2023 Philadelphia Venture Report

2023 PHILADELPHIA VENTURE REPORT

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Report Sponsors

Introduction

In many ways, 2023 witnessed a “save!” as the Philadelphia entrepreneurial community showcased its resilience and determination to launch and fund new companies. Although the Phillies, Eagles, Sixers, and Flyers did not secure a World Championship, Philadelphia maintained its position among the top five most active regions nationally for venture deals. The city further solidified its leadership in life sciences, particularly in cell & gene therapy, securing six of the top 10 deals of the year in this space.

Philadelphia also demonstrated significant strength in enterprise technology, surprising many despite the absence of recognizable brand names. The region closed nearly 100 enterprise tech deals in 2023, constituting almost 25% of the total deal volume. The city’s resilience was evident in the closure of over 150 early-stage deals across all industry sectors, just below the 2021 high-water mark and surpassing peers who experienced a more dramatic decline in early stage deals in 2023.

Ben Franklin Technology Partners continued to lead the charge with 31 closed deals in 2023, emerging as the most active investor in the region, followed by BioAdvance with five closed deals. The University of Pennsylvania celebrated a Nobel Prize for the groundbreaking work of two esteemed researchers, further enhancing Philadelphia’s global reputation for innovation. The world’s attention is now focused on Philadelphia for the next wave of groundbreaking advancements, and with a deep bench, we are poised to deliver.

As we reflect on these achievements, let’s express our gratitude to our 2023 report sponsors. PACT eagerly anticipates working collaboratively with them and all stakeholders to continue elevating Philadelphia as a hub of innovation.

Dean Miller, President & CEO

Data pull date: December 31, 2023

Note: This report covers the Philadelphia-Camden-Wilmington Metropolitan Statistical Area (Philadelphia), which includes parts of Pennsylvania, New Jersey, Delaware, and Maryland. All data and charts cited throughout the report are based on companies and/or investors headquartered in this region. References to data for the US and other MSAs sources from the Q4 2023 PitchBook-NVCA Venture Monitor.

PACT is the go-to resource for fast-growing companies and a driver of entrepreneurship and innovation in the Philadelphia region. PACT provides its members with valuable content and connections to capital, coaching, and customers that will accelerate their growth and success, and collaborate with other organizations to drive innovation and entrepreneurship in the region.

The Chamber, through its CEO Council for Growth and Select Greater Philadelphia programs, is strengthening the region’s innovation economy by promoting Greater Philadelphia’s assets and strengths in the cell therapy, gene therapy, and gene editing sectors. By telling the story of our 11-county region, helping companies expand locally, connecting businesses to valuable resources, assessing, and solving for the talent needs of the sector and supporting the development of critical infrastructure for the sector’s growth, the Chamber is ensuring that the Greater Philadelphia region is recognized as a worldwide leader in life sciences.

Dealmaking

Mirroring the broader market, Philadelpha VC deal activity continued to slow in 2023 with $2.4 billion deployed across 403 deals. Despite the significant 53.5% YoY decline in deal value due to fewer megarounds—such as Gopuff’s $1.5 billion Series D2 round last year—deal count has remained above pre-2021 figures and was the fifth most active CSA in the country in 2023 on a deal count basis in the Q4 2023 PitchBook-NVCA Venture Monitor,1 which is suggestive of the ecosystem’s growing strength as a VC hub.

Against the backdrop of elevated market volatility, deals are still getting done, albeit at lower price tags and with less capital injected, but the local entrepreneurial flywheel is maintaining positive momentum. Philadelphia’s lower cost of living at 5% above the national average,2 compared with other major cities—such as Boston and New York, which host costs of living 50% and 128% above the national average,3, 4 respectively—is an attractive selling point for startups, as it can help entrepreneurs take bigger risks and make more effective use of investors’ dollars. In 2023, 170 startups raised their first round of venture capital, a figure well above pre-COVID-19 pandemic levels and indicative of the entrepreneurial appetite in the area and investors’ interest in the Philly startup ecosystem. While the city’s lower cost of living is appealing, more mature startups looking to attract mid- and senior-level talent, who more likely have families to consider, must grapple with higher crime rates and lower college matriculation rates from neighborhood high schools;5 that said, as other urban metros are facing similar challenges, the talent recruiting scene remains nuanced.

