Pittsburgh’s tech strengths make investors optimistic amid an improved, but still slow quarter for VC deals

According to data released by PitchBook and the National Venture Capital Association in their Q2 2023 PitchBook-NVCA Venture Monitor, Pittsburgh has seen $92.57 million across 20 deals over the past three months of the year.

It’s a sharp contrast to the first three months, which saw a paltry $15.9 million across 19 deals — the least amount of venture capital raised in the region at least since the Venture Monitor has been tracking regional deal flow, since 2014.

Yet the region is still far off track from matching the impressive 2022, with $866.6 million over 122 deals (significantly more than first reported by January’s Venture Monitor report about 2022), when the region seemed to have reversed a disappointing fundraising trajectory from 2021, with $390.12 million over 100 deals.

In the first half of 2023, Pittsburgh companies have raised a mere $108.47 million across 39 deals — 12% of 2022’s total, and a quarter of 2021’s.

National trends

Pittsburgh’s dip is partly reflected in national trends.

Pitchbook and NVCA observed that the investment market has seen flat deal activity due to economic circumstances including high interest rates and threat of recession. Deal value is the lowest it’s been since 2016, with just $85.6 billion raised. Contrast that with 2021’s record high of $347.5 billion.

The report noted that investment in new technologies such as artificial intelligence could provide value for the economy in the future. Moving forward, although the market isn’t out of the woods yet, there are still reasons to be hopeful about the future.

“Throughout history, market crunches have often paved the way for the emergence of industry titans,” the report said. “Moreover, specific sectors such as life sciences and artificial intelligence hold countless opportunities within the present market landscape, and there is every reason to expect that the venture industry will continue to be the leading edge of of global innovation.”

Biggest Pittsburgh deals

Cause for local optimism: These promising industries can be found in the Steel City.

Below are Pittsburgh’s 10 largest deals in Q2 2023, as reported by the Venture Monitor. Note that, as we often see in these quarterly reports, the data may be incomplete, contain some inaccuracies or reflect interim raises. Deal amounts are pulled from public filings.

• ECM Therapeutics, a regenerative medicine company focused on developing drugs to meet unaddressed clinical needs, raised $21 million. (The company also raised a reported $16 million in Q3 2022.)
• Optimus Technologies, a clean energy tech company manufacturing an advanced fuel system technology that enables diesel engines to run on biodiesel, raised $17.2 million.
• Diamond Kinetics, a sportstech company bringing motion data and analytics to baseball and softball players of all skill levels, raised $13.2 million.
• Infectious Disease Connect, a company that provides telemedicine-based clinical services and education to its clients, raised $7.4 million.
• CytoAgents, a life sciences startup developing its signature drug candidate, GP1681, which treats conditions, diseases and disorders associated with Cytokine Release Syndrome, raised $7 million.
• Thoro.ai, a Carnegie Robotics spinout that uses autonomous robotics for cleaning and disinfection applications, raised $7 million.
• Abridge, a healthtech company with an AI-powered app that records and condenses conversations between patients and doctors, raised $6.4 million.
• BlastPoint, a software developer providing big data solutions that help companies optimize revenue growth, raised $5.3 million.
• Edge AI Solutions, a robotics and data solutions developer bringing accessible robotic solutions to municipalities and water authorities, raised $3.9 million.
• Balmaghie Beverage Group, a craft distillery firm that produces spirits under two brands, raised $2.3 million.

Local responses

Seasoned VC stakeholders’ reactions to this quarter’s figures have been optimism combined with trepidation.

BlueTree Capital Group founder Catherine Mott told Technical.ly that after several years in the field, she assumes local investment levels will always rise again, as they had in the past. The nature of the VC world, Mott said, is that there will always be good times and bad times, but Pittsburgh has been weathering the storm.

“I am not surprised by the decline in activity, however, I am encouraged by the way in which many of our local companies have powered through, survived, and in some cases have real growth,” Mott said via email. “We have new funding sources percolating up in our region, which means our foundation appears to [be] attractive to newcomers.”

Sreekar Gadde, executive director for BlueTree Capital Group, said their firm has kept its own investment activity flat, with no drop in deal count.

However: “What we have seen is a decrease in the number of companies reaching out for investment paired with an overall increase in the quality of companies raising rounds,” he said. “That seems to follow the trend that good companies are still getting access to capital, but investors are hedging away from more risky investments.

The firm is also focusing its investments on companies that show the most promise for a future exit, and especially those solving a known problem a large acquirer might have.

412 Venture Fund Managing Partner Ilana Diamond told Technical.ly that through the second half of 2023, she expects to see a strong deal flow nationally and locally. Although there’s been lingering concern about what the economy will mean for fundraising, Diamond sees every reason to remain optimistic about the future — including in hard tech areas where Pittsburgh excels, such as sensors, robotics and advanced materials.

“We hear a lot of concerns about the economy from companies and other investors, both [about] the general economy and the early-stage investment space in particular,” Diamond said. “That said, we’re convinced that there are plenty of  growth opportunities and investment dollars for companies that are operationally strong and capital efficient.”

To secure the future, Mott advised that startups err on the side of planning for rainy days and expecting the unexpected, because large Series A raises tend to be the exception and not the rule.

“This is a fundamental precept for survival,” Mott said. BlueTree’s portfolio companies “typically don’t have the luxury of being funded by large VCs that invest $100 million in Series A, affording time to make a lot of mistakes. Instead, our companies survive on smaller rounds of $2-20 million which necessitates a lean and mean structure.”