by Maranda Bodas

Jan 16, 2014

Investments in Chicago’s digital start-up sector nearly doubled in 2013 as angel investors and venture capitalists invested in technology companies around the city.

Funding increased to $1.06 billion from $391 million in 2012, according to a report by Built In Chicago, a local online start-up community.

“This is our biggest year since Groupon in 2011,” said Maria Katris, Built In’s CEO. “This isn’t about just one company choosing to build in Chicago.”

Groupon Inc. closed a $972 million investment round in 2011, accounting for nearly 70 percent of the total tech investment for that year.

Katris attributes the city’s gains to an increase in early-stage seed investment, Mayor Rahm Emanuel’s innovation mission, and a surge of outside venture capital from the coasts.

In February, Mayor Emanuel appealed to investors and tech start-ups across the nation. “Chicago has developed into a city that every investor must watch, Emanuel said in a press release. “Our economy is thriving and the companies we are producing are among the nation’s leaders in many sectors.”

The firms listened.

Battery Ventures—a venture capital firm with offices in Boston, Menlo Park, Calif. and Israel—has a track record of Chicago investments including Groupon and Narrative Science Inc. a Chicago tech firm that turns data analysis into stories.

“We think innovation can happen anywhere, not just in Silicon Valley and Boston,” said Rebecca Beckman, vice president of communications and content for Battery Ventures. “That’s why we regularly fund companies in other parts of the country, including Chicago.”

Local entrepreneurs are confident that the city is poised for an influx of capital.

David Crais, president of Chicago-based Crais Management Group, said that increased seed funding means security for later-stage investors who may be outside the area. “Their tech and managerial expertise allow people to come in,” he said. “Investors are looking for market traction and proven management teams.”

Even though investors are more interested in the Chicago market, local investors are still hard to come by, company founders say.

“There just isn’t a lot of aggressive VC capital in Chicago,” said Fundology founder Kison Patel. “It’s not easy to raise capital here.”

While local funding might be low, last year’s success is translating into high hopes for the coming year. Katris said to watch for more companies to go public in 2014. She also expects bigger-ticket funding rounds in 2014.