Private equity deals, venture capital raises and angel investing are reaching new heights this year, and experts believe increased spending on startups will continue into 2022.
Bolstered by investor confidence and promising growth, Philadelphia-area startups raised a record amount of funding from venture capital firms in the first half of 2021, with 182 deals netting $3.1 billion. Across the Mid-Atlantic region, private equity deals reached $72.2 billion for the first two quarters of 2021, compared with $115.9 billion for the entirety of 2020, according to a report from PitchBook. Angel investing grew during the pandemic, as well, per the Center for Venture Research at the University of New Hampshire.
Philadelphia-area investment experts say there are no signs of a slowdown when it comes to startups snagging big bucks to fuel their growth.
“You’d need a lot of fear, uncertainty, doubt and a tremendous amount of cold water thrown on things to slow things down,” said Steve Barsh, Center City-based managing partner of venture capital firm Dreamit Ventures.
Barsh sees the stock market's performance having a "trickle down effect" on investing — the S&P 500 Index is up 20% since the beginning of the year, and many investors have more money to put to work in ventures like startups. Barring a number of "unicorn" companies collapsing in a short period, or a massive market correction, Barsh expects investing to forge on.
Ira Lubert, head of LLR Partners, Philadelphia's largest private equity firm, believes the investment bump stems from a surge in entrepreneurship. Entrepreneurs are increasingly spinning their ideas into businesses, he said, and more and more companies are getting funded. Data from the U.S. Census Bureau shows the number of new business applications skyrocketed to record levels in 2020 amid the economic disruption of the Covid-19 pandemic, and that momentum has continued into this year.
The excitement around starting a business is “contagious” in Philadelphia and around the country, Lubert said, and he doesn’t see it going away anytime soon. He also sees more investors coming to the table to support new ventures — whether that’s firms like LLR or through tech-based methods like crowdfunding.
“There's just so many more people today putting their toe in the waters of investing capital in startup businesses than ever before,” Lubert said.
A solid portion of Philadelphia’s venture capital success stories are from firms netting massive deals, which contributes to the record-breaking venture capital totals. Delivery startup Gopuff has landed more than $2 billion in funding since March, and other companies like Wilmington-based NiKang Therapeutics and Philadelphia-based Dbt Labs secured nine-figure deals this year.
Funding rounds are increasingly expensive for investment firms as startups seek to raise higher amounts and investors look to get in early, Barsh said. While those massive deals drive up startups’ valuations, they also cut down on founders’ opportunities to exit through an acquisition, he said.
But the success of local companies like Gopuff and a growing number of life sciences startups has drawn investors’ eyes to the Philadelphia region, said Ellen Weber, the executive director of angel investment group Robin Hood Ventures. As those firms grow, more founders exit and become angel investors to help startups themselves, she said.
“It just wakes people up,” Weber said. “'Hey, we're here in Philly, and you should look at us.'”
Collaboration between angel investors has picked up recently, which lets startups net more funding and reach those early multimillion-dollar rounds. Individual angels in Philadelphia can't write checks as large as investors in New York or San Francisco, she said.
Weber is also bullish on investment in Philadelphia. Venture capital firms have largely driven the investment growth in the region, and angel investor groups in the Philly area are working to connect better with VC firms to help portfolio companies get to their next round, Weber said. Nearly all of the portfolio companies Robin Hood invests in get that follow-on money from venture capital firms, she said, which is a big change from several years ago.
“A couple of years ago there wasn't enough VC money. There was a space like no man's land that if you couldn't get across it, the company would die. And that's not happening these days," Weber said. "Most of our companies are getting that follow-on funding from venture capital.”
