Back in the summer of 2018 and during the first month of their time in the prestigious startup accelerator Y Combinator, Brandon Contino and Dan Chi nearly racked up enough airline miles to achieve gold status due to their weekly flights between San Francisco, where YC is based, and Pittsburgh, the headquarters of Four Growers, the crop harvesting robotics startup they co-founded.
As Contino explained it, YC normally requires startups to fully commit to relocating to the Bay Area during their time in the program in exchange for a $150,000 seed-level investment, but the startup managed to convince YC to let it do so otherwise for its first month in the program and before YC’s Demo Day.
YC's Demo Day officially marks the end of the program, where all of the startups participating in its current cohort get to meet with Bay Area angel and venture capital investors to further network and offer possible additional funding for the startups.
"We pretty much got in that pipeline of the whole Demo Day process of getting introduced to that network, so it was much easier to just raise money in the Bay Area," Contino said. "We'd heard many stories from previous founders and other people in Pittsburgh that it can be more difficult to raise money in Pittsburgh. … We do have a couple of Pittsburgh members on our cap table, but we really did not push too hard to raise in Pittsburgh."
To date, Four Growers has raised about $7.2 million, with its most recent round led by Rye, New York-based agriculture-focused investment firm Ospraie Ag Science in June 2021.
Four Growers is far from the only local startup that has taken on outside investment money over the past year. In fact, nearly all of the Pittsburgh-area startups that have taken on investment funding so far in 2022 have done so without any of their respective round's lead support coming from local firms. (The notable exception is Digital Dream Labs, which in April raised $2 million, $1.2 million of which was from iNetworks, a downtown-based investor.)
Investment firm XN led the infrastructure-scaling robotics startup Gecko Robotics' $73 million Series C in March, the region's largest so far this year, while growth equity firm General Atlantic LLC led RoadRunner Recycling Inc.'s $70 million Series D in January. Both firms are based in New York, as is Tiger Global Management LLC, which co-led video game coaching platform Metafy's $25 million Series A alongside Miami-based venture capital firm Seven Seven Six in February.
Metafy's Co-Founder and CEO Josh Fabian wanted to take Pittsburgh investment dollars for his Youngwood-based company's Series A and pre-seed rounds, but after reaching out to several local firms multiple times only to never get a response, he gave up. That's when he started working on his dream list of investors, which has resulted in Tiger Global — early investors in Facebook, Instacart and LinkedIn — and Seven Seven Six — a firm run by Reddit's co-founder Alexis Kerry Ohanian — as being among the several investment groups that now make up the company's cap table. To date, Metafy has raised over $33 million since its founding in 2020 and employs about 40 people.
"For us, the big challenge for Pittsburgh was that we were growing really fast, and we had every investor in the country interested in us," Fabian said. "When we had that opportunity, I wanted to go to Pittsburgh. Pittsburgh is where my kids are, Pittsburgh is where I grew up, so the idea of staying loyal to your home state and city even is pretty pressing, but the problem was Pittsburgh is slow, Pittsburgh moves at a snail's pace, and as a founder, I am doing my team a disservice if I'm waiting for a slow investor instead of passive investors that are ready to move now."
Fabian said he believes the days of investors spending 12 weeks getting to know a founder are over, at least as it relates to rapidly growing companies like Metafy. He said he formally started and ended Metafy's $25 million Series A in a week, a pace that he said likely can't be met in Pittsburgh.
That's not to say he expects that kind of momentum to continue forever.
"Not every startup has the heat that we had, and the likelihood is we won't have that heat forever. Eventually, that heat's going to go away, and we're going to slow down, too," Fabian said. "But the first round is the hardest. And once you get that first round in, the world kind of opens up to you. The problem with Pittsburgh is that they're not helping with the first round. Not really."
Fabian added that many local venture capital firms haven't caught up with the kind of gusto that startups like Metafy demand.
"When you're dealing with Pittsburgh VCs — not all of them, but most — they are taking an approach of 'we need traction, we need conviction, we need all of this,' but I can just go to someone on the West Coast and they'll say, 'we love the idea, we love the team, here's the money,' and I think Pittsburgh really just needs to step up in that sense," he said.
When Pittsburgh VC firms don't step up, Fabian said that leaves opportunity for firms in the Bay Area; Seattle; Austin, Texas; New York or any other tech hub to then do so, which in turn further pressures these local founders to take their business out of the region and into a city where someone is willing to take a bet on them.
For General Atlantic, continuing to scout for deals in Pittsburgh remains an active part of its future investment strategy, and it's adamant about ensuring that the companies it invests in stay where they got started. In addition to leading RoadRunner's round earlier this year, the firm also invested in East Liberty-based educational and language learning platform Duolingo in April 2020 when it had a valuation of $1.5 billion. Duolingo went on to an IPO in July 2021 and now has a market cap of $3.7 billion.
"(We're) recognizing what I think anyone hailing from Pittsburgh has recognized for a long time, which is you have this highly educated talent pool from tier-one universities — Pitt, CMU, Duquesne — combined with really a humble, hardworking people, and that combination is quite unique and really, I think, facilitates innovation at a level that we see quite rarely," Anthony Costa, a senior associate on General Atlantic's technology team and a Pittsburgh native, said. "If you zoom back, Pittsburgh has been a technology city for the longest time. It's gone from bits to bytes, from steel to software, but whether it's Duolingo, which is a consumer subscription business, or RoadRunner, which is a waste management business, they could not be more polar opposites in terms of their business model and focus, but they do share that commonality, which is they are economically viable businesses that have worked from early onset."
