Venture capital investment in Philadelphia is at a five-year high, with indication for further growth.
Nationally, the number of venture capital deals has decreased, according to a joint report released last week, yet Philadelphia is defying this trend. Philadelphia saw a 17-percent increase in total financing deals in 2012, while the national number of deals declined by 3 percent with an 18-percent decrease in total dollars invested. During the past 18 months, $1 billion has been invested in the Greater Philadelphia region companies by venture capitalists, angel funds and seed funds.
“There has been a massive rebirth in Philadelphia,” said Patrick FitzGerald, a lecturer at Wharton in the entrepreneurial management program. “There remains a massive amount of capital in New York and the Silicon Valley, but it’s more expensive out there, which makes it hard to invest in companies that are doing well because they spend their money pretty quickly.”
Director of Career Services Pat Rose said that “it doesn’t matter who’s in the region, because the money follows great ideas. Philadelphia companies have received venture capital from New York, and we’re now seeing a growing venture capital industry in Philadelphia itself.”
FitzGerald noted Philadelphia’s status as a mecca for pharmaceutical and biotech companies as one impetus for venture capital firms to be interested in investing in the city. This years-long trend is making way for more venture capital investment in other fields as well.
“What has happened over the past four to five years is that venture firms are starting to ‘spread the wealth,’ if you will,” FitzGerald said. “They’re now investing in software, ecommerce, tech, hardware … they’re spreading it out more.”
Penn is involved in the Philly VC scene through the Center for Technology Transfer, a division of Penn that helps commercialize the innovations of professors, engineers, doctors and Ph.D.s who develop technologies, companies or software while they’re teaching.
“Let’s say someone comes up with an awesome robotic foot, but they’re a professor so they don’t know how to commercialize it,” FitzGerald said. “Through Tech Transfer, Penn is trying to bring these things to the market and get these projects funded.”
Some firms in the city are targeted specifically at helping early stage ventures by giving seed funding and even pre-seed funding — very modest sums of money, ranging from around $10,000 to $30,000. These small investments are important early on for student entrepreneurs looking for cash to fund their startup ideas and projects. Rose said that the Philadelphia firm DreamIt Ventures is one such pre-seed investor. These types of funds help keep budding entrepreneurs in the Philadelphia region, rather than moving elsewhere to receive financing.
“When I was starting my first company, Recycle Bank, we realized that Philadelphia is a great place to start a company,” FitzGerald said. “It’s not as big as New York, it’s a sandbox to try things out.” FitzGerald said that it’s a game-changer for young entrepreneurs that there are now so many companies funded by Philadelphia angel groups and venture capital firms.
“This type of investment activity creates jobs, strengthens the community and keeps students in the area,” FitzGerald said. “Venture capital investment in Philadelphia is good for everybody.”
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