Source: PitchBook | Geography: Philadelphia | *As of December 31, 2023

Early-stage resiliency

Among all venture stages, the early stage proved to be particularly resilient on a deal count basis. 2023 saw 151 early-stage deals completed, representing a nominal YoY decrease of 3.2% and just 20 deals shy of the 2021 record. The robust pre-seed/seed dealmaking, as well as fundraising activity in recent years, has laid a strong foundation for the early stage’s resilience. From 2020 to 2022, 575 pre-seed/seed rounds were completed and their need for new capital to fuel growth has driven many to return to market to raise early-stage rounds. Moreover, since 2020, $2.5 billion has been committed to 35 funds connected to the Philadelphia MSA. Seed and early-stage rounds make up roughly two-thirds of the deals that this cohort of investors participate in, highlighting their concentrated dealmaking focus and the forward-looking capacity of recently closed funds to continue supporting deals in this area of the market.

Philadelphia’s VC ecosystem did not see the same financing metric overinflation observed in venture epicenters such as the Bay Area and New York, aiding the early stage’s resiliency. In contrast to the broader market’s median early-stage pre-money valuation, which quickly ascended to a 2022 zenith of $46.2 million and has since experienced significant compression, Philadelphia’s 2022 median early-stage pre-money valuation came in at $32.4 million and has seen uplift through the 2023 year. Philadelphia’s more tempered growth in startup valuations has made the current discrepancy between founder and investor expectations more palatable and allowed the early stage to avoid a stark correction in deal metrics so far.

1: “Q4 2023 PitchBook-NVCA Venture Monitor,” PitchBook, Kyle Stanford, et al., January 10, 2024.

2: “Cost of Living in Philadelphia, Pennsylvania,” PayScale, n.d., accessed January 11, 2024.

3: “Cost of Living in Boston, Massachusetts,” PayScale, n.d., accessed January 11, 2024.

4: “Cost of Living in New York, New York,” PayScale, n.d., accessed January 11, 2024

5: “Philadelphia 2023: The State of the City,” The Pew Charitable Trusts, Katie Martin, June 16, 2023.

Philadelphia VC deal activity

Philadelphia pre-seed/seed deal activity

Market trends

Strong ecosystem growth

According to PitchBook’s recent Global VC Ecosystem Rankings,6 Philadelphia’s ecosystem growth score placed 17th globally. The presence of strong academic institutions such as the University of Pennsylvania, Villanova University, Temple University, and Drexel University, whose graduates have founded 179 startups that secured $7.0 billion in venture financing within the Philadelphia MSA since 2006, support the minting of new entrepreneurs through their courses, facilities, and networks. Equally important to the curation of innovation in Philadelphia is the availability and affordability required to host startups through their lifecycle. The record high office space availability of 22.3% and more affordable leasing costs per square foot compared with other major cities, coupled with the robust life sciences infrastructure from centrally located lab spaces like SK Pharmteco (formerly the Center for Breakthrough Medicines) and the ongoing development of Spark Therapeutics’ Gene Therapy Innovation Center, are likely to coax startups to take up residence in the market.7

Tandem to the academic, economic, and spatial synergies within the MSA is the region’s new eligibility for federal funds after its October 2023 designation as Precision Medicine Tech Hub by the Biden-Harris administration, with Ben Franklin Technology Partners of Southeastern Pennsylvania serving as the lead agency for the hub. The Tech Hubs program, authorized via the bipartisan CHIPS and Science Act, seeks to catalyze growth and achieve global competitiveness in certain technology areas over the next decade by deploying approximately $40 million to $70 million in funding to a subset of the designated hubs.8 Additional federal funding complementing existing NIH funding pathways could increase the resources available to life sciences startups.

Corporate venture capital (CVC) firms continue to see value in Philly

Stemming from lethargic exit activity, a prolonged liquidity drought, and elevated interest rates, 2023 nontraditional investor (NTI) involvement in Philly VC deal activity has experienced an acute contraction from its 2021 record, culminating in $1.4 billion in deal value across 124 deals. Within the broad NTI category, CVCs—which frequently place more focus on the strategic benefits of venture investing compared with their return-fixated PE peers—were more engaged on deal value basis for the first time since 2016, participating in deal value totaling $1.0 billion compared with just $633.9 million from PE investors. On a deal count basis, CVCs have historically been

VC deal activity with NTI participation

Philadelphia VC deal activity with NTI participation

Source: PitchBook | Geography: Philadelphia | *As of December 31, 2023

Philadelphia VC deal activity with CVC participation

Source: PitchBook | Geography: Philadelphia | *As of December 31, 2023

6:

7:

8:

Across America,” U.S. Economic Development Administration, EDA Public Affairs Department, October 23, 2023.

more involved; in the face of increased market volatility they elected to endure more, participating in 77 deals and exhibiting a 27.4% decrease in deal count from their 2021 high. This compares with PE investor involvement in 33 deals, representing a 32.7% decrease from their own 2021 record. The venture stage and return flexibility provided to CVCs by their strategic goals have kept their involvement on a deal count basis relatively aligned with the long-term trend.

