Philly companies raised half a billion dollars in Q4 2023. That’s comparatively low — but a sign of the times

Companies in the Philadelphia region brought in nearly $500 million across 85 deals in Q4 2023, according to the latest Venture Monitor report, released quarterly by PitchBook and the National Venture Capital Association (NVCA).

After impressive raise totals for 2021 and 2022, the region didn’t seem to keep up in 2023. The first quarter of 2023 saw about $566 million raised over 124 deals, while the second quarter saw $501 million across 98 deals. The third quarter saw a boost, with $867 million across 95 deals.

Nationally, fundraising and exit activity were down in 2023, compared to an exceptional previous two years. Although currently VC experts don’t consider the market to be in crisis, NVCA President and CEO Bobby Franklin said much of the world is, and the market reflects that at the moment.

“While the continued drop in activity does not lend itself to optimism, it would be a mistake to declare the market in crisis,” Franklin said in the report’s intro. “Rather, the market has changed. From interest rates to foreign conflict, the world looks very different than it did two years ago, and a new set of problems needs to be solved for.”

Philadelphia’s biggest venture capital deals of Q4 2023

The top deals this quarter in the region went to companies in the healthtech industry. PitchBook’s report listed the top five deals for the region — however, the third and fifth companies listed (accounting for $70 million of the quarter’s total) don’t appear to be Philly companies. Note that, as we often see in these quarterly reports, the data may be incomplete, contain some inaccuracies — including companies based elsewhere and merely incorporated in Wilmington — or reflect interim raises. Deal amounts are pulled from public filings.

Here are the first, second and fourth biggest deals of the quarter, as reported by the Venture Monitor:

• Wilmington-based precision oncology company Synnovation Therapeutics raised $69.9 million.
• Washington Square-based biotech company Aro Biotherapeutics raised $41.5 million.
• Washington Square-based biotech company Vivodyne raised $38 million.

What this quarter’s numbers mean for Philadelphia

Local VC pros agree that 2023 reflects the slow decline that venture capital has been seeing since the second half of 2022.

“Throughout 2023 we have continued to see a market defined by investor caution, a painfully slow IPO market, steep valuation resets, and LPs skeptical of VC as an asset class,” Emily Foote, a partner at Osage Venture Partners, told Technical.ly. “I don’t think this is normal ebbs and flows in the market, but rather a significant market reset that we will likely continue to experience in 2024.”

Despite this, Foote said the Philadelphia region appears to be resilient, with a strong business community, hard-working entrepreneurs, and proximity to New York and DC.

Howard Lubert, regional president at Keiretsu Forum Mid-Atlantic, told Technical.ly the global trend of lower deal counts and deal values has lasted five quarters and doesn’t appear to be changing soon.

Compared to last quarter’s data, it’s concerning that Greater Philadelphia only saw 10 fewer deals and over $300 million less raised, Lubert said: Fewer companies receiving investments means the ecosystem is weaker overall.

However, entrepreneurs are working harder to pitch themselves and build sustainable relationships with investors, he said. Because of this, investors can more easily identify good deal opportunities.

PACT President Dean Miller sees the 2023 venture capital market in the Philadelphia region as a relative success. The Philadelphia region ranked #5 for deal count in the country, according to PitchBook’s report.

Many companies continued to raise capital, and Miller still saw a lot of interest in the region from companies and investors based elsewhere. For example, 20 states were represented at PACT’s annual Capital Conference in the fall.

Predictions for 2024

Going into the new year, Lubert predicts that the downturn will start to turn around in the middle of 2024.

“If the economy starts to uptick, more people will come back out of the closet and start writing checks again,” Lubert said. “And the overall sentiment from angel investors and early-stage investors, given a choice, is to always invest in their own backyard.”

However, Miller thinks 2024 will be a continuation of what happened in 2023 — partly because we’re in an election year, which creates uncertainty, and partly because of continued slowdown from capital markets.

“I would expect to see from IPO activity, probably some increase, but maybe not to the full level that people would hope for,” he said.

Foote expects 2024 to look similar to 2023 with valuations remaining steady, with the exception of “AI companies that will command a premium to market rates.”