Philadelphia Business Journal | Peter Key | January 25, 2013
Either the Philadelphia area will attract more venture capital or some local venture-backed technology startups will fold or move elsewhere to get it.
Those seem to be the two most common interpretations of the latest MoneyTree report, which was published last Friday by PricewaterhouseCoopers LLC and the National Venture Capital Association using data from Thomson Financial.
The report found that venture capitalists invested $399 million in 119 deals involving companies in the Philadelphia Metro Area, which consists of eastern Pennsylvania; South Jersey, including the Princeton area; and Delaware.
The number of deals was the same as 2011, off from 124 in 2010, and up from 97 in 2009, the first year after the economic crisis hit. But the amount invested was the lowest since $349.9 million in 1996.
One reason for the discrepancy was the large number of seed and early-stage deals, which typically are for much smaller amounts than expansion and later-stage deals. There were 71 of them — 18 seed and 53 early-stage — last year, the most since at least 2005.
The large number of seed and early-stage deals last year could mean that the area will attract more venture capital as the companies that got those deals go on to get expansion and later-stage deals.
On the other hand, the low amount of venture capital that the region attracted last year could mean that the companies that got seed or early-stage deals will have a tough time getting expansion and later-stage deals unless they move to regions that are garnering more investment.
Stephen M. Goodman thinks the area will attract more venture capital as the companies that got seed or early-stage deals last year mature.
“I do not think that the reduction in the dollar amount is a long-term trend because all these early-stage companies are going to have an opportunity to hit milestones and generate much larger rounds,”
said Goodman, a partner in Center City law firm Morgan Lewis Bockius.
Goodman said that when he and the other lawyers he works with approach VCs from outside the region about a local company that has a track record and is looking for additional funding, “we do not hear from funds outside the state, ‘We only invest in our geography.’ In other words, it is a national market for good deals.”
John Taylor, head of research for the National Venture Capital Association, said he doesn’t even look at the amount raised by companies involved in seed and early-stage deals because starting an IT company requires so much less money these days than it did five or 10 years ago.
He also thinks people shouldn’t be worried about how many venture firms are based in the region, as most of the venture capital invested in a state comes from outside it, with a few exceptions.
Still, the amount of venture investing being done by local firms and angel groups concerns RoseAnn B. Rosenthal, the president and CEO of Ben Franklin Technology Partners of Southeastern Pennsylvania.
The state-funded organization is the most active provider of small investments, mostly seed and early-stage, to area technology and life-sciences companies and Rosenthal is worried about their ability to raise additional rounds beyond the ones they get from it.
“The issue is now, ‘If they are seeded, where do they grow?’ and ‘Do we have the wherewithal to grow these companies and keep them in the region?’” she said.