Why 412 Venture Fund has a mission to bring more local VC to Pittsburgh

No tech community is complete without a healthy venture capital presence. A local team of former founders is the latest to try to fill that gap for Pittsburgh.

Launched in August 2019, 412 Venture Fund hopes to be the catalyst for a bigger venture capital network in the city. Formed by a team experienced in operations, entrepreneurship and company exits, the fund focuses on supporting early-stage founders. In February 2021, 412 Venture Fund’s partners shared that they had raised $10 million of their initial $20 million goal, with expectations that they’ll reach that final number by the end of this year. As of June, the fund had made 12 investments in 10 companies, with more likely to come in the near future.

Pittsburgh, like many other growing tech hubs outside of Silicon Valley, faces a funding challenge. Venture capital numbers for the first two quarters this year were significantly down, and some members of the tech community feel there isn’t enough support for local growth companies. Notably, Duolingo — a homegrown unicorn that just saw an extremely successful IPO — had no local investors throughout its growth.

At the same time, there’s a wealth of private wealth in the Pittsburgh area; two local residents made the most recent Forbes World Billionaires list. But Ilana Diamond, managing partner at 412 Venture Fund, thinks that while the money and interest might be there for more local VC, the pathways to helping people learn how to invest or even start their own funds are lacking.

Ilana Diamond. (Photo via LinkedIn)

Diamond, who is also the former managing director of AlphaLab Gear at Innovation Works, noticed that in previous company exits she and her three fellow partners — Lloyd Meyers, Andrew Rabin and Evan Segal — had experienced, there wasn’t much guidance here to help put their new wealth toward local startups.

“There was a great structure set up to show us how to do charitable contributions, foundations, things like that — that infrastructure existed, and those people were there ready to help you if you wanted to do that,” she told Technical.ly. “But if your interest was to invest in additional startups here, especially here, or anywhere, that infrastructure really didn’t exist. So you kind of had to figure it out on your own.”

Knowing that, Diamond emphasized the goal of 412 Venture Fund is not simply to provide new forms of financial support to companies that can benefit Pittsburgh, directly or indirectly, but to also teach those interested about putting their money toward venture capital. If a limited partner contributed to 412 Venture Fund and then, after learning more about VC from that experience, decide to start a new fund of their own? Diamond “would consider that a huge success and not a competition.”

The way Diamond and her general partners see it, the more local capital put toward startups and growth companies, the better. When Pittsburgh-based venture capitalists get a big return on investment from a company exit, that money could go right back into the city where they live, rather than leaking out to funds in Silicon Valley, New York, Boston or other VC-heavy areas.

A bigger volume of local investment into companies here or in companies that can lead to potential innovation here (as 412 Venture Fund does not limit its investments to Pittsburgh) also means a better chance to provide funding to the area’s untapped potential, like underrepresented founders. Diamond said diversity is a priority for the fund when looking to invest.

How do you develop enough wealth that each time you have a success, it spawns lots of other successes in your region? That's how you build that health tech ecosystem here.

“Companies with a diverse team do better,” Diamond said. “And I don’t just mean diversity in gender, ethnicity, or background or race. You wouldn’t invest in a team that was all technical, or all financial — you want different points of view, that’s what creates a strong team.” If a team isn’t as diverse as 412 Venture Fund would prefer at the time of investment, the fund requires that they commit to building that diversity as the company grows.

Increasing returns to Pittsburgh will do more than just make local investors richer, Diamond argued. Building a local venture capital community is also a way to build confidence and promise for the next generation of entrepreneurs here that will be looking for this support.

Typically, venture capital and fundraising bring attention to a city, which in turn attracts more resources for the startup ecosystem, like community networking, local and outside talent and, as has sometimes been the case in Pittsburgh, larger companies that bring new potential investors with them through highly paid employees. The possibility for these kinds of downstream effects that building out Pittsburgh’s venture capital options creates is one of the big reasons Diamond and her partners launched the fund in the first place.

“How do you develop enough wealth that each time you have a success, it spawns lots of other successes in your region?” she said in thinking about the long-term patterns that come with more local VC. “That’s really important. That’s how you build that healthy tech ecosystem here.”