Regional Venture

Could Duolingo’s IPO Fuel Pittsburgh’s Startup Scene?

Language-learning platform Duolingo’s upcoming IPO is set to be the first major public debut from Pittsburgh’s burgeoning startup scene. Those familiar with local tech players say we can expect more big exits from the historic steel town, and that in turn could fuel more startup activity in the city.

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For its part, Duolingo has been all-in on Pittsburgh since the beginning, even putting up a billboard along a major San Francisco highway in 2018 encouraging people to move to its hometown, where the company advertised they could work in tech and afford to own a house. 

The company, which filed to go public in late June, is one of the most high-profile tech companies to come out of Pittsburgh after raising more than $183 million from investors including General Atlantic and Kleiner Perkins. With that in mind, we look at the city’s tech ecosystem and what Duolingo’s upcoming IPO could mean for the startups there. 

Funding to venture-backed companies in Pittsburgh has gone up and down over the years, with 2021 off to a slow start so far. VC-backed companies based in Pittsburgh and East Pittsburgh raised a bit more than $61 million across 38 deals in the first half of 2021, Crunchbase numbers show. 

That’s a sharp drop from the same period in 2020, when venture-backed startups raised more than $119 million across 59 deals, although last year’s deals included later-stage funding rounds, which tend to be larger. For all of last year, Pittsburgh-based companies raised around $288 million. 

Duolingo dollars could fuel startups

Duolingo’s IPO is a positive development for the city, as the wealth created in that public-market exit will likely be invested in the homegrown startups being built there, according to Catherine Mott, a longtime investor and the founder of BlueTree Capital Group, BlueTree Allied Angels, and the BlueTree Venture Fund.

“It produces additional entrepreneurs and additional wealthy people investing in other entrepreneurs,” Mott said. “It produces more of an angel community and venture climate, because most of the money in Pittsburgh is old money and risk-averse.”

Crunchbase numbers show funding to Pittsburgh-based VC-backed companies hit a peak in 2019, when they raised nearly $3.9 billion. That figure, however, is skewed by the outsized funding rounds to Argo AI ($2.6 billion) and Uber Advanced Technologies ($1 billion). Both ArgoAI and Uber Advanced Technologies are in the autonomous vehicle space, which is known to be capital-intensive. Without those two large rounds, Pittsburgh-area startups raised about $263 million in 2019 — roughly on par with 2020.

Duolingo was among the companies to raise the largest rounds of funding in 2020, 2019 and 2017. The company was last valued at $2.4 billion, and its IPO would offer major validation to the city’s startup ecosystem, which has only had four notable companies go public in the last two decades or so.

Emerging hubs

Robotics and autonomous driving are two of the sectors Pittsburgh is known for, with the city’s “Robotics Row” being home to a number of companies in the AI, robotics, autonomous vehicle and related spheres.

Carnegie Mellon University, known for its computer science programs, also hosts the Argo AI Center for Autonomous Vehicle Research. And autonomous vehicle company Aurora last year acquired Uber Advanced Technologies, which was based in Pittsburgh.

The city also has many of the qualities of a growing startup hub, including access to talent from both CMU and the University of Pittsburgh and the presence of large tech companies including Google and Amazon.

Although venture funding to Pittsburgh companies remains comparatively lean, other key parts of a vibrant startup ecosystem have steadily been growing. When Mott started BlueTree in 2003, there was only one incubator in town, she said. But before the pandemic hit in 2020, there were close to 30 incubators, accelerators and co-working spaces. 

While large tech companies have offices in Pittsburgh, many of the startups in the city are homegrown and incubated there, according to Nadyli Nunez, executive director of Ascender, a Pittsburgh community for entrepreneurs.

“We’re seeing more and more people staying,” Nunez said. “In the last year, four new funds have started.”

A Pittsburgh perspective

Matt Spettel, co-founder of fitness startup DeltaTrainer and a CMU graduate, considered Pittsburgh, the Boston area and California as places to build his company, which brings a personal training experience to users. His co-founder had attended the Massachusetts Institute of Technology and Spettel got a taste of life in California after attending a summer program there through CMU.

But the two ultimately decided on Pittsburgh after realizing the cost of hiring personal trainers for the company was much lower in Pennsylvania than in California. They were able to raise their entire $700,000 pre-seed round from 11 angel investors who were either CMU alumni or closely connected to the university. 

Being in Pittsburgh also helped them realize the need for a fitness product that wasn’t as high-end as Peloton, Spettel said. 

“It was a very different startup vibe,” Spettel said. “The people were building products for people like themselves and people who were living in the [San Francisco] Bay [Area], which makes sense … but I think by building a product for people around us here in Pittsburgh and not other huge places like LA or New York, we’ve stumbled across this market that isn’t being addressed by the Pelotons of the world.”

Remaining challenges

One issue with Pittsburgh’s ability to scale companies, however, is the number of venture capital firms in the area, according to Mott. There are plenty of angel investors, and they can help entrepreneurs who need between $1 million and $3 million. 

But there aren’t enough growth-stage funds to help get companies to the place where they’d be attracting coastal investors who are looking to deploy more than $10 million, Mott said. 

More funds creates a healthy ecosystem and helps companies reach the metrics where large VC firms would want to invest as well. According to Crunchbase data, there are 39 venture capital, corporate VC and micro VC firms located in Pittsburgh and East Pittsburgh.

“It’s a challenge for these young companies and that’s where the gap is. We need more people to be willing to support the growth funds, the Series A and the Series B rounds,” Mott said.

Notable exits

While Duolingo is one of only a handful of Pittsburgh-based companies to go public, it’s not the only startup exit from the city. Among the notable acquisitions are Uber Advanced Technologies’ acquisition by Aurora and Wombat Security’s acquisition by Proofpoint.

Exits have been coming out Pittsburgh for a while, and the returns help fuel more investment, Mott said, which portends more startup activity down the line.

“It also helps generate new founders who get the opportunity to cash out and start a company of their own,” Mott said. “So that ecosystem — it hasn’t been so obvious because we don’t have the big IPOs — but we’ve had some really great success stories and it continues to build and grow. And I think we will continue to get the attention of many other investors.”

Illustration: Dom Guzman

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