Despite top startup ranking, Philly VC funding hits five-year low

Venture capital went down in Philly again last quarter, falling to its lowest levels since 2020.

Companies in the Philadelphia region raised $394.4 million across 83 deals in Q2 2025, according to the latest Venture Monitor report, released quarterly by PitchBook and the National Venture Capital Association (NVCA).

That’s down again from last quarter, when startups in the region raised $750 million across 114 deals. The Q1 results had already disappointed investors who were optimistic heading into 2025. This is the lowest quarter for VC activity since Q1 2020, when the region raised $333 million over 100 deals. 

These numbers aren’t surprising given the economic and policy uncertainty this year, especially in Q2, Dean Miller, president and CEO of the Philadelphia Alliance for Capital and Technologies, told Technical.ly. 

“Investors are very gun-shy to invest in companies that have any kind of exposure to the risks,” he said. Plus, companies are waiting to see whether they’ll be impacted by potential policy changes like tariffs. 

Usually, Q2 is a “catch-up quarter” from Q1, according to Howard Lubert, regional president of Keiretsu Forum Mid-Atlantic. The April to June period tends to be stronger because delayed deals at the end of the previous year finally close, making the Q2 2025 numbers seem especially low. 

This year’s deal count shows that new deals aren’t making it through due diligence and existing deals are falling through, he said. 

“It’s a sign that investor hesitancy isn’t letting up,” Lubert said. “Founders are facing a capital environment that remains unforgiving.”  

How the ‘Big Beautiful Bill’ shaped the market

Policy changes are also influencing the investment climate.

The only sectors seeing big gains are those prioritized by the Trump administration, like defensetech and artificial intelligence, according to the report. Even then, most of that money went to a handful of companies, none of them in Philly.  

“This all underscores the importance of forward-looking public policy,” said Bobby Franklin, president and CEO at NVCA. “The recently enacted One Big Beautiful Bill Act delivers significant wins for founders and investors … However, the bill also introduces new complexities.” 

An expansion on Qualified Small Business Stock (QSBS) rules, a tax benefit for shareholders of qualified small businesses, could lead to more restructured deals aiming to support firms’ existing portfolio companies, according to Lubert. But lean companies with short return-on-investment timelines will still take priority, he added.

The new legislation also ensures permanent research and development expensing. Companies can deduct the costs of domestic research and development from taxable income in the year those costs are incurred, which will hopefully increase cash flow for companies, Miller said.

There are new challenges, too. Changes to university endowment taxes mean the institutions with large endowments will face higher tax rates on their investments. The act also outlines plans to decrease investment in clean energy and transportation innovations. 

“The Big Bill offers long-term benefits,” Lubert said. “But those advantages only matter if strong companies are emerging and exits are possible.” 

There’s still hope for a rebound 

Despite these low numbers, Philly’s challenges are not unique and its diverse economy positions it for recovery, according to Miller. 

Philadelphia is home to a variety of strong industries, meaning it won’t rely on just one sector to recover from these challenges, he said. 

Plus, Philadelphia is a top ecosystem for early-stage companies, which don’t rely on venture capital to grow, and challenging times often lead to more new startups, according to Miller. 

For later-stage founders, hope is not lost, though. Generally, the region is still raising more than it was ten years ago. The best founders are still working towards raising money and the best companies with the best teams will succeed, he said. 

For example, Sojo Industries raised $40 million and Fore Biotherapeutics raised $38 million last quarter, both of which were among the region’s top 5 deals. 

“I’m a big believer in ‘raising customers,’” Miller said. “So focusing on your business, your product, your go-to-market, and most importantly, your attraction of customers, is mission critical in these types of environments.”