Venture capital spending in 2022 couldn’t match 2021. Here’s how Philly companies fared

Editor’s note: These figures may vary slightly, as some transactions are only taken into account several weeks after the publication of the quarterly venture capital reports.

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Throughout the past year, a difficult reality of venture capital has become clearer: the fluid investments of 2021 did not carry over into 2022.

It’s hard to compete with what turned out to be VC’s best yearbut the Philadelphia area remained relatively strong for venture capital 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 companies in the Philadelphia area raised $5.2 billion in 488 deals last year.

Spending rose slightly for Philadelphia businesses in the fourth quarter compared to the third quarter — $683 million on 87 deals at year-end, compared with $611 million on 102 deals in the fall. And in the fourth quarter, biotechnology and life science companies reigned supreme over investment.

The region’s tally includes Wilmington, however – so about half of the companies listed in the top rises aren’t actually based in Philadelphia, and of those claiming Delaware, several are only incorporated in the tax-friendly statenot physically based there.

Notable increases in the fourth quarter include ArriVent Biopharma’s $110 million raisedand gene-editing spin-out from the University of Pennsylvania iECURE’s $65M Series A-1. Based in Grays Ferry Exyn Technologies, which specializes in drones, has reportedly raised $35 million, according to data from Pitchbook. (The company did not immediately respond to a request for comment.) In December, the biopharmaceutical company Peroxitech raised $25 million and Aro Bio has raised $24 million for its Series B.

Brett Topcheco-founder of Red & Blue Ventures, which specializes in early-stage investing, said he was not surprised to see the money flowing into the life sciences.

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

PitchBook researchers also noted a national drop in spending and named factors such as the continued impacts of the COVID-19 pandemic, interest rates and global conflict. Although the $5.2 billion spent in 2022 in Philadelphia is down from 2021 $8 billion investments, the data is more in line with the trajectory observed in 2020.

“In raw numbers, 2022 has been an excellent year for the venture capital industry, with most indicators of market activity at or near record highs,” the report’s introductory summary reads. “When ranked relative to any year other than stratospheric 2021, industry activity has been extremely strong. However, it is important to look at the quarterly trend, where activity fell sharply between the first and last quarter of 2022.”

Like the national numbers, Philadelphia’s spending was strong in the first and second quarters, with nearly $1.3 billion and $2.7 billion invested, respectively. But the second half of the year did not follow. Neither quarter in the second half topped $700 million, and the number of deals hadn’t fallen below 100 since the fourth quarter of 2020. Nationally, angel rounds and seed dropped throughout the year, as did the later stage VC. Although there were roughly the same number of later-stage deals in 2021 and 2022, not as much money was spent in 2022.

Marc Kramer, entrepreneur and executive director of the local Angel Venture Fair, has experienced down cycles in the early 1990s, 2000s, 2008 and now. It can certainly be more difficult, he said, because 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 happened, would hurt in the short term. But historically, recessions are also good times to put capital to work.”

He saw market impact on some of his trades, however – a metaverse company he is involved in had a “significant stake” until the stock market turned and interested strategic investors saw their shares plummet. a third to a half.

“So they lost their appetite,” Kramer said. “A lot of strategic venture capital firms have pulled back as their net income and available capital have been reduced, and they want Wall Street to see that they are strictly focused on their core business.”

One place where Philadelphia remained strong was high amounts of venture capital dollars outside of the nation’s largest tech ecosystems. Pitchbook found that 72.6% of funding went to companies in the Bay Area and New York last year, but Philadelphia grew to match 2021 numbers with other cities in the ‘market’. Intermediate” from Denver and Nashville.

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

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

Kramer agreed, saying the first half of the year is likely to be slow as companies cut budgets and staff, which means sales will be slower.

“I’m confident that with interest rates still relatively low, startup/early stage betting will continue to grow, but at more reasonable valuations,” he said.

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