VC report for 2019: What even is a Delaware startup? - Technical.ly Delaware

Growth

Jan. 22, 2020 5:58 pm

VC report for 2019: What even is a Delaware startup?

The First State had its best year in venture capital investments in almost 20 years. Or did it?
DuPont is a co-backer of Delaware Innovation Space, where a number of big biotech companies live.

DuPont is a co-backer of Delaware Innovation Space, where a number of big biotech companies live.

(Courtesy photo)

Gather ’round: We’ve gathered the 2019 investment data for Delaware.

The total for amount of venture capital invested, according to a recent PricewaterhouseCoopers (PwC)/CB Insights MoneyTree report, is $136 million. Whew.

First, the good news: The amount of startup investments in the state wound up being the highest since 2001, when the number was $165 million — also leading to an 18-year high. And it’s significantly higher than any year in between, with only 2017’s $83 million in investments coming close. (Eleven of those years saw investments of less than $20 million, and five were under $5 million).

2019’s higher-than-usual year is due, in large part, a Series B investment of $60 million landed by Prelude Therapeutics, a clinical-stage biopharmaceutical company out of the Delaware Innovation Space, in Q2.

Now for the bad news: The percentage of that money directly benefiting Delaware is significantly less.

Thanks to the state’s attractive incorporation laws (which themselves do bring money into the state), sometimes Delaware companies — companies that are actually based in Delaware — get mixed in with incorporated-in-Delaware companies, which often have no day-to-day presence in the state.

Q2 investments included $30 million Series B for Ayala Pharmaceuticals, which lists 1313 N. Market St. in Wilmington as a main office; the suite number is a corporate services company. This is common for companies that are incorporated in Delaware but are not physically located here — we get lots of press releases and the like for “Delaware” companies that are local in Inc. only.

So that brings the number down.

Q4 showed a healthy $32 million in investments, including $24 million in Series A funding for Arteza. The ecommerce startup also shows a Wilmington “office,” but is not physically located in Delaware: Its address is 1209 N. Orange St. in Wilmington, the legal home to 285,000 businesses (as of 2014). Another $8 million investment was to hundred vitamin company, which appears to be physically based in northern New Jersey with a virtual office in Newark, Delaware.

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That these companies don’t appear to physically live in Delaware isn’t the fault of the data gathering — the addresses, in fact, say Delaware. Why companies use Delaware as a physical address when they’re not physically here is a question for another article, but Delaware has long been a draw for companies looking to incorporate for a number of reasons. About two-thirds of Fortune 500 companies were incorporated in Delaware in 2014, including Facebook, Google and Coca-Cola.

For our purposes — reporting on Delaware startups and other tech-enabled businesses — Inc. companies only muddy the water. When the Fortune Term Sheet reports a venture deal out of Delaware, there’s a good chance it’s not actually in Delaware. In July, I received a press release from NASA announcing that one of the winners of its iTech competition was from Wilmington. Exciting, ’til you realize it’s not actually in Wilmington.

We can’t count these as Delaware companies, because then we’d get to count Facebook, Google and Coca-Cola, and that’s just not accurate. The state’s investment numbers would be through the roof if every company incorporated in Delaware was counted.

It’s also worth noting that this isn’t all of the funding that’s been given to Delaware companies. W7Energy out of the Delaware Innovation Space, for example, received $3.4 million in funding from the U.S. Department of Energy, among other funding, in 2019, but that doesn’t fall in the venture capital category.

So the number for Q4 2019 really isn’t $136 million — which is unfortunate, but it’s a reminder that data like this needs to be investigated once we have it.

At least we still have Prelude.

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