Chicken vs. egg: 5 VCs on the dos and don’ts of raising money in Pittsburgh

Pittsburghers in the know think about the area’s venture capital availability like a chicken and egg problem.

Does the city need to have more local investors to support founders at early and medium growth stages in their businesses, or do Pittsburgh’s entrepreneurs need to do a better job at building startups that are capable of attracting big funding rounds?

As part of the inaugural RustBuilt Pittsburgh Conference, five regional venture capitalists with investment experience in Pittsburgh got together last week to talk about the limitations and opportunities in finding funding for young businesses here. The venture capitalists, all partners at early-stage funds ranging from $20 million to $50 million, fielded questions from panel moderator Josh Lucas, founder of Work Hard Pittsburgh.

“So as you think about the Pittsburgh region, what’s a higher priority? More startup capital or more investment-ready startups?” asked Lucas.

“Is that a trick question?” joked Zach Malone, a partner at Magarac Venture Partners.

Ilana Diamond. (Photo via LinkedIn)

It’s an issue that founders and investors alike often grapple with, including Ilana Diamond, a managing partner at 412 Venture Fund, who also has experience and growing and exiting companies.

“What’s lacking is somebody to tell founders how they can get involved in funding other founders,” she said, adding that she herself initially struggled to learn about pathways into venture capital so that she could use the benefits of her company exits to support others.

But sometimes, as StartFast Managing Director Nasir Ali argued, there needs to be a critical mass of people more frequently investing small amounts in entrepreneurs’ ideas for there to be a better culture of venture capital investments in general.

“One of the things that is absolutely critical is that people should be willing to write small checks,” he said. “And that’s at the individual level. If you’re not ready to do that, you really can’t build a community, because that’s what gives someone the confidence to say, ‘OK, I can start down this path.'”

While Ali sees a chain reaction that small check donations can have on readying and encouraging entrepreneurs to pursue bigger investments, other venture capitalists pointed out that dollars alone rarely prepare founders enough to be the kinds of executives firms expect when they invest in a startup. In fact, all of the panelists shared red flags they often spot in new founders that keep them from taking a deal further.

Kelauni Jasmyn. (Courtesy photo)

Kelauni Jasmyn, the founder and CEO of Black Tech Nation as well as a general partner in the organization’s new venture capital arm Black Tech Nation Ventures, shared that she and other investors she’s spoken with see weaknesses in entrepreneurs who are too focused on the small details in business plans.

Instead of justifying each line item on a financial spreadsheet that will most likely be wrong anyway, “know every single thing about your market like the back of your hand,” Jasmyn said. “Because you want to convince VCs that there is a space for your company, and then be able to quickly and efficiently say how you’re going to solve [your problem] and be the biggest player in that space.”

To be able to have that market awareness, though, Mountain State Capital Managing Director Matt Harbaugh said the best thing entrepreneurs can do is “get out of Pittsburgh.” Though the city’s tech ecosystem is growing, the industry is far-reaching, and founders need to have an understanding of what’s happening in their market beyond local competition, investors and other key partners.

“A lot of times we do see entrepreneurs coming to us telling us about how they’re going to change some industry, and we feel like we know their industry better than they do,” Harbaugh said. “That’s not a good place to be.”

While Pittsburgh’s venture capital raises in 2021 have been less than stellar so far, the city attracted half a billion dollars in 2020 investments and $1.34 billion in 2019, with the latter largely due to the autonomous vehicle sector. The panelists weren’t surprised at all by Pittsburgh’s recent successes.

Jasmyn, who got her start in Pittsburgh tech as a 2016 graduate of coding bootcamp Academy Pittsburgh, said more people are starting to notice “what I think I was seeing five years ago.” She’s increasingly noticed the way the local tech ecosystem has grown to include so many different sectors in the industry — that “it’s just a matter of all [of that] coming together to make the nucleus and then an atomic bomb,” she said.

“And once that happens, the entire country’s going to be looking at Pittsburgh, and we’re already gonna be here.”