2022 VC spending couldn’t compete with 2021. Here’s how Philly companies fared

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

It’s hard to compete with what turned out to be VC’s best year ever, but the Philadelphia region remained relatively strong for VC dollars in 2022. New data released by PitchBook and the National Venture Capital Association in their 2022 PitchBook-NVCA Venture Monitor report on Thursday shows that Philly-area companies raised $5.2 billion across 488 deals last year.

Spending went slightly up for Philly companies in Q4 compared to Q3 —  $683 million across 87 deals at the end of the year, compared to $611 million across 102 deals in the fall. And in Q4, biotech and life sciences companies reigned supreme at bringing in investments.

The region’s tally includes Wilmington, though — so about half of companies listed in the top raises aren’t actually based in Philly, and of those that claim Delaware, several are only incorporated in the tax-friendly state, not physically based there.

Notable, local Q4 raises include ArriVent Biopharma’s $110 million raise, and University of Pennsylvania gene-editing spinout iECURE’s $65 million Series A-1. Grays Ferry-based Exyn Technologies, which specializes in drones, reportedly raised $35 million, according to Pitchbook data. (The company did not immediately reply to a request for comment.) In December, biopharmaceutical company Peroxitech raised $25 million and Aro Bio raised $24 million toward its Series B.

Brett Topche, cofounder of Red & Blue Ventures, which specializes in early stage investing, said he’s not surprised to see the money flowing into life sciences.

“Philly has some great ones and life sciences companies tend to be somewhat more capital intensive than tech companies,” he said.

PitchBook researchers noted a national decline in spending, too, and named factors such as continued impacts of the COVID-19 pandemic, interest rates and global conflicts. Though the $5.2 billion spent in 2022 in Philadelphia is a decline from 2021’s $8 billion in investments, the data aligns more closely with the trajectory seen in 2020.

A look at National VC spending since 2013. (Image via 2022 PitchBook-NVCA Venture Monitor report)

“In raw numbers, 2022 was a great year for the VC industry, with most indicators of market activity at or near record highs,” the report’s introductory summary said. “When graded against any year other than the stratospheric 2021, industry activity was extremely strong. However, it is important to look at the quarterly trend, where activity dropped off steeply between the first and last quarters of 2022.”

Like national numbers, Philly’s spending was strong in Q1 and Q2, with nearly $1.3 billion and $2.7 billion invested, respectively. But the second half of the year didn’t keep up. Neither quarter in the second half broke $700 million, and deal count hadn’t dropped below 100 since Q4 of 2020. Nationally, angel and seed rounds dropped as the year went on, as did later-stage VC. Though there was about the same number of later-stage deals in 2021 and 2022, not nearly as much money was being spent in 2022.

Marc Kramer, entrepreneur and executive director of the local Angel Venture Fair, has experienced down cycles in the early 1990s, 2000, 2008 and now. It can be more challenging for sure, he said, as investors can “get more of a good thing” during these times, but founders shouldn’t panic.

“If you have a great concept that has gained traction, there will always be money,” he said.

Of course a recession, if it happens, would hurt in the short term. But historically, recessions are also great times to put capital to work.

He has seen the market impact some of his deals, though — a metaverse venture he’s involved in had “significant interest” until the stock market turned and strategic corporate investors who were interested saw their stock slide by a third to a half.

“So they lost their appetite,” Kramer said. “Many of the strategic corporate VCs have pulled back as their net come and available capital has been reduced, plus they want Wall Street to see they are strictly focused on their core business.”

One place Philadelphia remained strong was representing high amounts of VC dollars outside of the country’s largest tech ecosystems. Pitchbook found 72.6% of funding went to companies in the Bay Area and New York last year, but Philadelphia raised on par with 2021 figures along with other “middle market” cities of Denver and Nashville.

Topche said he suspects that the first half of this year will follow suit with the second half of last year, but is optimistic that the field will open up as inflation “hopefully settles down.”

“Of course a recession, if it happens, would hurt in the short term,” Topche said. “But historically, recessions are also great times to put capital to work. For example, Uber, AirBnB and Square were all founded in the 2007-2009 recession.”

Kramer agreed, saying the first half of the year will likely be slow as companies have reduced their budgets and headcount, which means sales will be slower.

“I am confident that with interest rates still being relatively low that betting on startups/early stage companies will continue to grow, but at more reasonable valuations,’ he said.

This editorial article is a part of Navigating a (Possible) Recession Month 2023 in Technical.ly’s editorial calendar.