The Covid pandemic disrupted all of our lives in 2020 and changed the business model into one of working from home for many people, but it turned out to be the second-best year in a decade for investment in Pittsburgh’s tech companies.
So says a new report by Ernst & Young and Innovation Works that tracks investment in the technology sector from 2011-2020. The report finds that, in total, 171 companies raised $993 million last year.
That was a decrease from the almost $3 billion raised in 2019, but it still was the second-best investment year in the past 10 years. Over that decade, nearly 600 Pittsburgh companies have attracted more than $7.2 billion in investment.
“The year 2020 saw dramatic swings in regional investment trends as the COVID-19 pandemic led startups to raise funds to bolster their balance sheets and extend their runway,” Leon Hoffman, managing partner at Ernst & Young’s Pittsburgh office, and Rich Lunak, CEO of Innovation Works, say in the report. “The local investment community stepped up, with the help of the Commonwealth of Pennsylvania … to support our vulnerable early-stage technology companies [getting] through this pandemic.”
Together with Innovation Works, Birchmere Ventures, Draper Triangle and Riverfront Ventures invested $5.25 million into regional startups as part of a pandemic relief effort, according to the report. Firms from outside the region also contributed to the investment totals.
In the past five years, approximately 300 firms from around the world have invested in Pittsburgh companies, including 42 that made their first investment here last year. Investors are attracted to the region’s strengths in artificial intelligence, robotics and life sciences. In 2020, autonomous vehicles and robotics continued to draw most of the investment dollars — 55 percent.
“Tracking investment activity helps us begin conversations with new investors interested in regional deals, informs local investors about our strengths versus other communities and chronicles what’s working and where we need to focus efforts,” Hoffman and Lunak explain in the report.
The pandemic’s devastating effects on the economy threatened 55 early-stage local tech companies, because of reduced revenue and canceled pilots. Money provided by the state’s Ben Franklin Technology Development Authority helped to spur other investment that enabled companies to avoid layoffs and continue research.
In fact, says the report, “In the true entrepreneurial spirit, many companies adjusted their businesses and products to help society through the pandemic and were positioned for growth despite the challenging landscape.”
“In response to the challenges presented by COVID-19, Governor Wolf’s administration has applied critical funding in order to maintain Pittsburgh’s new-age momentum,” says Dennis Davin, secretary of the PA Department of Community and Economic Development. “In a continued effort to back highly promising entrepreneurs, the Commonwealth intends to promote Pittsburgh’s transformation from an industrial-era powerhouse to a 21st-century technology eco-hub.”
Several companies — Knopp Biosciences, Seegrid, RoadRunner Recycling, Peptilogics, Duolingo and Niche — won significant venture capital financing in 2020. Uber ATG, a Pittsburgh-based, self-driving subsidiary of Uber, was acquired by Aurora in 2020. As part of that acquisition, Uber ATG invested $400 million into Aurora, representing a majority of the region’s total corporate investment.
“As Niche has experienced explosive growth over the past several years, Pittsburgh has been a big part of our success and our story,” says Niche CEO Luke Skurman. “While the company has extended our geo footprint, the headquarters and majority of our employees are here. … We love Pittsburgh and we love being based here.”
Since 2011, total investment in tech companies has fluctuated significantly. The report utilizes a three-year trailing average to examine trends and that average has grown 410 percent since 2010 and 343 percent in the past five years alone.
The total number of financing rounds also increased in 2020. Consistent with national trends, the average venture investment deal size increased by 27 percent to $7.9 million from 2016 to 2020.
“The long-term trend is clear,” says the report. “The number of unique companies funded has risen steadily over the past 10 years, showing a 66 percent increase since 2011.”
Over the past few years, several new venture capital funds have emerged in the Pittsburgh region, including Cyto Ventures, Mountain State Capital, Next Act Fund and Reinforced Ventures. None closed on significant new capital in 2020, according to the report, and the estimated supply of local venture capital funding remains low — largely because several of the region’s larger funds are nearing the end of their current funds and haven’t closed or announced new funds yet.
Two recently announced new funds are 412 Venture Fund and Magarac Ventures — a rebrand of Draper Triangle — and they are raising new funds.
“This will be an important trend to monitor over the next 12-24 months, as a healthy local funding ecosystem streamlines the fundraising process for local startups and helps to retain more of the financial rewards of successful exits in the Pittsburgh region,” says the report.