As we slid into the second quarter of 2020, venture capitalists were no less nervous about the incoming COVID-19 pandemic than any other group.
Venture capital took a hit in 2020, but after a few unsteady months, deals began flowing. The market then led the Philly region into the best year its ever had in 2021, with $8 billion invested in Philly-area companies.
It also happened to be the most active period in Osage Venture Partners‘ 17-year history, Principal Emily Foote told us. The Bala Cynwyd-based firm previously invested in early-stage, industry-agnostic B2B software companies, but in the last two years, its leaders have adjusted that focus. The firm has made several investments in the healthcare, education and future of work industries — a product of the pandemic accelerating change in how we learn, work and deliver care, Foote said.
More and bigger deals
The firm, which is on its fifth fund, saw more deals in the last two years than in the past: In a usual year, it might see five to seven companies close deals, but it invested in a whopping 17 early-stage companies with an average revenue run rate of $1.1 million since May 2020, Foote said. The median year-over-year growth rate was reportedly 450%, while 61% of the founders it invested in have had successful exits in the past, and 65% of the companies have founders from underrepresented backgrounds.
The firm is nearing the end of this current fund and will likely invest in about five more companies before it’s done, per the investor. Its history in the region has brought in some impressive deal flow year over year.
“It has been getting quite strong, in particular from our network. We get deals from lawyers, investors and other entrepreneurs we work with,” Foote said. “That just takes time to build that brand, after being trusted partners to the brands. We’re seeing better and better deals, and more of them.”
Competition among VC firms
But Osage also saw more competition in the last two years, she noted. The firm has led a majority of its deals in the past, but more often than before, Osage is getting involved by following other lead investors. In general, deals are getting bigger and bigger (a trend we saw in many quarters last year). Typically, Osage is writing a check between $2 million to $5 million to lead a seed or Series A round. But there are firms writing larger check sizes and valuations hitting higher than in years before.
“The pandemic has made competition stiffer in part because anyone can see anyone virtually,” Foote said. “West Coast firms — which historically have large checks to write — in the past have not come to regions like Philadelphia. But you see Philly companies like Crossbeam and dbt [Labs] seeing investments and more competition from these larger, out of town firms.” (Crossbeam’s fall 2021 Series C and dbt’s recent Series D both got backing from the famed Andreessen Horowitz.)
The value of a founder turned investor
Not only are check sizes increasing, but so are valuations. It’s bringing the stakes a bit higher, and entrepreneurs more inclined to seek out VCs who can offer more than just money. Foote, a former entrepreneur herself, with education tech company Practice, said she’s been able to connect with others in the space who come to the firm for potential investments. That former experience, and the experience of others in the firm have become a selling point in making deals, she said.
“Entrepreneurs like working with operators,” Foote said. “They can understand what they’re going through.”
In a few months, Osage will begin fundraising for its sixth fund. If trends continue globally and locally, for Philadelphia companies, it’ll be another busy handful of years.
“Were making more investments because we’re simply seeing better deals,” Foote said.
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