Venture capital and angel investors were once the go-to funding source for aspiring Pittsburgh startups. But technology has changed all that, as corporate investors look to make their mark through innovation.
“In 1995, you didn’t see corporates at all,” says Gary Glausser, who oversees investment funds for Innovation Works, the most active seed-stage investor in Southwestern Pennsylvania. “Now, we see more and more corporates coming, looking for opportunities, either to invest in, partner or acquire companies to get to the technology.”
As chief investment officer of IW, he also chairs its investment committee and helps the organization source, evaluate and invest in the region’s most promising startups.
We spoke with Glausser about trends in tech investing, including highlights from Investment in Pittsburgh’s technology sector report with Ernst & Young LLP, and the upcoming the AI & Robotics Venture Fair.
Technology leads the way
Glausser estimates that, in 2018, about 60 or 65 percent of the dollars invested in the Pittsburgh region funded technology such as artificial intelligence and robotics, with the lion’s share going toward autonomous vehicle research.
Argo AI, Aurora, Bossa Nova Robotics and IAM Robotics — all companies that create autonomous systems — attracted a combined $339 million in investment in 2018, according to the Investment in Pittsburgh’s technology sector report. Overall, 147 Pittsburgh-area technology startups attracted more than $550 million in funding.
According to the report, the total investment and number of companies funded decreased slightly from 2017 to 2018, but the 10-year trend still shows growth. It states, “In that time period, the trailing three-year averages of total investment grew 102 percent and unique companies funded increased by 83 percent.”
Additionally, the pipeline for area startups is expected to remain strong. Carnegie Mellon University (CMU), Duquesne University and the University of Pittsburgh’s research budgets hit more than $1.2 billion in 2018. This marked the biggest year for Pittsburgh-area research funding in a decade, according to the report.
“That’s really the driver of all these technologies,” Glausser says. “It’s the money that’s going into the universities for research and development, and then the universities are trying to commercialize the technology through licensing and spinouts.”
Corporates and VCs
While it’s mostly coming from outside the region, more Pittsburgh companies are knocking on IW’s door to find out what the organization is up to, Glausser says. The organization recently held its first reverse pitch event, where six companies had 10 minutes to speak about their challenges to an audience of entrepreneurs.
“This was the first time I had ever seen this reverse pitch competition and it was awesome,” he says. “So, I think this is going to be an ongoing event.”
Still, securing available capital for Series A or B rounds continues to be a challenge for startups, Glausser says. The technology report found that the amount of available investment capital resident in local VC funds declined for a second straight year in 2018. But out-of-town firms have helped fill the gap, attracted by Pittsburgh’s reputation as a technology hub. Approximately 60 firms from around the world invested in Pittsburgh companies in 2018, including 31 making their first investment in the region, the report states.
While IW used to worry about VCs coming in and taking companies to Boston or Silicon Valley. Glausser says that’s no longer a concern with technology startups.
“The VCs coming here like Pittsburgh for a lot of different reasons: the technology talent here, the engineering is strong here, the cost of living is lower. The cost to hire an engineer is half of what it is out of Silicon Valley,” he says.
IW has also created a database with detailed descriptions of each VC, so it can match them with portfolio companies, Glausser says. “It is tough because there’s no growth capital here, for the most part,” he says. “But if you have a great idea, you’ll find VCs.”
Connecting startups with investors
One way to meet those VCs is through venture fairs. IW and CMU will host the second AI & Robotics Venture Fair May 16 at the Swartz Center. The event is invitation only, but investors can still inquire about attending.
“We see more and more AI, robotics and machine learning companies coming to IW for funding,” Glausser says. “So, we thought it would be appropriate to put on a mini-venture fair, just targeted on those types of companies.”
Investors known to invest in AI and robotics will hear five-minute pitches from approximately 20 companies, after which they can set up one-on-one meetings with founders. A selection committee chose the 20 companies from a larger applicant group. The final group is diverse, ranging from newly incorporated startups with no revenue that are still in product development, to companies with $10-$15 million in revenue.
Glausser says the first fair attracted about 50 VC firms; the remaining 100 investors were family offices or angel groups. Redpoint Ventures, New Enterprise Associates, Sony and Toyota were among the more notable names. Many investors are planning to return for the second fair.
Entrepreneurs can use venture fairs or pitch competitions like these (the 3 Rivers Venture Fair was just held in April) to get as much experience as they can, he says. If capital isn’t an immediate need, founders can get coaching on their pitches and make connections through networking.
“If they’re having the event, it’s good to show up — even if you don’t need money,” says Glausser. “Let’s say you’re going to need money in 12 months or 18 months, it’s good to go anyway because it takes time to develop a relationship with investors. You can keep in touch with respect to how your business is developing. Tell them about the new hires or the new contract that you got to keep them up to date, and then when you need the capital, it’s not a cold call.”
