Are national trends to blame for Pittsburgh’s Q3 VC shortfall?

The Pittsburgh region has seen its share of ups and downs throughout 2023, and not just when it comes to the weather. According to data that PitchBook and the National Venture Capital Association (NVCA) released Thursday in the Q3 2023 PitchBook-NVCA Venture Monitor, Pittsburgh brought in $47.55 million across 15 deals over the past three months.

After seemingly rebounding from the record-low $15.9 million seen across 19 deals, many interested parties were heartened by the significantly higher number of venture capital reported in Q2. While fundraising amounts are subject to change as new deals are taken into account, this quarter’s number is roughly half of the $92.57 million seen in Q2 2023.

During Q2 2023, Pittsburgh VC stakeholders said the low dollar amount could be attributed to national trends. On a national level, the report said, the third quarter of 2023 saw nearly the lowest overall venture deal value in six years, as well as the lowest deal count to date in the past three years.

As of now, Pittsburgh companies have raised roughly $156 million across 54 deals. Although 2023 isn’t quite over yet, it seems the year has been a sobering reminder that although Pittsburgh-based companies are capable of securing impressive raises, the Steel City isn’t immune to the harsh times felt around the country.

National factors

The Pittsburgh region isn’t alone in seeing numbers fall. On a national level, the report said, the third quarter came close to witnessing the lowest overall venture deal value in six years. According to PitchBook and the NVCA, with the economy in a state of flux, investors are seeking stability. In the way of trends, the report observed that pre-seed-to-early-stage deals have dropped over the past year. Additionally, there has been a decline in mega-deals, or deals over $100 million.

All and all, the market remains under stress, with unprecedented factors from AI to politics influencing it.

“More companies are taking bridge, continuation, or down rounds; inside rounds are at multiyear highs; and there are fewer rounds with a new lead investor obtaining a board seat than at any time in at least a decade,” the report said.

Biggest Pittsburgh deals

Below are Pittsburgh’s 10 largest deals in Q3 2023, as reported by the Venture Monitor.

• Noveme Biometrics, a Strip District-based biopharmaceutical company producing a treatment for necrotizing enterocolitis — a rare gastrointestinal disease that impacts pediatric patients — raised $20.7 million.
• Aspinity, a Pittsburgh-based semiconductor startup with offices in the Strip District that specializes in developing analog machine-learning chips, raised $10.7 million.
• Duo Oncology, a Shadyside-based company developing cancer nanomedicines, raised $4.3 million.
• Guardian Storage, a storage solutions company headquartered near Shadyside, raised. $3.7 million.
• Koop, a startup focused on the development of insurance for autonomous technology, logged a $3.2 million raise.
• Realyze Intelligence, a technology solution company that delivers clinical intelligence that replicates how a clinician understands patients’ notes, raised $1.3 million.
• Finish Robotics a 2022 Pittsburgh RealLIST Startups honorable mention seeking to fill labor shortage gaps by developing autonomous robots, raised $900,000.
• Pittsburgh Knights, a local esports team that manages other esports teams and players, raised $700,000.
• PredxBio, whose platforms aim to help in drug discovery and diagnostic processes, raised $600,000.
• Adrich, a Pittsburgh company that connects brands and retailers through product usage data and analytics, raised $500,000.

Local VCs weigh in

Technical.ly reached out to local VCs and stakeholders to understand what they think the numbers mean for Pittsburgh. So far, the consensus is that the dip in funding is just a sign of times.

412 Venture Fund Principal Lauren Williams said the figures reflect that the region is facing the same macroeconomic conditions affecting the national VC landscape. She added that 412 Venture Fund has seen an uptick in high-quality deal flow in the past two quarters; as a result, she said they’re choosing to make more new and follow-on investments. As a whole, Williams felt that although there’s still growth, investors are just choosing to be cautious.

“We are now seeing funds spend more time on diligence and more thoughtfully approach valuation,” Williams said. “Simultaneously, we have seen companies grow more conservative with their cash management and raise more modest rounds. Growth is still occurring but at a conscientious rate. We anticipate that the investing market will improve, but that it will take time for supply and demand to equalize at terms agreeable to both founders and investors.”

Pittsburgh Technology Council President and CEO Audrey Russo echoed the sentiments. She said it’s important to support existing Pittsburgh startups and companies now more than ever so that they can they can thrive.

“This isn’t the first time I’ve seen this, living in Austin and living in Chicago,” Russo said. “I wouldn’t panic about it. We just have to continue to support those, those companies that are really trying to build and gain customers.”

Although investors are being more cautious, Russo said, sometimes the choice being made is just to reinvest in existing companies.

“What we’re seeing more in the marketplace, more mergers and acquisitions, and private equity investments than we are in terms of venture,” she said. “For VCs, they’re just putting more money into their existing portfolio.”

Atiya Irvin-Mitchell is a 2022-2024 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.