Over the last two decades, Chicago has developed into a world-class tech hub, launching some of the most recognized technology firms and growing into a global competitor. According to the Chicagoland Chamber of Commerce, the city’s tech sector grew 18% in the last 10 years, adding more than 106,000 direct tech jobs and 147,000 multiplier jobs.
So, how did Chicago foster and advance this crucial sector in the North American economy?
In the early 2000s, Chicago’s tech and life sciences ecosystem survived by importing startups and other tech companies through mergers and acquisition deals. In general, the companies have also been largely background or back-end companies that help other businesses operate versus consumer-facing companies, with a few exceptions like Groupon, Cars.com and GrubHub. As a leader in the financial sector, Fintech was a natural segway that inspired the development of companies such as Braintree Payments, now PayPal and Morningstar.
Chicago’s first tech incubator, 1871, opened their doors by offering tech leaders and innovators a selection of workspaces, mentorships, educational programs, networking opportunities, and business contact sharing. At the World Incubation Summit, 1871 was recognized as the World’s Most Promising Incubator for Women Founders. However 1871 isn’t Chicago’s only top-ranking incubator. The city also has incubators focused on other strong industries. Hub is the nation’s fastest-growing manufacturing incubator, with a focus on physical product development. MATTER is home to over 200 healthcare startups, and Portal Innovations is a life science hub. These incubators, combined with efforts by the city and state, have fostered a competitive tech scene that had its best year ever in 2021.
In 2021, Chicago was finally recognized as a global tech competitor. Chicago tech companies raised more than $9.7 billion in venture funding, over $1 billion more than Chicago startups raised in all of 2020, according to Crunchbase. This number was fueled by the record-breaking 12 unicorn companies. These 12 unicorns pushed Chicago into the number three spot for producing unicorns, only behind San Francisco and NYC, outpacing Boston, Los Angeles and Seattle. The return on venture capital in Chicago is the highest in the country. Because venture capital in Chicago is harder to find than in coastal markets, it makes the threshold to enter higher, leaving only the most significant innovators to succeed.
What are the strategic advantages that Chicago offers?
With so many world-class educational institutions in Chicago, the city awarded almost 25,000 Bachelor’s, Master’s, and Doctoral degrees in STEM-focused areas, a new record for the state. The number of STEM degrees has increased annually by 3.5% since 2010. Last year, according to the Illinois Science & Technology Coalition, Chicago was also the number three producer of computer science degrees in the U.S. In addition to the city’s strong access to labor, Chicago’s apartment rents are 20% lower than other major US cities. To further complement, Chicago’s office rental rates are a fraction of New York City and San Francisco, a crucial factor for technology tenants.
Mega occupiers like Google, Uber, Salesforce and Tempus Labs have driven office rental rates to record levels. These companies represent the trendsetters amongst Chicago office tenants, demanding high-end, amenity-rich spaces. While the pandemic forced many tech tenants to place space on the sublease market, Google’s recent commitment to take over the former Thompson Center in the Central Loop, leads many to believe that this move is the start of a major transformation. In the last several years, the struggling submarket has lost numerous financial tenants who have flocked to the West Loop. In 2022, Chicago has seen 800,000 square feet of office leasing by tech tenants, 10.8% of total leased space. In addition to movement by Google, notable leases include Basis Technologies, Vivid Seats, Stripe and Snap. The technology sector plays a vital role in Chicago’s ecosystem. Tech companies offer high-paying jobs, which lifts the housing and retail markets and increases the amount of leased office space. This momentum generates revenue that gets reinvested in the city. It fosters companies and industries and upholds the attraction to the city of Chicago.
In 2022, tech companies around the country have navigated disruption in the private capital world, which led to a slowing of funding and considerable layoffs. In Chicago, companies like ActiveCampaign, FoxTrot and Cameo have announced layoffs. These layoffs will create opportunities for smaller startups in Chicago. While fundraising was down this year across the board, tech companies will likely adjust budgets and move forward with the ebb and flow of the tech world. In 2023, Chicago has several startups that have been voted Top Startups to Watch by resources like AmericanInno, including Protégé, Klover, Science on Call. Like Chicago’s economy these startups will focus on a variety of areas and help carry the momentum of Chicago’s tech scene.