The MSA’s prominence as a biotech hub and proximity to CVCs based in New Jersey, New York, and Massachusetts has attracted the participation of corporates including Novartis, Johnson & Johnson, and more in 2023. The ecosystem also attracts foreign CVCs, as highlighted by the largest deal completed in the Philadelphia MSA last year, ArriVent Biopharma’s $155.0 million Series B, backed by Lilly Asia Ventures. Moreover, the regional tenancy of major corporations such as Comcast, Merck, Rite Aid, GlaxoSmithKline (GSK), and BMS corrals strong talent that can support startup growth.

Philadelphia VC deal activity with PE investor participation

Top undergraduate universities for founders and companies in Philadelphia (2006 to 2023)*

Sector trends

Share of Philadelphia VC deal count by sector

Transportation

Software

Biotech & pharma

Other

Media

IT hardware

HC services & systems

HC devices & supplies

Energy

Consumer goods & services

Commercial products & services

Source: PitchBook | Geography: Philadelphia | *As of December 31, 2023

Philadelphia enterprise technology VC deal activity

Amid Philly's general resilience in dealmaking, enterprise tech also retained a significant amount of overall VC invested and financing count. Although aggregate deal value fell considerably from 2022’s height of $610.8 million to $329.2 million, that still represents the third-highest tally on record, while deal count declined only to 97 from 111. Such trends suggest the general retrenchment in venture markets by investors due to caution, yet a desire to keep closing transactions within enterprise tech. Although challenging in unique ways in an uneasy economic environment where corporate budgets are often trimmed significantly, enterprise tech is still viewed as less

Source: PitchBook | Geography: Philadelphia | *As of December 31, 2023

risky than consumer due to longer-term contracts, criticality of need, the potential to significantly reshape operational expenditures and complexity, and more. As a result, Philly saw and should continue to see still-resilient venture financing flows in enterprise tech, particularly given its other favorable ecosystem attributes mentioned previously. Such a focus on enterprise and commercial B2B also was seen nationwide per the Q4 2023 PitchBook-NVCA Venture Monitor,9 but Philly, in particular, saw a greater tilt away from consumer toward B2B, biotech, and healthcare than in the US on the whole.

SECTOR TRENDS

The biotech & pharma sector

The biotech & pharma sector has weathered the slowing deal activity better than many others, capturing $845.2 million across 38 deals. Unique to the life sciences venture lifecycle, including biotech & pharma startups, is the capital-intensive development of their products prompting investors to deploy large swaths of capital, as illustrated by the modest 8.5% YoY decline in deal value. Six of the top 10 largest deals completed were in the biotech & pharma sector, with DLA Piper advising the financing of Fore Bio.

Benefitting startups in this sector are numerous upcoming patent cliffs faced by Big Pharma that are expected to result in the loss of revenue and market share. Corporates experiencing this impending loss—such as GSK facing the loss of roughly $8.5 billion in global sales—from patent cliffs on five different drugs, spanning immunology, pulmonary, and vaccines by 2030, may increase their M&A activity to rebuild their pharmaceutical portfolios.10, 11 One such example of portfolio building comes from Philadelphia’s largest exit of 2023; a subsidiary of Gilead Sciences, Kite Pharma completed its acquisition of Tmunity, an immunotherapies development company, in February for $1.3 billion. Should Big Pharma companies increase their pace of acquisitions, Philadelphia-headquartered pharmaceutical startups and their investors could see an increase in exits and liquidity in the coming years.

