In a challenging fundraising environment, startups across Greater Philadelphia collectively struck more deals in the second quarter than those in innovation hotbeds Seattle, Washington, D.C., and Austin — but raised significantly less money than their counterparts in those metros.
The venture capital market is adapting to what has been a turbulent past 12 months, and Philadelphia is establishing itself as a hub that's among the most active in the country but not necessarily the most well-funded. According to Pitchbook's latest Venture Monitor report, startups in the Philadelphia metro area closed 100 deals in the second quarter totaling just over $523 million, the lowest quarterly total since 1Q 2020.
"Venture continues forward at a faster pace than pre-Covid-19, but within a narrative of gloom," Pitchbook said in the report.
The total number of deals in the market trailed only Silicon Valley (555), San Francisco (433), New York (419), Los Angeles (183), Boston (176) and San Jose (122). However, 12 metro areas outstripped Philadelphia for total funding. San Diego startups, for example, closed only a little more than half as many deals with 58 but had more than double the total capital invested at $1.08 billion. Washington, D.C., and Austin also brought in more than $1 billion with fewer deals than Philadelphia.
That may mean there are more early stage startups pulling in pre-seed, seed and Series A rounds in Philadelphia.
Ellen Weber, the executive director of Philadelphia angel investment group Robinhood Ventures, said what she's seeing in the fundraising world aligns with the numbers. Despite the well-documented venture capital market slowdown, she's seeing an active early stage investment cycle locally. Weber's firm, for example, is investing at a higher rate in 2023 than the last three years, she said.
"The early stage money is still flowing," Weber said, adding that Robinhood's investments this year have been a mix of follow-on and new startups.
According to Weber, significant impact in early stage investment is being driven by Ben Franklin Technology Partners, which continues to churn out startup investments thanks in large part to state funding.
Despite the high volume of deals, Philadelphia has seen a steeper drop in funding than most markets in 2023. When looking at the first half of the year, startups in Greater Philadelphia brought in 75% less than they did in the first six months of 2022 compared to a 46% decline nationally. Fundraising in the second quarter plummeted more than 81% year over year from 2Q of 2022, when Philadelphia startups raised a record $2.77 billion across 157 deals.
"For investors, the dominant themes of the past quarter have revolved around strengthening their existing positions and making high confidence investments in new enterprises," according to Pitchbook's report. "Additionally, startups are cutting costs and pursuing revenue generation wherever possible to increase runway and reduce the need to raise rounds, which are increasingly structured and often flat or down."
Weber, despite a somewhat surprisingly fast-paced first half, said it's still important for startups to conserve cash in order to lengthen their time between raises.
"Make sure as an entrepreneur that you're raising enough to get you through 18 months without VC follow-on [funding], which is more than I would have told someone in past years," she said.
