Pittsburgh has historically been known as the “Steel City” because it’s home to hundreds of steel-related businesses. It’s also called the “City of Bridges” because, you guessed it, it’s home to hundreds of bridges.
But these days, the city is working to become known for something else altogether. Pittsburgh is emerging as a hotbed of innovation for robotics, artificial intelligence, and machine learning, thanks in large part to the influence of Carnegie Mellon University (CMU).
The startup scene is growing, as evidenced by the growing number of occupants on ‘Robotics Row,’ which is home to “a string of technology companies setting up shop along the Allegheny River,” according to local publication The Tribune-Review.
But while some venture funding is flowing into the area, it’s clear the city still has a ways to go to build significant, and perhaps more importantly, consistent startup momentum.
Don’t get us wrong, venture funding in Pittsburgh in 2018 so far, at $146.7 million, is already higher than what was raised in the city during all of 2016 ($141.9 million), according to a Crunchbase News analysis of known deals.
But 2018’s year-to-date tally is way down from an unusually robust year, 2017, that saw some very large deals.
Venture capital funding in Pittsburgh in 2017 totaled an impressive $1.4 billion, thanks in large part to AI startup Petuum’s $93 million Series B round, language platform DuoLingo’s $25 million Series E and (of course) Ford’s $1 billion commitment to Argo AI.
The automotive giant made that investment in an effort to combine “Ford’s autonomous vehicle development expertise with Argo AI’s robotics experience and startup speed on artificial intelligence software – all to further advance autonomous vehicles,” according to a press release. The massive investment was notable considering that Argo AI was founded in 2017. It also helped dramatically skew the year’s numbers, as you can see below.
So what’s it going to take to boost Pittsburgh’s profile as an emerging, mid-sized tech hub? We spoke with some tech folks on the ground on the city to get their perspective on what’s driving innovation and growth in the area, and what may be holding it back.
A Growing Ecosystem
As mentioned above, the presence of Carnegie Mellon – which is home to one of the best computer science programs in the country – has a lot to do with the startup funding growth the city is seeing. (Did we mention that the institution also unveiled the nation’s first undergrad program in AI?) But it’s not the only factor at play.
A recent report conducted by Pittsburgh-based regionally-focused early-stage investor Innovation Works, and Ernst & Young, pointed out that in the past decade, more than eighty local companies were acquired by the likes of Amazon, Autodesk, Delphi Automotive, IBM, Philips Healthcare, Smith & Nephew, and Yelp – all of which maintained operations in Pittsburgh.
On top of that, major technology companies, including Uber, Facebook, Apple, Bosch, GE, and Tata, have opened technical or research offices in Pittsburgh in the past few years, according to the report.
Among the giants investing in the city, Amazon has created more than 10,000 jobs in Pennsylvania and since 2011 has invested over $4 billion in the state, according to this article from Business Facilities, a publication focused on area economic development and site selection news.
Access to talent is likely appealing to many of these large companies. But that’s in addition to the region’s lower cost of living and doing business, relative to markets such as Silicon Valley and New York, noted Jay Katarincic, managing director and co-founder of Draper Triangle Ventures. (The firm is a member of the Draper Venture Network, according to Katarincic, hence the name).
Draper Triangle Ventures closed its first fund in 1999. It’s currently investing out of its third fund, in which it raised $80 million. About fifty percent of the firm’s dollars are invested in the greater Pittsburgh area, said Katarincic.
The firm’s first investment was in what would today be deemed an AI company that was formed based on research out of Carnegie Mellon.
“At the time, we probably just called it a sophisticated algorithm company,” he told Crunchbase News. “But certainly, CMU’s being a world leader in AI and machine learning has been good for Pittsburgh considering that automation is what’s driving a lot of tech in general right now. And while we’ve always had a number of technology companies here, we’ve never had the velocity of tech companies we have now.”
