Greater Baltimore bucks trend of national venture capital decline in 2022

The Baltimore region, bolstered by two mega deals, appears to have bucked the declining venture capital trend this past year.

The quarterly Pitchbook/NVCA Venture Monitor report showed a huge slowdown in venture capital across the nation, with funding declining by 30.8% compared to 2021. At first glance, Greater Baltimore appears to follow this trend, going from $824.83 million in investment in 2021 to $577.45 million in 2022.

However, the Pitchbook data does not include the biggest venture capital raise in Baltimore last year, Delfi Diagnostic’s $225 million funding round, instead listing the company as being headquartered in California. An analysis by tech ecosystem builder UpSurge Baltimore that includes Delfi's round, as well as some other notable deals Pitchbook missed, found Baltimore startups saw an increase in funding of 11%.

Despite the downward trend nationally, 2022 still featured the highest amount of investment in VC deals outside of the record-breaking 2021. But VC investment declined in every quarter of 2022 and Pitchbook worries that the downward spiral could continue in 2023. Low-interest rates made more traditional forms of investment less profitable and as interest rates rise, Pitchbook believes investment fund managers will diversify their assets outside of VC.

“With expectations for a deteriorating macro environment in the U.S. in 2023, venture markets are likely to remain challenged in the near term,” the report states. “Founders will need to continue to dial back cash burn where possible to extend runway. This is especially true in Series B or later, where the gap between valuations at the last raise and current market realities is the largest.”

In Baltimore, the area saw an increase in investment in Q4, according to Pitchbook, raising $132.36 million in VC investment compared to $71.84 million in Q3. However, Pitchbook's numbers did not include the Delfi Diagnostics mega deal in Q3.

UpSurge CEO Jamie McDonald believes there are reasons to be optimistic about the future of the Baltimore tech scene despite the challenges 2023 may bring. Startups are beginning to diversify outside of the health care technology industry that has traditionally dominated the region, creating a more resilient economy, she said. Baltimore fintech Facet Wealth kicked off the year with a $100 million megadeal in January. Another notable nonmedical startup that has garnered interest from venture capital is AeroVanti, which raised $9.75 million earlier this year.

Late-stage companies were hit especially hard by the economic downturn, raising the lowest amount of Q4 VC dollars in four years. Baltimore’s wealth of early-stage companies could help insulate the region if the market continues to decline. The Pitchbook report shows a historic annual high in seed funding, despite the decline in other sectors of the investment market.

"If a company's gotten a big Series A round when they go to raise their B round, the investors are looking to see very concrete progress," McDonald said. "If they don't have it in a market like in 2022, they're gonna have a much harder time raising money and that gets even harder as you go up the series stages. For earlier-stage companies, investors are still betting on really innovative ideas and great founders. They are in a sort of pre-proof stage."

The top Baltimore-area VC deals in 2022, according to Pitchbook (and including Delfi Diagnostics)

Top VC deals for Q4 in the Baltimore region, according to Pitchbook:

The top VC deals in Q4 for Maryland, according to Pitchbook: