Investment in Pittsburgh tech is on the rise, despite last year’s struggle to attract venture capital.
State-backed local funder and startup booster Innovation Works and multinational professionals services network Ernst & Young presented their 10th annual review of investment in Pittsburgh’s tech industry this week. The latest report — which was discussed at an online event this morning featuring reps from both organizations, plus others from Rimsys and Bessemer Venture Partners — covers both the investments made in the past year as well as key trends since the inception of the report in 2012.
Looking back over that decade, it’s clear that Pittsburgh’s tech industry has had exponential growth and been a driving force of the local economy.
That’s reflected in the $3.6 billion worth of capital invested into the Pittsburgh region in 2021, the report said, which is about a tenfold increase from the $333 million invested in 2012. And notably, a good amount that money was provided by top venture capital firms such as Sequoia, Tiger Global and Kleiner Perkins, including corporate venture arms of companies like Toyota and Ford.
In total, the report found that over 300 firms had made investments in Pittsburgh companies over the last 10 years, with 16 making their first ones here only last year, indicating more growth to come. Those investments enabled 600 Pittsburgh companies to raise a total of $10.5 billion in that time, with $2.6 billion coming into the region through public offerings like those from Duolingo, Aurora and Stronghold Digital Mining in 2021 alone.
“The data here is undeniable, in terms of the momentum that Pittsburgh is experiencing,” said Leon Hoffman, managing partner of EY’s Pittsburgh office, at the online event. “We can see that in terms of a three-year rolling average for the last three years of investment. To continue to see that ramp up to $2.5 billion in 2021 speaks to the momentum that we have here in Pittsburgh.”
The companies driving local tech investment are largely autonomous vehicle and robotics firms, the report found. Companies in those sectors have attracted $5.5 billion since 2019, which is 72% of the $7.5 billion total regional investment in that same time period. Aurora in particular drove that growth with the $2 billion it raised in venture funding through its public offering via a SPAC deal last fall.
But while robotics companies might be attracting the most dollars, the number of deals across Pittsburgh companies is more evenly spread across software and life sciences, too.
“Those three sectors actually make up close to 90% of the number of companies receiving funding here in Pittsburgh, which again speaks to the great diversity we have here,” Hoffman said.
Beyond the upticks in funding over the last several years, there are signs of hope that Pittsburgh’s academic sphere will also drive future innovation. Over the past 10 years, research universities like Carnegie Mellon University and the University of Pittsburgh captured over $11 billion in nondilutive research funding. Pitt, specifically, is often one of the top universities receiving funding from the National Institute of Health, driving life sciences and medical innovation here. Despite that investment though, the number of licensing deals on research out of these institutions has slightly decreased in the past couple of years, though there is hope that large philanthropic investments in academia last year will push that up again.
One discouraging statistic from the report though was its estimate of uncommitted funds from Pittsburgh-based venture capital firms over the last 10 years. After reaching a high of about $140.8 million in 2016, that supply has reduced to a mere $60.2 million in 2020 and $73.6 million in 2021. But, as retiring Innovation Works President and CEO Rich Lunak said at the online event, there’s hope that this trend will turn around as new early-stage firms in Pittsburgh move beyond fundraising mode and launch new investments in the next couple of years. That means eyes are on the likes of 412 Venture Fund, Blue Tree Capital Group, Black Tech Nation Ventures and Magarac Venture Partners.
Despite this lack in local dollars, Pittsburgh stacks up well against leading tech markets in the United States. While the city has the 24th largest population in the country, it ranked 17th in deals per million residents in 2021, coming ahead of other emerging tech hubs like Indianapolis, Columbus, Charlotte and Houston. Overall, Pittsburgh ranked 14th in the number of total funding rounds over the past 10 years.
“So in general, I would say we are punching above our weight,” Lunak said of these findings. He added that the report relied on PitchBook data for this analysis, which omits a lot of corporate rounds, angel investments and more. “Candidly, I think if if that data was included would probably do even better than this,” he said.
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. -30-