vcs discuss the opportunities — and challenges — in pittsburgh’s startup ecosystem

Pittsburgh's Startup Ecosystem: Challenges and Opportunities

Prior to our TechCrunch City Spotlight event in Pittsburgh, discussions were held with Mayor Bill Peduto and Dave Mawhinney, executive director of Carnegie Mellon University’s Swartz Center for Entrepreneurship. A common theme emerged: the persistent difficulty of retaining startups within the city limits.

Upcoming City Spotlight Event

For further insights into Pittsburgh investment, join us for our City Spotlight on Tuesday, June 29th. The event will feature Peduto, Duolingo’s Karin Tsai, and Carnegie Mellon University President Farnam Jahanian. Registration for this complimentary event is available here.

The Primary Obstacle: Venture Capital

When asked about the most significant impediment to Pittsburgh’s startup ecosystem development, both Peduto and Mawhinney identified the same issue: access to venture capital. While securing funding is universally challenging, investors have historically shown reluctance towards startups located outside established tech centers like San Francisco and New York.

Pittsburgh-area residents can enjoy a 25% discount on a 1- or 2-year Extra Crunch membership. Use discount code ALLEGHENY before July 31, 2020.

Capital Flow and its Impact

“A key challenge lies in attracting capital into the community,” Mawhinney explained, noting CMU’s role in fostering startups. “Companies like Uber ATG, Argo AI, and Aurora – all leveraging CMU technologies – have collectively secured over $7 billion in funding. While not all of these funds will be spent locally, a substantial portion will be. However, this influx doesn’t automatically translate to funding for the next AI startup seeking its initial $3 million.”

Mayor Peduto's Efforts

Peduto stated that increasing the flow of venture capital has been a central focus during his tenure as mayor.

“We have successfully demonstrated to coastal investors that companies do not need to relocate from Pittsburgh to achieve significant success and deliver returns on investment,” he shared with TechCrunch. “Nevertheless, a greater influx of venture capital to support early-stage companies through critical expansion phases would foster further growth across all industry clusters.”

Local VC Perspectives

A survey of local VCs conducted in preparation for this week’s event revealed shared concerns regarding funding in Pittsburgh’s expanding ecosystem. Yvonne Campos of Next Act Fund LLC, which concentrates on early-stage funding for women-led startups, echoed the points raised by Peduto and Mawhinney.

“We require more capital – encompassing angel funds and venture funds – to provide entrepreneurs with a diverse range of local funding options,” Campos told TechCrunch. “Specifically, increased funding for women-led businesses is crucial, as women currently raise approximately one-third less capital than their male counterparts. This disparity isn’t due to the quality of ideas or leadership, but rather a tendency to invest in individuals who reflect the investor’s own background. Currently, only 20%-25% of angel investors are women, and we need to increase female participation in investment.”

Talent Acquisition as a Key Challenge

Bing Gordon, a Kleiner Perkins Partner and strong advocate for Pittsburgh, identified a shortage of specialized talent as the city’s biggest challenge. This extends beyond the research-focused talent typically associated with institutions like Carnegie Mellon and the University of Pittsburgh.

“[Startups] require experienced professionals such as CFOs, product managers, and advertising sales specialists,” Gordon noted. “Generally, digital companies progress more slowly when not located in established hubs like San Francisco, Bangalore, or Shanghai. Many believe the pandemic could catalyze a decentralization of the startup ecosystem.”

“We are already witnessing these effects,” Gordon added.

Ecosystem Growth and Remote Work

“Larger tech companies and growth-stage startups are establishing offices in Pittsburgh to access the local talent pool, particularly in technical fields,” said Jim Jen, COO of Innovation Works and founding managing director of AlphaLab. “Simultaneously, Pittsburgh-based companies are recruiting key hires from outside the region, and local professionals are finding remote opportunities while remaining in Pittsburgh. Continued growth hinges on strengthening the ecosystem to enable companies to thrive and attract individuals to the city.”

Focus on Quality of Life

Peduto emphasized that his administration prioritized creating an appealing environment for residents, a focus that will continue until he leaves office in January 2022 following a primary election loss.

“Local government must foster an environment where people want to live,” the mayor stated. “Quality of life is a critical indicator of a thriving 21st-century urban economy. Every amenity added by the city government contributes to this. People desire a location that offers opportunities beyond work and home.”

Future Outlook

Campos anticipates a more diverse workforce and ecosystem in the city over the next five years.

“I expect the startup landscape to become significantly more diverse – more experimental and willing to take risks,” she said. “We will see innovative ideas emerge that improve our lives, enhance customer service, and solve problems, particularly those affecting women. Pittsburgh has the potential to become a hub for femtech, fintech, healthcare, longevity, and aging – all areas well-suited to our market.”