that the lawsuit had been dropped and the investors, founders, and lenders were recommitting at least $159M to the company.

Notable Illinois VC Fundings 2017 has seen a continued push towards Series B and later investments in Chicago. Among the some of the most notable VC-backed companies from 2017 are Uptake and Tempus, both funded by Lightbank.

9

Textura$700M

Valence Health$219M

ShopperTrak$175M

Restorgenex$115M

Nanosphere$102M

14 Deals Totaling$90M

EpiWorks$49M

Bravo Solutions$218M

2 Deals Totaling$58M

Vivid Seats$1.5B

CoverMyMeds$1.1B

Naurex$1.7B

RXBar$600M

*Source: Pitchbook, 2018 data

2016 Exit Breakdown 2017 Exit Breakdown

Notable Illinois ExitsExits in Chicago also outpaced exits throughout the Midwest, with major exits in 2016 and 2017 fortifying the local ecosystem. In 2017, Naurex and Vivid Seats were the biggest Illinois exits.

10

U.S. and Illinois Venture Capital Trends: More Dollars, Fewer Deals Across the U.S., venture capitalists have been investing more dollars in fewer deals since 2014. This flight to quality marks a focus on injecting more capital into top-performers, a trend which has also manifested in Illinois deals. Chicago in particular has seen the greatest decline in number of deals in the seed rounds, further supporting a flight to quality thesis.

Illinois Deal History U.S Deal History

$0

.5B

$1.

2B

$1.

6B

$1.

3B

$1.

9B

177

206

240

264

227

0

50

100

150

200

250

300

$0B

$1B

$1B

$2B

$2B

$3B

2013 2014 2015 2016 2017

Amount Raised # of Deals

$26

.7B

$51

.1B

$74

.2B

$9

0.6

B

$88

.5B

5,787

7,442

8,4148,029 7,884

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

$0B

$10B

$20B

$30B

$40B

$50B

$60B

$70B

$80B

$90B

$100B

2013 2014 2015 2016 2017

Amount Raised # of Deals

11

Leader in 10x Returns to InvestorsThe Great Lakes region also drives the most exits that deliver over 10x returns to investors. Chicago is 1.5x more likely to return capital greater than 10x to investors than any other city in the U.S.

Head to head against other Tier 2 cities, Chicago is the leader in top exits over the last 5 years. This can be attributed to major unicorns like Grubhub, Gogo, ExteNet, Cleversafe, and Fieldglass.

City 1 – 2x 2 – 5x 5 – 10x >10x 3 – 10x

Chicago

New York City

Los Angeles

Bay Area

Seattle

Boston

13% 22% 19% 81%

17% 26% 34% 22% 77%

17% 39% 27% 17% 65%

9% 39% 23% 29% 76%

15% 33% 27% 25% 72%

11% 35% 29% 25% 68%

45%

Percentage of Successful Exits by Multiple on Invested Capital – Last 10 Years

*Source: Pitchbook, full exits in the last 10 years with more than $500K in VC funding, 2016 data 12

Greatest Value for Venture InvestorsWith strong performance in both deals done and dollars invested, the Great Lakes emerged as a leader within Tier 2. Particularly, the Great Lakes region saw its greatest dominance in investor value and exits.

Consequently, in the Great Lakes, investors need to invest less to retain the same ownership over time. For example, an investment to retain 10% ownership from Seed to Series C requires 2.2x more capital than in California in Chicago.

Calculations assume an investor initially obtains a 10% stake in the company during the seed round, and invests her minimum pro-rata amount to maintain the same 10% interest during each follow-on round. Based on 2012 to 2016 Pitchbook data.

$2.27M

$3.05M

$3.84M$3.89M $3.62M

$4.98M

Great Lakes Pacific NW Boston Los Angeles New York Bay Area

2.2x More Capital in SF for 10% Ownership

13

Lowest Costs for Technology Firms in the U.S. The Great Lakes region has the lowest company operating costs of any city. For example, in Chicago, low rent coupled with low cost of living that allows for more reasonable wages, kept costs down. Meanwhile, a strong technology talent pool enabled companies to find critical players quickly and efficiently.

0%

Mor

e

3%

8% 19%

Mor

e

21%

Mor

e

25%

Mor

e

42%

Mor

e

Chicago Austin Los Angeles Seattle Boston New York San Francisco

Cost 42% More to Operate in San Francisco

*Source: CBRE, 2016 data

Baseline

14

Conclusion Based on the trends and patterns we analyzed in this study, we believe there will continue to be a strong influx of capital into the Midwest venture capital ecosystem in both the seed and later stages throughout 2018. We expect more capital to flow into top-performing companies, with the flight to quality greatly and beneficially impacting investment returns and exit values, as well as strengthening the overall technology space locally, regionally, and nationally.

For more insights into venture capital in the Midwest, subscribe to the Hyde Park Angels newsletter and visit our website.

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About Hyde Park Angels Hyde Park Angels is transforming early-stage investing by taking a people first approach. By matching our members’ expertise with entrepreneurs’ needs, we help develop top-performing companies that are delivering extraordinary results. Our approach has led us to become the largest and most active early-stage investment group in the Midwest.