Editor’s note: These figures may vary slightly, as some deals aren’t accounted for until weeks after quarterly VC reports are published.
After months of speculation that the VC market was changing after a wild 2021, it’s confirmed — deals are still historically high in 2022, but have declined from last year.
PitchBook and the National Venture Capital Association dropped their Q2 2022 PitchBook-NVCA Venture Monitor on Thursday, featuring new data showing that after deals peaked in late 2021 and early 2022, nationally, there was a slowdown in the second quarter of the year. Angel and seed stage funding was down, though less dramatically, as were other early-stage venture capital deals and late-stage VC.
Public offerings have also been affected over the last several months as many companies that had been prepping for IPOs are waiting out a recession.
“IPOs continued to be essentially nonexistent for VC-backed companies in 2022,” the report said, “with only 22 closed during the first half of the year, relative to 183 in 2021, and 108 in 2020.”
How did Philly VC fare?
As some areas of the country got hit hard in the second quarter of the year, the Philadelphia region is having a pretty resilient 2022.
So far, the region has seen nearly $3.8 billion invested across 241 deals this year. This past quarter saw a decrease in the number of deals (90 in Q2 compared to 151 in Q1) but venture capitalists invested more money this quarter ($2.443 billion in Q2 compared to $1.334 billion in Q1).
We’ve been hearing for a few years now that the market was likely following a trend of fewer-but-bigger deals, and that trend seems to have continued this quarter.
Philadelphia’s high deal value for this quarter was driven largely by, according to the Venture Monitor report, a $1.5 billion investment back in May for instant needs company Gopuff — which just this week laid off 10% of its workforce. Its inclusion is a surprise, as the internationally facing, Callowhill-based company has not previously commented publicly on this reported raise. A Gopuff spokesperson confirmed to Technical.ly that the company filed this year to raise up to $1.5 billion.
Biotech and life sciences companies follow, including a $125 million raise by Castle Creek Biosciences, $118 million for Mineralys and $56 million for SwanBio Therapeutics. The tech sector saw some representation through a $41 million raise by SaaS company QuotaPath back in April.
(Note that the report names WizeHire, a company that appears to be headquartered in Houston, as one of the best-funded local startups of the quarter. This and other possible discrepancies mean the totals for the quarter may change or be slightly off from the amounts actually raised.)
Are Philly investors nervous?
Scott Nissenbaum, president and CEO of state-backed venture firm Ben Franklin Technology Partners, told Technical.ly the region has been enjoying a strong market for the past few years where VCs focus on selling portfolio companies.
“When markets are weak and prices are down, VCs invest more. Although markets are not yet weak, rising inflation, wars, and uncertainty have created an expectation of a downturn,” he said. “When VCs expect a downturn in the market, this generally creates a ‘flight to quality.’ VCs focus on their existing portfolio companies with the most potential upside.”
Venture capitalists will likely want to invest more capital into their best and biggest companies in the coming months to help them withstand whatever economic downturn is heading our way, Nissenbaum said. They can use the added capital to buy and build cheaper than before for companies’ growth.
He pointed to Philly’s growth in the biotech and life sciences, noting that the industry needs tons of capital and time to go to market on most products, which might provide some “insulation” from market cycles and downturns. They could prove to be safer investments, making Philadelphia’s growth in this region a good thing for attracting steady VC dollars here.
“We are, however, being somewhat cautious with valuations as we don’t think the reset is complete as it relates to venture,” Foote said. “That said, our caution is not impeding our deployment of capital. Currently, we have two companies under term sheet and a number of very exciting deals in the pipeline.”