Did recession fears make Baltimore VCs clutch their wallets in Q2? Venture Monitor says no … sort of

Editor’s note: These figures may vary slightly, as some deals aren’t accounted for until weeks after quarterly VC reports are published.

As winter melted into spring and the nation’s memories of last year’s abnormally strong market morphed into fears of this year’s anticipated sharp correction, the VC economy of Maryland’s biggest city and its surrounding metro grew both more generous and choosier with its generosity.

This picture comes from the figures in PitchBook and the National Venture Capital Association’s (NVCA) new Q2 2022 PitchBook-NVCA Venture Monitor, which hit the public stage on Thursday. Taken together, the Venture Monitor showcases a national VC market left at least somewhat shaken by recession fears. For Baltimore and its metropolitan statistical area, though, that fear has not yet turned market interest into VC conservatism.

The national VC outlook

The latest report’s impression of 2022’s generally robust first six months contrasts with the drops in deal value across all stages. For instance, investors participated in fewer mega-rounds, or rounds worth over $100 million, while fewer companies chose to go public via IPOs or SPAC mergers. Early-stage investments felt these changes less harshly, given their distance from the comparatively chaotic public market.

About $16 billion was invested into nearly 1,340 deals during Q2. This deal value falls below the 2021 quarterly records while surpassing pre-pandemic levels; the Venture Monitor said this development indicated that 2021’s “exponential growth” is “returning to a more modest annual trend such as we experienced in 2020.” The report also highlighted nearly $290 billion in available dry powder, or cash and liquid assets to be distributed as necessary, which it said “smooths the steepness of deal activity decline.”

The Venture Monitor’s executive summary explains that this investing environment is leading VCs to prioritize their extant portfolio companies’ profitability over finding new investees.

“At the same time, more frequent news of layoffs at VC-backed companies is surfacing, and hiring is generally tightening,” the report reads. “Many VC-backed companies are working to solidify balance sheets and focus on optimizing for cash to better position themselves in the downturn.”

What this means in Baltimore

While Baltimore’s own Conscious Venture Partners has already raised $15.8 million toward its planned $50 million fund — a major jump from its first $1.9 million fund — founder and managing partner Jeff Cherry admitted that he’s also felt the “trickle-down effect” of this drop from last year’s deal-making highs.

Jeff Cherry. (Courtesy photo)

“We invest other people’s money,” Cherry told Technical.ly. “The LPs, the foundations, the pension funds, the high-net-worth individuals, the family offices — they’re taking risk off. Their allocations to venture capital, which are smaller than other asset classes to begin with because it’s perceived as high-risk — and for good reason — those allocations are getting smaller, so it’s harder to raise money.”

This seems to bear out in the Venture Monitor’s own analyses of Baltimore, where Q2 saw $202.51 million of capital invested into 23 deals. By contrast, $154.73 million was ultimately invested into 27 deals during the prior quarter, while $183.93 million was invested into 32 companies during last year’s Q2.

Several of the deals that the Venture Monitor listed as the Baltimore-Towson metropolitan statistical area’s top deals involved companies in places where the line between Baltimore-area and DC metro is blurred. Regardless, the top 10 includes the following:

• An $82 million Series B for Fulton, Howard County-affiliated ecommerce company SamCart
• Fellow Fulton resident and privacy-enhancing company Enveil’s $25 million Series B
• A seed round for Baltimore neuroscience company CraniUS, described in LinkedIn posts as creating technology to “revolutionize the outcomes of patients with chronic brain diseases challenged by the blood-brain barrier.” The Venture Monitor clocks this round in at $19 million, while a late-May SEC filing puts it at $19.42 million and the company’s LinkedIn reports $19.5 million.
• Surgical robots developer and 1100 Wicomico denizen Galen Robotics’ $10 million Series A
• Annapolis-based infrastructure protection developer Xona Systems’ $7.2 million Series A, which the Venture Monitor listed at $7 million
• Network-mapping company and 2022 RealLIST Startups honoree EcoMap Technologies, whose previously announced $3.5 million seed round PitchBook listed at $4 million
• 2021 RealLIST Startups honoree Live Chair Health’s $3.5 million seed round, which the report listed at $3 million.

Looking toward 2022’s second half, Cherry said that he anticipates a similar focus on current portfolio companies’ profitability that mirrors what the Venture Monitor stated. He noted that the aforementioned Conscious Venture Fund II, which Under Armour founder Kevin Plank’s Sagamore Ventures led with a $2.5 million investment, was launched a while ago; even that fund took longer to raise than it should have, he said.

Citing conversations with other Baltimore VCs, Cherry said, “We’ve been telling our portfolio companies essentially the same thing: You got to get the cash flow positive, and if you’re raising money — if you’ve got an opportunity to raise money — you’ve got to raise enough to last for 18 to 24 months, because [in] risk off, the windows close.”

That said, he did note that some of the most profitable companies are created during economic nadirs. He added that even if Conscious Venture Partners has pulled back on some outside investments, applications for the Conscious Venture Lab accelerator have not yet slowed down.

“There are still people out there with great ideas, looking for capital,” he said. “So we have to balance all that.”