Maryland’s venture capital funding was on the rise in Q1 2020. Then the pandemic arrived

Maryland tech companies started the year bringing in a surge of venture capital funding, and three of the state’s top 10 deals were in Baltimore, according to data from the latest PwC/CB Insights MoneyTree report. But a downturn in the last two weeks as the COVID-19 pandemic-caused slowdown took hold is leaving reason to keep celebrations on lockdown for now.

The $227 million that 21 companies raised from investors was a 44% uptick from the $115 million in the fourth quarter of 2019.

“In addition to funding that doubled from Q4, the state garnered over half of the regional total,” said Brad Phillips, a director in PwC’s emerging company services practice — and it was above the recent quarterly average of $175 million.

A series of 10-figure deals that came on three consecutive days in February for cybersecurity companies were among the companies that drove the numbers:

• ZeroFOX, the social media and digital cybersecurity company which is based in Baltimore’s Federal Hill, paced the state’s total with a $74 million funding round that closed in February.
• Ellicott City-based Huntress Labs, which brings NSA-style tools to small businesses, raised $18 million in Series A funding.
• Fulton-based data security company Enveil raised $10 million in Series A funding.

Then, in mid-March, Baltimore-based digital health company b.well raised $16 million in Series A funding.

Reviewing numbers as a quarter provides a near-term look at how quickly things changed. Nationwide, many of the dynamics remained the same: California, New York and Massachusetts pulled in 80% of the funding, and seed stage deals continued to fall, while the number of new unicorns (billion-dollar companies) grew.

But by the end of March, the national picture had the fewest number of new deals since 2013. In the final three weeks of the quarter, the pandemic led to social distancing orders to stop the spread. Since then the economic pullback has left millions unemployed across the country. Alongside this came a downturn in investment activity, when there has been typically been increased activity as folks look to get the quarter closed.

VCs have been preparing for long-term effects, with forecasts of deals taking longer to close, and investors urging portfolio companies to lengthen runway.

As we’ve already seen, it won’t necessarily mean deals won’t get done; Baltimore’s Cerebro Capital was able to close a $4.8 million round despite the wider picture. But no matter how strong an opening to a year, it’s clear that the prospects for the future have changed across the board.

“It’s a historic, unprecedented economic slowdown, so the truth is we do expect there will be some effect on venture funding in Q2,” Phillips said.