Startups in cities like Philadelphia are beginning to draw a larger share of dollars from venture capital epicenters like the Bay Area, New York and Boston, a new report shows.
In a record year for venture capital, a growing proportion of VC money is going to “rising cities” rather than the traditional startup hubs, according to “Beyond Silicon Valley,” a recent report from Revolution’s Rise of the Rest Seed Fund and PitchBook.
More than $13 billion of Bay Area venture capital has been invested outside of the Bay Area, New York and Boston this year. Ten years ago, less than $3 billion went to startups outside the region. Those funds are going to companies in cities like Philadelphia, Los Angeles, Seattle, Austin, Washington, D.C. and Denver.
In the last decade, Philadelphia startups raised a total of $2.9 billion from Bay Area VC firms and $3.1 billion from New York VC firms, per the report.
The change in investment does not represent a seismic shift from coastal epicenters — the Bay Area, New York and Boston still represent the vast majority of venture capital going to startups — but it does illustrate a change in sentiment from investors about which cities have startups worth investing in.
While direct-to-consumer darlings like Warby Parker and Burrow were founded in Philadelphia and later relocated to New York, other local startups in recent years have taken root in the region and grown into unicorns. Food and alcohol delivery startup Gopuff was founded by Rafael Ilishayev and Yakir Gola while they attended Drexel University, and it is now valued at $15 billion.
“We have a reputation for being the city where startups get off the ground before moving to Silicon Valley or New York to grow and exit,” William Crowder, founder and managing partner of Aperture Venture Capital, said in the report. “That narrative is changing.”
Crowder was quoted in the report highlighting the resources in Greater Philadelphia, from higher education institutions like Drexel and the University of Pennsylvania, to the number of startup accelerators. Enterprise startups could also benefit from the proximity to Fortune 500 companies like AmerisourceBergen Corp., Comcast Corp. and Lincoln Financial Group, he said.
The “work from anywhere” movement could also bring new talent to Philadelphia, leading to even more ventures being created, Crowder said.
The number of active VC firms outside of the Bay Area, New York and Boston has increased from about 1,000 in 2011 to more than 3,000 today. That expansion creates the possibility of more options for growing companies to build a network of local investors rather than looking elsewhere for capital.
Aperture Venture Capital launched this year and raised a $75 million fund in July to support Black, Latino and woman-led startups in fintech and software.
Philadelphia’s startup ecosystem has grown by “leaps and bounds” in the last decade thanks to more seed and early-stage investment from venture capital firms, the report said.
Local early-stage and seed deals – early-stage consists of Series A and B rounds, while seed funding are rounds valued at less than $500,000 – accounted for $230.5 million in 2011 and has since exploded to $1.1 billion in capital invested in the first three quarters of 2021, according to PitchBook. Greater Philadelphia had its best year in 2019, when close to $1.35 billion was invested across 188 deals. The region has also had a strong number of seed and early-stage deals in recent years, with at least 150 deals completed each year since 2018.
