Amid the economic recovery boom of the waning pandemic, Pittsburgh’s tech scene is getting ready for its first major public offering — one that local industry leaders hope will propel the city’s status as a hotspot for further growth.
In late June, Pittsburgh’s first unicorn Duolingo filed to go public. The long-anticipated S-1 report showed just how well the company fared during the pandemic, as the language learning app’s usage increased to 1.8 million paying subscribers and 40 million monthly users by the end of the first quarter this year. (Duolingo declined an interview with Technical.ly.)
While the impending IPO will almost certainly bring more growth for Duolingo, tech leaders here see this moment as yet another chance to capitalize on the burgeoning tech scene, and perhaps open the door to more lucrative company exits in the near future.
“Healthy ecosystems, right or wrong, are measured by these type of liquidity moments,” said Kit Mueller, RustBuilt community lead and regional director for the Midwest at One America Works. “And so this is just another endorsement of the momentum that’s going on here.”
Like big funding or new headquarters announcements, Mueller explained that Duolingo’s IPO should bring an increase of both money and talent to the region.
“But one thing that will also come into and play a major role is the aspiration that comes along with it,” he said. With a potential influx of investment dollars and innovative ideas, a founder whose company might be one or two steps behind where Duolingo is right now can concretely see that it can happen here — and maybe for them, too. Anecdotally, in his role as a tech community leader, Mueller said he’s seen nearly 10 times the amount of emails indicating interest in Pittsburgh compared to when he started.
This is just another endorsement of the momentum that's going on here.
Both Mueller and Pittsburgh Tech Council President and CEO Audrey Russo argued that kind of aspiration factor is good for more than just current founders and entrepreneurs looking to take the next step. One of the big benefits of a local tech company having an exit like an IPO is that it helps to create new local wealth.
“The more we can create that kind of wealth, the more you get angel investors — and the more you get angel investors, the more you can attract venture,” said Russo. Once local investment in Pittsburgh startups picks up, she contended, outside investment from bigger venture capital firms is more likely to follow.
That trend has already started as the city’s economy comes out of the pandemic, with eyes toward organizations such as Black Tech Nation Ventures and 412 Ventures Fund LP, both of which launched in the past year. And while local funding alone won’t be enough to advance every viable startup here, Russo thinks Duolingo’s IPO will add to its existing momentum.
Even though the IPO might cause local wealth to grow, that doesn’t necessarily mean Pittsburgh’s new deep pockets will put it toward startups over more traditional investment options, as has long been the case in its post-industrial era. Notably, despite Duolingo’s success as a company over the last decade, not one of its shareholders is based in Pittsburgh.
Russo thinks it’s hard to know whether it was a lack of local financial support in the company’s early days or CEO Luis von Ahn’s prowess as a serial entrepreneur that drove Duolingo to attract and pursue outside funding. Still, she only sees the IPO as helping to increase Pittsburgh’s funding options for future companies and founders.
The more we can create that kind of wealth, the more you get angel investors — and the more you get angel investors, the more you can attract venture.
Among the impressive revenue and user growth reported in the S-1 was the company’s 2020 yearly attrition rate of only 2%, or four employees. That wasn’t surprising to Mueller, who sees Duolingo as “a national, if not international leader in culture.” But that high retention rate begs the question of whether some of the company’s technologists will use their new IPO money to go off and launch their own ventures, as is often the case in the post-exit flywheel.
“As a company grows, an inevitable dynamic is that it’s hard to maintain the same kind of culture and personal feel that a company had when it was small, and in those startup phases,” said Innovation Works President and CEO Rich Lunak. While employees could still enjoy and have respect for the culture of their work environment, they might also start to crave the more agile and entrepreneurial feel of a company in its early stages. And in this case, many of those potential founders will not only have highly skilled technical backgrounds, but firsthand experience in seeing what a company needs to successfully scale its business.
As for when Pittsburgh might start seeing the benefits of this ripple effect, Lunak still thinks it’s hard to say. Though going public looks like the right choice for Duolingo, that doesn’t necessarily mean every company in the region should have that same goal.
“I don’t think there’s any magic formula,” he said, but that doesn’t mean there aren’t already companies that could be ready to make such a move.
“I think we’ve had companies with that potential in the past,” Lunak said. “But a lot of times, they’re settling for earlier and smaller exits.” That isn’t a good or bad trend, he argued, but rather a reflection of the younger nature of Pittsburgh’s entrepreneurial climate. As more local founders mature to the point of serial entrepreneurs with a wide range of experience, their shareholders might be more open to IPOs down the road. “If it’s your third startup, and you’re already successful, your company’s doing well, maybe you’re more inclined to say, ‘Hey, you know, let’s get this thing rolling.'”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.
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