As national venture capital deals are on track to set a new record, Pittsburgh funds want to funnel that activity into new engagement with local wealth.
On the first day of the 3 Rivers Venture Fair — a venture conference for the Ohio Valley held every 18 months — Cameron Stanfill, lead analyst for U.S. venture capital at Pitchbook, shared national insights from the field. The big headline: Despite persistent recovery issues in some parts of the economy from the pandemic-prompted recession, venture capital is doing better than ever before. 2021 is already the best year America has had in capital-backed deals, with a total of $225.4 billion invested so far, and could be on track to top $500 billion for the first time.
“That’s really illustrating the maturation of the VC market and how much large companies are getting under private backing in the U.S. nowadays,” Stanfill said.
But Stanfill countered that by noting that much of this activity likely wouldn’t have happened without the pandemic, and not simply because some industries saw an unexpected boom because of it.
“But I also do think that the pandemic’s limitation of travel and adoption of meeting virtual[ly], and using the tools that we have available on the technology that we do, potentially really opened up more markets for investors to look into,” he said. Plus, those who actually saw their wealth grow during the pandemic had fewer options to spend their money during stay-at-home mandates, perhaps prompting a greater interest in venture capital.
But so far, Pittsburgh’s pace hasn’t matched the national one for 2021. Despite having a standout year for venture-backed deals in 2020, the city’s first two quarters for this year are significantly behind, totaling only $40.36 million across 11 deals of the $75 billion across 4,302 deals nationally in the second quarter. Pittsburgh’s second quarter number was down not only from the first quarter in 2021, but in year-over-year growth from 2020 as well.
"There still needs to be a lot more cross-community communication, and education and opening up of resources."
Still, local early stage VCs were hopeful in a later panel discussion at the venture fair. Kelauni Jasmyn of Black Tech Nation Ventures, Ilana Diamond of 412 Venture Fund and Zach Malone of Magarac Ventures — all of whom were speakers at the inaugural RustBuilt Pittsburgh conference in mid-September — shared insight on how to turn recent exits from companies like Duolingo or the autonomous vehicle sector into venture capital opportunities in Pittsburgh.
Diamond, for her part, reiterated 412 Venture Fund’s philosophy of creating pathways to investment for entrepreneurs and executives who have gone through successful company exits.
“Seventy or 80% of our investors, our limited partners, are founders themselves,” she said. “If you name a company that had a successful exit in the last five or 10 years in Pittsburgh, a good portion of them are investors in our fund, including the more recent ones, and we’re glad that they decided to reinvest in the region.”
Though neither she nor the other venture capitalists on the panel acknowledged the lagging data for 2021, they all agreed with Diamond’s point that investments coming from the Pittsburgh community will be the ones to put the city’s startups and growth companies on the global map. Unsurprisingly, all three also agreed that they expect successful exits to continue coming from robotics, autonomy and artificial intelligence-related firms.
But Malone noted another industry that Pittsburgh VCs increasingly have their eyes on — life sciences.
“I would say generally, you’re certainly starting to see a lot of growth in this space,” he said, acknowledging that research grants are a big driver of it. Still, he said, “you’re naturally going to see that kind of progression of those companies being commercialized and really scale” as they move beyond the need for academic grants.
Before the life sciences promises can come to fruition or Pittsburgh’s entrepreneurs can turn into limited partner investors through a new firm like Diamond’s, there are still communication gaps to fill, said Jasmyn. Echoing sentiments that the RustBuilt panel discussed earlier this month, she argued that in order for Pittsburgh venture capital, and the businesses it supports to truly thrive, there needs to be broader awareness of how everyone works together.
“I think there still needs to be a lot more cross-community communication, and education and opening up of resources,” said Jasmyn. “Because I guarantee you there are a lot of people who don’t know Zach’s fund exists, and there are people who don’t know Ilana’s fund exists and, and all these great nonprofits that are helping to build entrepreneurs — like the ones we want to invest in — don’t even know that they exist.”
And while those communication gaps can sometimes be hard to bridge, there is “willingness and the foundation to do things differently” that’s given her hope for Pittsburgh’s future.
Sophie Burkholder is a 2021-2022 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 Heinz Endowments.