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To maximize returns, Pittsburgh VCs should lean into their home city

Fewer than half the region’s companies valued at $100M or more were backed by local investors. That’s leaving money on the table.

Downtown Pittsburgh on the way to the Roberto Clemente Bridge (Danya Henninger/
This is a guest post by Charles Mansfield III, InnovatePGH's ecosystem community and research manager by way of Venture for America.
There’s a way Pittsburgh venture capitalists could make more on their returns: by paying attention to what’s going on at home. 

I’m not an investor, but a sentiment I hear repeatedly — from VCs and from other corporates, nonprofit leaders and stakeholders — is that  Pittsburgh is lacking

Lacking what? It could be executive talent, capital, community. The narrative is usually that the responsibility to fill the void lies with someone else. This someone else tends to be the entrepreneurs. 

We lack a real entrepreneurial community? Creating one, critics say, obviously falls on the entrepreneurs — people who barely have enough time to sleep, let alone spend the equivalent of a full-time job in community management. We can’t attract outside capital? Well, the argument goes, the problem must be we don’t have enough quality founders, and we need to make sure they understand how far behind the curve they are relative to their peers on the coasts. 

These lines of reasoning lead many to disregard or disinvest in Pittsburgh. The underlying assumption is that there’s little of worth in the ecosystem. It’s a defeatist attitude: If it’s everyone else’s fault, why do anything — it won’t help.

But I have the numbers to show fleeing for greener pastures might not be as profitable as monopolizing where you’re already located. 

Let’s be real: Who benefits the most from having their fingers on the pulse of the startup ecosystem? Who benefits the most from this city being easier to build and scale in? 

Do we even know who our winners are? It looks like the answer is no

Pittsburgh’s investor community. That’s the stakeholder group with the greatest amount of incentives to be truly impactful ecosystem builders — as well as the resources and clout it requires. When an investor puts their name on an event, it draws the entire community. People who might not show up for a general networking event will show up for this. 

In the past year, I’ve been to more events that have been hosted by external VCs than internal ones. Outside of a handful of specific people, most don’t have any consistent presence in the ecosystem. 

To me it never really made sense. If you’re an investor and want to graze the land for startups that come to you, sure, go to the coasts or Chicago. But if you’re here and want to take advantage, especially at the earliest stages, you need to farm. You need to be in the weeds to have a hand in the development of the next generation of entrepreneurs. 

Being afraid of being asked for money seems antithetical to a career in venture capital. And being inaccessible is counter to quality deal flow.

Fewer than half of local winners were locally backed

Do we even know who our winners are? We’re so focused on what we’re lacking that I wanted to verify whether we’re optimizing what we already have. And it looks like the answer is no. 

We’re leaving money on the table, and here’s the proof: Of all Pittsburgh companies valued at $100M or more over the past 15 years, only 45% were founded, backed and championed by Pittsburgh investors. That’s according to PitchBook and my hand-checking of every single company and their boards.

This is not a statement on the quality of our VCs, to be clear. Almost all of them invest in companies outside of Pittsburgh, and only their LPs have real insight into what their overall returns look like. This is a statement on whether we’ve historically had enough VCs actively taking advantage of where they’re based.

And there are exceptions to the trend. UPMC Enterprises, BlueTree Allied Angels and Reinforced Ventures — surprising given they’re a 2019 fund — were each a part of multiple high-valuation startups.

A few caveats to my numbers dive: Though I used post-money valuation to stay consistent, that metric can often be more indicative of how effective a startup is at fundraising than more substantial success. It doesn’t tell us what returns investors actually earned, but rather the potential for returns. My methodology also did not capture large companies that moved HQs into Pittsburgh, or any bootstrapped companies that scaled at a similar pace.

There are a million reasons PGH VCs haven’t gotten the greatest exposure to the best PGH companies. One factor is probably a constricted deal flow

A lot of our investors are midwest generalists who do not solely focus on engaging with Pittsburgh-area entrepreneurs. Many funds that do have a heavier presence locally focus on later-stage investments (Series A+) or just rely on their existing network. Others have a narrow focus, for example investing only in B2B SaaS despite being in a region that doesn’t specialize in it

This can leave many of our best founders without obvious pipelines to capital. 

Living in the weeds to reap the returns 

Even if VCs aren’t planning to invest right away, there are still benefits to getting to know the local ecosystem. 

Interacting with entrepreneurs gives you a view into what they’re working on — and the potential to invest in lines not dots. You see how founders adapt and problem solve over time, versus just how they pitch. This makes ecosystem building even more important for investors who play at the pre-seed or seed stage. There aren’t as many hard numbers to rely on; you have to evaluate founders on their soft skills. 

It might sound complicated, but the bar is low. Many communities have never seen local investors do something as light lift as hosting an event. Make a Slack channel, partner with local conveners and creators and sponsor their work, go to a happy hour. If you don’t have time, get an analyst or a venture fellow to do it instead. 

Historical data shows you can expect about 2 winners a year coming from a pool of about 250 Pittsburgh pre-seed/seed-stage companies. This is a pretty good rate, especially when you consider the advantage of time.

Midwest investors don’t have to move as fast because of a lack of competition, plus they don’t have as many startups to evaluate. Instead of having to make a decision in a couple weeks, like on the coasts, a Midwest investor might have months. A sub-$50M investor in this region can achieve a high hit rate for fund returners with greater leverage when negotiating ownership. These factors are a big reason Chicago took the No. 1 spot in a 2018 Pitchbook study ranking VC performance by city across the US.

The argument for VCs to be more locally involved is most commonly made through the economic development lens — that it’s a philanthropic good for investors to improve their home region.

My argument is about capital — that not taking advantage of locality is suboptimal for early-stage VC returns. 

There are certainly other cities like Pittsburgh, where a majority of their investors are later-stage, specialized in industries that do not match their locality and/or spend much of their time on the coasts. We treat these cities like barren wastelands and presume that there’s little of value. 

We assume that there are no winners, that we’re lacking. But if we don’t even know who our winners are, then maybe a solution is to do less grazing and get in the weeds. 

If you vehemently disagree or want to collaborate, great! Shoot me an email at and we can talk about it over coffee. 

Companies: PitchBook / InnovatePGH

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