Pittsburgh is home to “a great deal of technical talent and companies” in those areas these days, according to Katarincic. In general, the city’s educated workforce combined with large companies in the area that can also help provide talent to startups is driving lots of growth as well, he added.
The University of Pittsburgh Medical Center is also “very commercially driven,” he noted.
“It’s not only about providing the best patient care, but also around innovating around delivery methods and healthcare IT,” Katarincic said. “To the point, it’s even set up a separate division to spin out those technologies into funding or startups that are based in Pittsburgh or want some relationship with the university.”
But while he is bullish on the region, he acknowledges the city’s “denominator is not big enough.” So, a large round or two can really skew results.
“We don’t yet have a large number of fast-growing companies that are continually doing large rounds,” Katarincic told Crunchbase News.
“Pittsburgh is one of those cities that is still evolving and growing, and so we just don’t have a mature base as you’ll find in Silicon Valley or Boston. Until we do, we’re going to see these kinds of swings.”
He also believes the city’s lack of sales and marketing talent is an obstacle to growth.
“No one has greater technical talent than Pittsburgh,” he said. “But as a company transitions from technology only to a customer-facing company, we sometimes struggle with that. It’s a challenge to scale a company because we don’t have the senior sales and marketing talent in Pittsburgh and it’s not always easy to recruit it to the area.”
The city’s broad-based lack of capital is also an issue.
“It holds us back because we don’t get tempo into our companies fast enough,” he told Crunchbase News. “They’re not out and running as fast as they can be because they are worried they don’t have enough capital, or how they’re going to get more. So they grow potentially slower than they might otherwise. Still, overall, there’s such a wealth of opportunity here and we’re looking forward to continuing to grow it.”
Pittsburgh-based Innovation Works claims to be the largest seed stage investor in the Southwestern Pennsylvania region, and one of the most active in the country. It’s invested $78 million into nearly 400 companies over time, seeing 57 exits so far, per its website. Those exits include Vivisimo (acquired by IBM), Modcloth (acquired by WalMart) and Nowait (acquired by Yelp). Delphi (GM) in 2015 also bought one of Innovation Works’ portfolio companies, Ottomatika, a Carnegie Mellon spinoff.
Ilana Diamond, managing director of hardware and AlphaLab Gear (Innovation Works’ hardware accelerator), agrees that the fact that machine learning and robotics have gotten to the point “that they’re no longer in the lab and [there are] commercial applications and people interested in investing in those fields” has been huge for Pittsburgh.
“Self-driving cars were here when I got here in the 1980s,” she recalled. “So we’ve always been a leader in that. As we’ve gone from research to real products and real markets, and things people want to invest in, we’ve seen our ecosystem grow.”
One Startup’s Story
Voci Technologies is a Pittsburgh-based company that earlier this year raised $8 million. Voci’s mission, per its website, is to “enable enterprises to extract actionable intelligence from their voice data” to do things like improve customer experiences. Its technology came out of CMU and it’s based in Robotics Row, so it is a classic example of the kind of innovation being produced out of the local institution.
Voci CFO Tony Ryan notes that it has been challenging over the years to retain the talent coming out of CMU and the University of Pittsburgh in the region.
“In the past, companies would have to recruit from outside the city because a lot of developers, programmers, and high-end researchers would typically leave to California, Boston or even Austin,” he told Crunchbase News. “But now they’re willing to look at Pittsburgh as a city with multiple opportunities. Pittsburgh has emerged as a credible location with respect to robotics and other AI technologies, and is in a better position to keep some of that talent.”
As robotics technology has advanced, it’s become a more significant contributor to the Pittsburgh economy, Ryan added.
“While we don’t have access to the VC funds in other markets, we are starting to be surrounded by a really great technology environment,” he said.
Certainly, Pittsburgh’s tech ecosystem has lots of potential. But it’s sort of like a puzzle that needs piecing together, little by little.
Top Image Via Igor Oliyarnik/Unsplash