Top Philadelphia MSA VC deals in 2023*

Outside support

Philadelphia VC deal activity with California investor participation

Philadelphia VC deal activity with New York investor participation

Outside investor participation in the Philadelphia MSA VC deal activity has drastically fallen from record highs and culminated in the 2023 involvement of California investors in $1.2 billion in deal value across 114 deals and their New York peers’ involvement in $844.4 million across 66 deals. The willingness of investors to deploy capital further away from their headquarters in recent years, as illustrated by PitchBook’s capital concentration analyst note,12 and the increasing median distance between lead investors and startups coupled with

increased investor competition in native markets due to elevated involvement of NTIs, helped induce growth within VC ecosystems such as Philadelphia. The subsequent retreat of NTIs from this asset class and slower pace of dealmaking, which was afforded to investors due to reduced competition in local markets, has been a contributing factor in the decline in annual deal activity and could slow the growth of the ecosystem.

Q&A with Scott Nissenbaum

What’s the one thing that makes you excited about the opportunity for Philadelphia in 2024?

What’s most exciting to me is that it’s way more than just one thing happening here. As an organization, Ben Franklin has been a part of the evolution of Philadelphia’s innovation economy since 1982. At this moment, the alignment of research resources devoted to the healthcare and technology disciplines in Greater Philadelphia, our region’s investment pedigree, our national and global market access, and collaboration of city, county, state, and federal efforts to support our region’s growth, are all coming together in ways we’ve never seen before. Last year, Startup Genome ranked Philadelphia as the 27th most active global startup ecosystem, and we know that’s only increasing from here. The opportunity that we’re seeing take shape in 2024 reflects the concerted effort of building the industry sectors and community infrastructure that help companies build and grow here while attracting investment from across the nation and beyond.

For someone unfamiliar with the market, are there examples of Philadelphia’s evolution that best showcase what’s been happening there?

Ghost Robotics is top of mind as a specific example that combines deep tech from University of Pennsylvania, strong job creation in manufacturing, and social impact measured in lives protected of our frontline armed forces. Ghost Robotics builds best-in-class legged robot ground drones that you see in the news for commercial and military applications. What started as work in the Penn robotics labs became a company that already serves more than 25 customers and 20 partnerships focused on our national safety, with more than 450 of its robots in the field. Ben Franklin invested at the earliest stages of Ghost’s formation, and last month, the company announced the pending sale of a 60% ownership stake to a Korean aerospace & defense company at a reported $400 million valuation. Ghost Robotics will continue to operate in Philadelphia, creating jobs in our region and furthering the technology that protects American lives.

As for a broader perspective, in 2023, Greater Philadelphia’s concentrations in cell & gene therapy and precision medicine helped earned the region’s distinction from the United States Economic Development Administration as one of the 31 designated Tech Hubs in the nation. More than 60 organizations in the region partnered to build the Greater Philadelphia Region Precision Medicine Tech Hub initiative, to focus our region’s breakthrough cell & gene therapy capacity and broader life sciences capabilities to create both economic lift and increase equitable access to care. Ben Franklin is leading the effort with an all-star team of the regional stars of the industry.

Scott Nissenbaum

President and CEO

Ben Franklin Technology

Partners of Southeastern Pennsylvania

This opportunity is about far more than just partnering to invest in what’s happening in the wet labs. It’s about the robotics that are being developed to assist that lab work. It’s the technologists that are working to build new AI-driven platforms and solutions to help understand the data, anticipating who will need the right care at the right time. It’s the fintech founders developing unified payment systems that connect insurers and healthcare providers. It’s even about entrepreneurs developing platforms that link ride-share platforms to care administrators to help get people to the doctor on time. It is a coordinated effort of universities, institutions, corporations, capital, and government working together—epitomizing our regional spirit for success and partnership—that make Philadelphia a top destination for innovation and entrepreneurship.

What is your organization’s role in keeping that growth going?

We work at all levels to invest in and advocate for the growth of the innovation economy in Philadelphia. As a non-profit supported by a 40+ year partnership with Pennsylvania’s Department of Community and Economic Development, we’re helping build new industries of innovation in Philadelphia through venture investment. Our investment and value-added services go well beyond the notion of what one might consider as traditional economic development, so we’re ecstatic to support the work of Governor Shapiro and his administration in making innovation the focus of Pennsylvania’s 10-year plan for the state’s growth. Our current portfolio of 200 companies in Greater Philadelphia is proof that innovation for economic development works.

To keep the companies in the region long after the seed capital is well spent, we launched the Global Opportunity Pennsylvania Fund II (GO PA Fund II), which focuses its capital on growth-stage companies in Pennsylvania that received support and investment from one of the four Ben Franklin organizations across Pennsylvania. The GO PA Fund II furthers the work of the initial GO Philly Fund closed in 2019, allowing us to expand the virtuous cycle of innovation and economic prosperity.