Investments by Ben Franklin Technology Partners of Southeastern Pennsylvania in fiscal year 2023 reflected a slow capital market, and CEO Scott Nissenbaum said more of the same could be coming.
Ben Franklin receives state funding, so it isn't as pressured by external market conditions as a traditional venture capital firm, but it still saw fewer companies raising money as valuations sank in the past 12 months. The result was Ben Franklin Technology Partners investing $6.4 million in 31 companies in its fiscal year ending June 30, down from the $11 million invested across 48 deals in fiscal 2022.
The uncertain fundraising environment also meant Ben Franklin made more follow-on investments — 77% to be exact — as it placed its bets on more proven startups it already had relationships with.
As valuations tightened, investment activity slowed, Nissenbaum said. Startups that could weather the storm without fundraising at a lower-than-desired valuation would do so. Nissenbaum said that left the tech investor making far fewer than the roughly 45 investments it typically does each year.
"That's a function of there's a lot less companies raising capital and the ones that are raising capital, I don't want to say they're forced to but if they had their druthers they would wait this market out," Nissenbaum said.
The major chunk of follow-on investments was also a function of the market, Nissenbaum said. The organization, like a traditional venture capital firm, looks to protect its existing investments in an uncertain capital environment. Based on the first nearly three months of fiscal 2024, Nissenbaum said Ben Franklin is tracking to be closer to the numbers from 2023 than years prior.
"There's typically a lag where the market tells you what the conditions are and where you need to be, and then you follow suit," Nissenbaum said. "So I would expect us to be a little more conservative in terms of the number of deals this year."
Across Greater Philadelphia, total fundraising was down 81% in the second quarter to $523 million — the region's lowest quarterly total since the first three months of 2020.
In its most recent fiscal year, Ben Franklin split its investments fairly evenly between health care and tech startups located across Greater Philadelphia. Fifteen deals were closed with health care startups totaling $3.4 million. Those included investments in AnaOno, ChromaTan, Strados Labs and Navrogen. Another 16 investments totaling $3.1 million were made in tech companies. Tech startups that received investments included CollX, LuxTech, WealthMore and DreamVu.
Within those sectors, Nissenbaum sees the continued growth of cell and gene therapies as an area of opportunity on the health care side. He said that as the industry at large gets "more and more comfortable with the efficacy" of the treatments, dollars will only continue to flow.
In tech, Nissenbaum pointed to the robotics industry as one that could continue to grow across the state. Pittsburgh has been thought of as a leader in the space, but Philadelphia-area companies like Fort Robotics, Ghost Robotics and Exyn Technologies are making waves locally.
Nissenbaum said that Ben Franklin is encouraged by the support Gov. Josh Shapiro has displayed for the Pennsylvania's innovation economy, and startups should be too. Ben Franklin says that through its investments, $4 are returned to the state economy for every $1 invested by the state.
"The Shapiro administration has really embraced innovation," Nissenbaum said. "We have here and our Ben Franklin counterparts across the state have really leaned into the administration's support. Over the last 10 years or so, the states around us have really over-invested, relative to us, in innovation. I would expect, and we are hopeful, that this administration is about to reverse some of those trends. Both high hopes and high expectations for continuing Pennsylvania's leadership in innovation and technology-based economic development."
