Continued investment from the Bay Area and New York helped put Philadelphia among the five most active regions for VC deals in 2022, trailing only the nation's deep-rooted tech hubs.
After a 2021 that was largely looked at as an outlier with big money deals — and a lot of them — following strong capital markets, 2022 was a recalibration of sorts for the startup community. Philadelphia was no different. Total funding dropping 31% year-over-year and deal count dropped 10% from 2021, according to a new report from Philadelphia Alliance for Capital and Technologies (PACT) in collaboration with Pitchbook. However, the Philadelphia region showed a "resilience" in the face of uncertain macroeconomic conditions, said PACT CEO Dean Miller.
"Hitting fifth is a big deal," Miller said. "It doesn’t mean we’ve arrived and we're here to stay because every year you reassess and determine where you are, but hitting fifth is a big monument and we recognize it as a good mark of Philadelphia’s continued evolution for innovation and entrepreneurship."
Venture funding going to Philadelphia-area startups totaled $5.2 billion across 492 deals last year. The total number of deals beat out the likes of Austin and Seattle, and trailed only San Francisco/Silicon Valley, New York, Los Angeles and Boston. Venture capital firms based in those massive startup ecosystems also continued to take notice and invest in Philadelphia.
In 2022, 140 deals were made involving Bay Area investors, down from 181 the year prior but up 47% from 95 in 2020. New York investors followed the same trend. They participated in 90 deals with local startups last year, down from 119 in 2021 but up 55% from 58 in 2020.
"It means that Philadelphia is on the radar of those places to invest, and that is an important element," Miller said. "With the exception of Silicon Valley, New York and Boston, most communities are net importers of capital. Philadelphia is no stranger to that. When you talk about the portability of capital, which it is, Philadelphia is a point of attraction. Those investors call us, call me, and they're increasingly focused on the next top companies they should be paying attention to in the Philadelphia area."
Miller also pointed to a balance across sectors for investment as a promising sign. Though the life sciences industry has garnered a reputation as an investment magnet in the Philadelphia area, software companies actually struck the most deals in the region last year. Fintech has also seen a rather steep increase in investment since 2020, with deal count in the industry jumping from 37 to 67 from 2020 to 2022, and total investment spiking from $100 million to $500 million in that period.
"That balance certainly matters," Miller said.
Another recently released venture capital report from Telstra Ventures also points to Philadelphia's emergence in the national innovation economy. According to the report, Philadelphia was one of four cities in the U.S. to see funding increase year over year in the second half of 2022. The 14% increase was the largest, followed by Dallas/Ft. Worth, Salt Lake City and Raleigh-Durham.
