The Chicago tech returns fallacy
A thought experiment: If you invest $10 and watch it grow to $20 in value, you have earned a 100 percent return on your money. If another investor has invested $100, and watches that investment grow to $120, that investment has earned a 20 percent return. Yet the latter investment has created more $20 in value, while the former has created just $10 in value.
Chicago’s technology community has been praised, by observers but more so by insiders, for the average investors’ returns, as evaluated by Pitchbook. Chicago is the top city in America for generating returns for venture capitalists, just as we were last year.
There’s context missing. Chicago’s innovation economy has succeeded in supporting early-stage companies that model the first scenario in my thought experiment: startups with lower capital requirements that are innovating business models and not products, and that have shorter product development cycles.
Chicago has not supported larger-scale value creation — i.e. the second scenario in my thought experiment posed in the lede — in the high sciences. That’s not my opinion. That’s math.
In Boston, research projects at MIT and Harvard are regularly spun into the market through new ventures, and the venture capital has followed. And followed again. That would explain the dramatically higher dollar value of financings found in Boston, particularly after the early stages. This speaks to the reality of startups working in the high sciences: They need more money reaching in Series C and D (and beyond) financing rounds before exits.
As I have documented before, the Chicago innovation economy has not supported new ventures that are commercializing research. The late-stage VC market in Chicago is dwarfed by coastal markets, and there seems to be little understanding of what is needed to advance fields of research — in renewable energy designs, nanotechnology, artificial intelligence, and genomics, to name a few — into product form through startups. Thus Chicago’s late-stage venture capital market, already thin, has flatlined.
This marks a real lost opportunity for Chicago. As patents are being generated in Midwest region at a similar rate as we see on the coasts, Chicago’s innovation community focused efforts on catalyzing an entrepreneurial “ecosystem” with little connection to the region’s R&D community.
This as the national venture capital market has clearly moved in the direction of tech transfer startups with higher capital requirements.
Pitchbook data plots a clear increase in amount of venture capital invested as the number of financings have decreased. In other words, VCs are investing less often, but when they do, they invest more. That would suggest a desire from the venture capital market for deals that require more capital, deals that they’ll find in Cambridge’s Kendall Square but less likely in Chicago.
But…the returns?
Well, my view is that the Chicago returns statistic speaks to the competence on the part of Chicago’s operators, combined with the “Midwest discount” on the cost of living, and the benefit of operating in middle of three million potential customers. It certainly cannot be used to justify doubling down on Chicago’s strategy in catalyzing technology development through Chicago-rooted new ventures, a strategy I have previously compared to a “Potemkin Village”.
Can organizations like 1871 be credited for growing general competence among entrepreneurial circles in Chicago? Perhaps. But let’s take the returns statistic for what it is: a marginally significant measure of success, holding that the goal of Chicago’s innovation economy is to generate value — in dollars, not percentages — through Chicago-rooted ventures in new industries.
It’s welcome news that venture capital investors are receiving returns from Chicago startups at a higher rate than we see in other cities. Yet this has little to do with the baseline value of the products Chicago startups are working with.
To fix this, start with research projects at Argonne and the region’s universities, not the coworking spaces.
I would invite Chicago’s technology advocates to explore additional dialogue around what investor returns mean for Chicagoans who don’t go to work at the 12th floor of Merchandise Mart:
Have these investors’ returns supported economic growth in the South and West Sides?
Have these returns led to the advancements of research — in domains like artificial intelligence, the neurosciences, renewable energy, and so forth — into product form in Chicago?
Do these investor returns justify the extraordinary deployment of hundreds of millions of public and philanthropic dollars into coworking spaces, incubators, and accelerators?
No. No. No.
Thomas Day is the co-founder of Invent2026.
