Where does Philly fit amid a ‘mundane’ Q2 for national venture capital deals?

According to data released by PitchBook and the National Venture Capital Association in their Q2 2023 PitchBook-NVCA Venture Monitor, the Philadelphia region saw $523.02 million raised across 100 deals in the past three months.

Compare that to the first quarter of the year, the Philadelphia region saw $601.19 million raised across 105 deals. This near-flatness is seen in national trends: Kyle Stanford, a lead venture capital analyst at Pitchbook, told Technical.ly that in general, Q2 was “mundane.”

However: The Philadelphia region is still far off track from matching its impressive past two years. 2022 saw $5.893 billion over 598 deals. In the first half of 2023, Philly companies have raised a mere $1.124 billion across 102 deals — a fifth of 2022’s total.

Across the US, deal count this quarter has been generally lower than it was compared to record highs of 2021 and 2022, but still higher than any quarter before 2020. Deal value is the lowest it’s been since 2016, with just $85.6 billion raised. Contrast that with 2021’s record high of $347.5 billion.

PitchBook and NVCA attribute these changes to economic circumstances including high interest rates and threat of recession: “The tepidness is palpable, and it seems likely the market could quickly hit a cliff if economic conditions worsen,” the report says.

Philadelphia’s 598 deals last year were among the most the region had ever seen, and ranked the region fifth in the country in terms of deal count. Stanford said the top four markets — New York, Los Angeles, the Bay Area and Boston — have a significantly higher concentration of deals than this region, though, so it is unlikely that Philly will move up.

Philadelphia is still ranked fifth through the first half of 2023, and Stanford said he doesn’t expect that to change.

Biggest Philly deals

Below are Philly’s 10 largest deals in Q2 2023, as reported by the Venture Monitor. Note that, as we often see in these quarterly reports, the data may be incomplete, contain some inaccuracies — including companies based elsewhere and merely incorporated in Wilmington — or reflect interim raises. Deal amounts are pulled from public filings.

• Navy Yard-based cell and gene therapy company, VintaBio, raised $64 million.
• Home renovation-focused fintech company RenoFi, based in the Philly area, raised $31.9 million. (The company declined to comment on this raise when reached by Technical.ly.)
• The report listed Sharrow Marine as the third highest, raising $30 million, but the company appears to be based in Michigan.
• Atlas (Other Materials), a carbon negative materials company, raised $27.4 million. This company also appears to be headquartered outside the region.
• King of Prussia-based renewable energy tech company InductEV raised $27 million.
• WAVE BL, which uses blockchain technology to transfer trade documents, raised $26 million, but appears to be headquartered outside the region.
• Wilmington-based Synnovation Therapeutics, which is developing therapies for cancer, raised $25 million.
• Telford, Pennsylvania-based cannabidiol product company Elevate CBD raised $15.5 million.
• Conshohocken pharmaceutical company NextEVO Naturals raised $15 million.
• Philly-based cell therapy company NeuExcell Therapeutics raised $14.5 million.

The deal value of the apparently non-local companies total $83.4 million, which would reduce the region’s overall deal value for Q2 to $439.62 million.

Local investors’ reaction

Emily Foote, a partner at Osage Venture Partners, said these numbers from PitchBook don’t surprise her: 2021 and 2022 were two especially strong years of investment activity, and it’s not unusual to see a dip after that.

“Buyers, flush with new technology from 2021 and 2022 purchases, are not focusing on continuing to invest in new technology, but rather more focused on simplifying their tech stacks and maximizing returns on their recent purchases,” Foote told Technical.ly via email. “With that, investors can take a more measured approach to investing.”

The numbers track for Red & BlueVentures’ Brett Topche, too, but he thinks some useful data is missing.

“The thing I would be most interested to know would be the percentage of rounds led by new investors vs. ‘inside’ rounds consisting of all or mostly existing investors in a company,” he said. “For a while, it felt like the vast majority were inside rounds, but it has anecdotally felt like it is opening up more to outside rounds in the last few months. I would be curious to know if the data backs that up, as that is, to me, much more of a sign of a functioning market than just raw dollars raised.”

Dean Miller, president of PACT, said he was glad to see Philadelphia is still ranked fifth for deal count. He advised companies to be practical about how they grow.

“We’re giving a lot of advice and our mentors are giving a lot of advice and creative approaches to raising capital, how to conserve capital,” he said. “Because even though 100 plus deals got done in Philly, it’s generally not a great environment to raise money. It’s not 2021 or early ‘22.”

(Here’s more on Miller’s perspective about the difficult economic moment for startups.)

Despite the decrease in investment activity, Foote said the Philadelphia region is still attractive for innovation-focused companies, especially because of the community and resources in the area.

“Venture capital is a long game,” she said. “I remain optimistic about the future and believe the first half numbers represent a temporary lull rather than a long-term trend.”