Acquisitions / AI / Business / Funding / Health tech

After struggling to bring in large deals last year, Pittsburgh’s Q1 saw hundreds of millions in VC

The total amount of capital invested in Pittsburgh over the last three months is more than the total invested over the first three quarters of last year.

Downtown Pittsburgh. (Photo by Flickr user Paul McCarthy, used via a Creative Commons license)

Editor’s note: These figures may vary slightly, as some deals aren’t accounted for until weeks after quarterly VC reports are published.

Pittsburgh has officially rebounded from its paltry venture capital deal volume in 2021 with an impressive first quarter of 2022.

In total, the city brought in $242.67 million across 19 deals in the first three months of the year.

That dollar amount is more than the city raked in across the first three quarters of 2021, indicating a potential new surge in venture capital for Pittsburgh tech. And though one quarter does not a trend make, this quarter’s numbers come as a relief to many who wondered why Pittsburgh lagged behind the record-breaking national trends of last year.

Two big deals drove the increase in activity this quarter: $73 million in a Series C for infrastructure robotics and software company Gecko Robotics and $70 million in a Series D for sustainability tech firm RoadRunner Recycling.

The next highest round in the top 10 for the quarter was fuzz testing startup ForAllSecure‘s $21 million Series B. Other leading deals over the past three months also included $15 million for KaliVir Immunotherapeutics, $12 million for Agot.AI, $10 million for Innovu, $8 million for Guardian Storage, $7 million for Epistemix (previously reported as $5 million based on an interview with the company in February), $6 million for Fullgreen and $5 million for Maven Machines.

So, what to make of these numbers?

“Tracking quarterly investment activity can be misleading, as it ebbs and flows in longer cycles,” Sean Sebastian, a partner at Birchmere Ventures and Black Tech Nation Ventures, told in an email. “I think tracking rolling four-quarter average (i.e. compare 2020.Q1-Q4 vs. 2021.Q1-Q4, then 2020.Q2-2021.Q1 vs. 2021.Q2-2022.Q1 would be a more reliable gauge). That said, the long-term trend is clearly upward — more companies are raising larger rounds than ever before.”

Sebastian’s hesitance to draw formal conclusions from one quarter’s worth of data alone was echoed by Ven Raju, chief investment officer for Innovation Works. Though the increase in deal volumes is certainly a positive sign, a better resource to look at long-term trends that might lend insight into the future would be in more thorough reports like the annual review of local investments put together by Innovation Works and Ernst & Young.

Despite that qualification, Raju shared that the disparity in funding volume the between the two largest deals of the quarter and the other eight in top 10 points to a persistent complaint about the Pittsburgh tech and entrepreneurship economy.

“While the funding amounts this quarter may or may not speak to a market gap, there is always a need for more growth equity capital in the region,” Raju said. “The two companies that raised substantial growth equity rounds this quarter did so primarily with capital from outside the region. I think bolstering indigenous growth equity capital sources would help to further support local companies and help them efficiently scale and hire in the region.”

Pittsburgh deals also nabbed spots on the top 10 raises for the state. Gecko and RoadRunner came in at fourth and fifth place, respectively, while ForAllSecure was the ninth largest deal for Pennsylvania.

Though the number of exits were down nationally in Q1 of 2022, RE2 Robotics made waves with a $100 million exit through an acquisition by Salt Lake City-based Sarcos Technology and Robotics Corporation that took the Pittsburgh-grown company public. It was also the top exit for Pennsylvania this quarter.

What’s going to happen next?

While only time will tell if this continues to be a fruitful year for VC in Pittsburgh, Magarac Venture Partners cofounder and Partner Zach Malone thinks funding is on an upward trend.

“I do expect this trend to continue this year and for the foreseeable future,” he told via email. “Over the next decade venture returns will be driven largely by companies leveraging all facets of AI including autonomous vehicles, robotics, and other pure software solutions.” He expects Pittsburgh’s talent and expertise in the field will be a main driver for exponential growth in the amount of capital invested across the region.

Interestingly, life sciences companies didn’t seem to drive much of the growth in deal volumes this quarter, after some major acquisitions and public offerings in the fall of last year. Still, that industry is certainly active in the realm of early-stage startups, as exhibited by numerous pitch competitions hosted by local universities over the past few months.

However, none of the VCs reached out to mentioned that industry as a potential factor in continuing fundraising activity here (at least, not yet). Instead, Sebastian agreed with Malone that it will likely come from the AI sector.

“New funds don’t launch very often, so while seeing multiple enter the market roughly contemporaneously is encouraging but not indicative of future activity,” he wrote. “I think [Pittsburgh] most lacks locally managed life sciences/medtech capital (very specialized skill set). Our market is increasingly being driven by robotics and mobility, but I expect broader AI-based companies to take more market share in the 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.
Companies: ForAllSecure / RoadRunner Recycling / Innovation Works (Pittsburgh) / Gecko Robotics / Black Tech Nation / National Venture Capital Association

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