Industry experts weighed in on the state of the Pittsburgh tech sector at the Innovation Works Venture Expo. The expo corresponded with the release of a report that showed the sector had its second-highest fundraising year on record in 2023, despite a national decline.
The report, which was produced by Innovation Works and Ernst & Young, ranks Pittsburgh among the top cities in America for artificial intelligence fundraising.
“With AI there are clear applications where it enhances efficiency and it enhances productivity across a number of verticals,” Ven Raju, Innovation Works CEO said. “The question is, will new companies be able to channel the computing power to do that effectively and to do that in a way they can create a business that can be commercialized and can scale? You’ve seen a number of business do that already, but it remains to be seen where it goes from here.”
The $3.12 billion raised in 2023 comes in close second to the $3.59 billion raised in 2021. While a majority of fundraising in 2021 came from companies going public, a majority of fundraising in 2023 came from corporate investments.
"It takes some time for the capital market to react in terms of pricing and viability of any business," Raju said. "In ’23 you saw a lot of institutional money. There is an argument to be made that in some ways, the investment coming from these channels speaks to a foundational confidence in Pittsburgh startups in sectors that we excel in.”
In 2023,12 exits disclosed values of over $1.57 billion, amounting to approximately 72% of the $2.18 billion raised of corporate investments.
“Our continued ability to drive successful exits on the other side will continue to provide Pittsburgh with visibility to help enable our continued growth,” Darrell Smalley, Ernst & Young Pittsburgh office managing partner, said. “It’s success at both ends, at the angel early stage with resident capital and demonstrated success on the exit helps keep Pittsburgh on the map.”
A majority of investment came in the robotics and autonomous vehicle space.
“Investment views have narrowed on those specific areas,” Smalley said. “These are the topics of the day that are changing in many ways how we work and how we live and that is really driving investors in many ways wanting to be the first to get at it.”
Raju noted that while the report saw outsized investments in the aforementioned categories, three-year rolling averages suggest “sustained and broad-based growth.”
Despite the city seeing near record investment, a majority of that money came from outside the city, with approximately 2% coming from resident sources.
“I think that resident sources are particularly relevant in terms of early stage, preseed companies where you’re really betting on the team and an idea,” Raju said. “It takes relationship building and boots on the ground to develop those relationships to help companies access networks and areas where they can evolve in terms of product development and business development.”
Speaking at a panel on AI at the expo, Abridge COO Julia Chapin said that “for Pittsburgh to continue to be an epicenter for startups” the city should “continue to raise a profile with the venture community here.”
Others agreed.
“As much as community support is there, all of our investors who actually gave us money came from Silicon Valley,” Sankalp Arora, Gather AI co-founder, said during the panel. “I think the willingness to make bets on hard business problems is there in terms of putting the elbow grease in and putting the time in, but I think that the willingness to make bets in terms of the money still has to come in.”
Early 2024 has seen sizable investments in the sector. Notably, Abridge received a $150 million Series C fundraising round in February and then received an additional, undisclosed, investment from NVentures, NVIDIA’s venture capital arm. But across the sector it remains to be seen whether that funding will be a trend or an anomaly.
“We have all the foundational elements to build from 2023 but there are a lot of macro uncertainties, whether its geopolitical, whether its quantitative tightening in terms of raising of interest rates, whether its overall general economy and where that will ultimately land in ’24,” Raju said. “In Q1, there have been significant raises both on the early side and the growth side.”
Looking beyond 2024, Raju noted that the tech sector is constantly evolving.
“If you had asked me five years ago what AI is and where it would blossom I could not have told you,” Raju said. “Five years from now there could be burgeoning tech where we can leverage our core strengths to excel at that.”
