Will Duolingo, Pittsburgh’s first unicorn, bring more investment to the region?

Twenty-five years after Fore Systems, a Warrendale-based networking company that built and sold ATM switches, went public, Pittsburgh has added another homegrown startup company to the billion-dollar-plus valuation club: Duolingo, the company that teaches you French, Japanese, or practically any other popular language through an app with a heaping spoonful of gamification.

In early December, the company announced a new $30 million Series F funding round, led by Alphabet’s growth equity firm, CapitalG. Total funding shot up to $138 million, bringing the startup’s valuation to a cool $1.5 billion — a landmark for the Pittsburgh startup ecosystem, which had not yet seen a “unicorn” company, a 21st-century moniker that denotes a firm with a valuation of over $1 billion. The analogy makes sense: it’s not every day that you see a mythical, horned creature, nor is it common to see companies with such a high market cap. Duolingo joins the ranks of firms like Uber and Google, which have both moved into the Pittsburgh market after setting up offices elsewhere.

Although past Pittsburgh tech companies like Fore Systems reached the $1 billion mark long before Duolingo was even a thought, and modern-day tech firms with a presence in Pittsburgh, like Facebook and Google, have valuations of several hundred billion dollars, this is the first time that the Steel City has seen a startup amass such a high market value since Silicon Valley venture capitalist Aileen Lee first coined “unicorn” in a TechCrunch article in November 2013.

“It’s really hard, and highly unlikely, to build or invest in a billion-dollar company,” she wrote at the time. “The tech news may make it seem like there’s a winner being born every minute  —  but the reality is, the odds are somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime.”

That may have been true at the time, when just 39 companies had made it to the ultra-elite “unicorn club” that Lee described. But today, that number is over 400, according to data from CB Insights, a New York-based market research firm. So does Duolingo’s valuation put Pittsburgh on the map for venture capitalists in a way that it wasn’t before, opening the door for other companies looking to snag some VC bucks? Or is this little more than a net positive for the company with the adorable green owl mascot?

Making the first billion

Molly Lindsay came to Duolingo a little over two years ago, just after the company announced it had reached a valuation of $700 million. Now vice president for strategy and business operations, Lindsay said that she noticed robust and organic growth in Duolingo’s user base well before the company took on new funding to reach its $1.5 billion valuation in December.

“There was proof that this product was loved and growing,” she said. That customer behavior fueled the company’s move to a subscription-based model called Duolingo Plus, where users can pay $6.99 per month to remove ads and download content for offline learning.

This attention to detail when it comes to customers has been pivotal in Duolingo’s continued success, explained Rich Lunak, president and CEO of Innovation Works, the North Side-based incubator and seed-stage investor partially funded by the state. Customer discovery, he said, is too often rushed. Startups that skimp on this part of the company lifecycle — where firms figure out who their customers are and what they actually want — will likely struggle to take hold.

Lindsay agrees that a focus on product from the get-go has been huge for Duolingo. She urges other companies to A/B test everything, continue to get feedback, and then improve. The company has grown its user base this way by continually focusing on user-centric goals.

In Lunak’s mind, this is the No. 1 lesson to be learned from Duolingo’s newfound unicorn status. Letting your customers help decide what the product looks like is a key strategy in engaging them, he explained. You don’t get hundreds of millions of zealous active users by not understanding your customers.

“The most common problem startups face is that they don’t have a product people love,” he said. “For technical founders, it’s not something that comes naturally.”

In short: Focus on your product before pivoting to fundraising, if possible. Not only does the fundraising process take up huge swaths of time that could otherwise be used in product development, but the overall focus on customer traction is fundamental to building a worthwhile product or service.

Still, Lunak admits that consumer products are inherently more sexy than, say, business-to-business information technology firms, like Fore Systems.

”It just doesn’t draw the same attention,” he said.

Becoming brand-name

It’s true that Duolingo has a clear advantage over other companies in Pittsburgh, besides the killer customer discovery work. It’s three words, or, rather, one name: Luis von Ahn. With a background studying and teaching at Carnegie Mellon University, creating the CAPTCHA and reCAPTCHA tools used to figure out whether you’re a bot, plus a MacArthur Genius Grant, he is a celebrity in his own right, even if he had never founded Duolingo.

“If you were going to pick a company and a founder to symbolize a lot of things uniquely Pittsburgh, and to demonstrate a lot of our unique strengths, Luis is probably about the best person you can think about in that regard,” Lunak said.

Although not every company has a Luis von Ahn, nor the upfront cash that comes with being Luis von Ahn, the trickle-down recognition that his language-learning company has brought to the Pittsburgh region will only further serve other startups in the city.

In a sense, Duolingo is Pittsburgh’s brand at the moment. From the billboard that the company put up in Silicon Valley, urging people to “work in tech” and “move to Pittsburgh,” to its unicorn status, to the possibility of bringing more talent to the region—who may, in turn, become entrepreneurs and investors themselves—it’s safe to say that the company helped put Pittsburgh on investors’ maps.

So will Duolingo’s unicorn status bring more dough to the city? The short answer is probably, but the longer answer is that the real test will come in 2021, when Duolingo expects to make its initial public offering on the stock market. Traditionally, Pittsburgh is mostly a city that relies on acquisitions for major exits, so the next year or two will be fascinating to watch.

“When you have large IPO successes in the consumer product space, everybody knows them,” Lunak said. “Sometimes, entrepreneurial communities are synonymous with big successes…it’s hard to think about Austin without Dell Computer or Seattle without Amazon.”

And now, it’s hard to think about Pittsburgh without Duolingo.