Funding for Philadelphia startups jumped nearly 53% in the third quarter compared to the prior three months, according to Pitchbook's latest Venture Monitor report.
The increase in local investment dollars came despite total deal value across the nation declining to its lowest point since 2019 as startups continue to face headwinds in a difficult fundraising environment.
The $750 million that Philadelphia startups raised in the third quarter could be a first step out of the down market. It's the region's highest fundraising total in the past three quarters but is still about 11% below the $840 million raised during the same period of 2022. Nationally, deals totaled $36.7 billion in the third quarter, the lowest number in almost four years.
"Just that one data point of the increase in dollar value of our deals compared to the rest of the country is a data point of hope," said Dean Miller, CEO of Philadelphia Alliance for Capital and Technologies. "That may suggest that maybe the first few quarters of 2023 were the low point."
Among Northeast metros, Philadelphia's fundraising total trailed only Boston and New York, which both saw their vast startup communities raise over $3.4 billion in 3Q.
The report also highlighted Philadelphia as one of the world's top venture capital ecosystems for sustained growth over the past six years. Pitchbook identified 20 ecosystems that have seen the most relative growth in recent years, assigning scores based on one-, three- and five-year growth rates for VC deals, exits and fundraising activity. Dubai, Detroit and Berlin topped the list, but Philadelphia ranked 17th and was the only U.S. city in the Northeast or Mid-Atlantic. Of the 20 cities on the list, Philadelphia had the most deals and the second-highest deal value to Berlin over the last six years.
"It showed that Philadelphia has really seen growth in the number of companies raising capital and the value of that capital in that time period," Miller said.
Though the amount of fundraising done in Philadelphia was a bright spot, the 75 deals closed in the quarter was the lowest total since 4Q of 2019. It's part of what Miller, and many in the global startup ecosystem, are calling a "nuclear winter." Venture capital firms are being cautious with where they invest in an uncertain economy and as they struggle to raise their own funds. Fundraising numbers for startups nationally are down to their lowest points in years and are pacing to be at their lowest annual level since 2019.
"It's still a challenging market in which to raise capital," Miller said. "It doesn't matter if you're a venture or private equity fund trying to raise capital or if you're an entrepreneur, it is just a slower market. Dating back to the middle of 2022, you look at sectors, overall, it's not surprising the numbers nationally for deals is down, the number for dollars is down nationally. There's still uncertainty."
The venture market boomed to anomalous numbers in 2021 and early 2022, then cratered in the back half of 2022. It's now clawing back to find a new normal. Miller said he is optimistic that Philadelphia's startup ecosystem is "headed in the right direction." That doesn't mean Philadelphia will suddenly have a banner fourth quarter though, he added.
"I still think we’re going to be challenged in the fourth quarter, we may not achieve the dollars raised in Q3," he said. "But I am hopeful the foundation we’ve seen in the last several quarters continues, and that we see a continued growth as we emerge out of more economic uncertainty."
