VCs are losing optimism for Philly startups as investment dollars dip

Technical.ly

18-04-2025

Despite optimism heading into 2025, macroeconomic conditions caused a decline in venture capital activity in the Philly region.
Companies in the Philly region raised $635.4 million across 82 deals in Q1 2025, according to the latest Venture Monitor report, released quarterly by PitchBook and the National Venture Capital Association. Last quarter, the region raised more than $1 billion through 121 deals. Current figures are also lower than Q1 2024, which saw $741 million raised over 123 deals, at the time showing improvement in the region's deal activity.
This decline isn't surprising, local investors told Technical.ly. Despite hope at the end of last year that the market would show strength in 2025, macroeconomic uncertainty from constant changes at the federal level means that investors are showing more caution, resulting in fewer deals and fewer dollars invested.
'The drop … is not just seasonal fluctuation — it's a market signal,' Howard Lubert, regional president of Keiretsu Forum Mid-Atlantic, said. 'It's paralysis. And that paralysis is driven by policy uncertainty, tariff confusion and the prolonged drought in fund distributions, which are throttling [limited partner] confidence.'
The market shows a slowdown in exits compared to last year, which saw an increase in exit activity in Philadelphia.
A 'highly volatile' market means the environment right now isn't good for exits, Dean Miller, president and CEO of the Philadelphia Alliance for Capital and Technologies, told Technical.ly. Deals like mergers and acquisitions are difficult because the valuation of companies is fluctuating.
All together, these trends are dampening the momentum that startups were feeling last year.
At the end of 2024, there was a lot of optimism and a general belief that the incoming Trump administration would be more friendly to business, according to Miller. But federal funding cuts to healthcare and education are expected to cause a big impact, especially in Philadelphia, which is known for its ' eds and meds.'
'That day-to-day mayhem creates instability, which at the public market level is really challenging and difficult,' Miller said. 'That also spreads to the private market level as well.'
Nationally, deal value is up this quarter, but 10 deals — none Philly-based — valued at over $500 million made up about 60% of all activity in the United States, according to the report.
'Despite a few significant transactions fostering a narrative of market resurgence, VC remains challenging for investors, companies and limited partners,' the report read.
Startups need to prove revenue to land funds in 2025
Philadelphia's VC activity aligns with national trends that show that investors are adverse to risk. VCs are only investing in companies that will result in revenue, which could discourage the next generation of regional founders, according to Lubert.
'2025 is about surgical precision,' Lubert said. 'The days of funding hype are over — it's time for disciplined capital, tough questions and clear outcomes.'
Most deals are going to serial entrepreneurs and founders who've already had success, Lubert said. Investors want companies that have traction and real customers. They're only interested in deals that are efficient on capital, have a clear exit timeline and will not need additional funding rounds.
Firms like Keiretsu are also preparing for these new conditions by reframing the way they consider investments, Lubert said.
'Bringing in experienced operators, locking in milestone-driven returns, and structuring deals for distributions, not just equity appreciation,' he said. 'That's where the next wins are going to come from.'
Conservative decisions and unique products will prevail
Despite investors tightening their belts, startups that have unique products and strong teams will always be able to find funding, Miller said.
Companies can prepare themselves for continued change by staying informed about what's happening at the federal level and being conservative with their plans and money, he said.
Philadelphia also still sees companies in a range of sectors that are getting funding, Sean Dowling, a partner at Osage Venture Partners, said. The top deals of the quarter were in healthcare, financial services and information technology.
'We are encouraged by the diversity of investments that are happening across the region,' Dowling said. 'Reflecting the broad range of startups that are founded in and remain committed to building in Philadelphia.'
Sarah Huffman is a 2022-2024 corps member for Report for America, an initiative of The Groundtruth Project that pairs young journalists with local newsrooms. This position is supported by the Lenfest Institute for Journalism.