Tuesday, September 4, 2012

How can Pittsburgh improve its ranking as a top city for startups? - Pittsburgh Post Gazette

By Deborah M. Todd / Pittsburgh Post-Gazette

After 30 years of growth, promotion and private and public sector investment, Pittsburgh can proudly claim that when it comes to startups we're number ... 26?

The city's long-touted story of growth through high-tech innovation hasn't led to it cracking the nation's Top 10 in terms of venture capital investments, according to the National Venture Capital Association. The Pittsburgh MSA ranks 14th in the nation according to the number of deals made during the first half of the year, but falls to 26th when measuring the number of investment dollars going to local companies. There have been 92 deals worth $220 million made with 72 startups in Pittsburgh the first half of the year, according to the association.

National Venture Capital Association president Mark Heesen applauded the progress made over the past 30 years in the region, and said its success shouldn't be measured against heavily populated areas such as San Francisco, Boston and New York, which rounded out last year's top three in terms of startup investments. Instead, he said the city should examine areas such as Austin, Texas, and Boulder/Denver, Colo., which have smaller populations yet have managed to become the eighth and ninth most successful MSAs, respectively, in terms of investments.

One key factor he noted is that Austin serves as headquarters for Dell and Boulder/Denver is home to Mapquest and Photobucket, allowing those regions to attract and keep talent, which in turn brings in investment dollars.

"You want an indigenous local company to start in Pittsburgh, stay in Pittsburgh and prosper in Pittsburgh," he said.

Using a major tech company as an anchor is one approach to woo tech investors, but even that will fall short without a community of enthusiastic brainiacs pitching and launching the next big ideas, said Ted Zoller, a senior fellow with the Kansas City, Mo.-based entrepreneurship nonprofit, Ewing Marion Kauffmann Foundation.

Mr. Zoller said institutions such as Carnegie Mellon University and the University of Pittsburgh should have helped the region become a "powerhouse" by now, but their students aren't staying in the region to build a solid entrepreneurial class. He said keeping a community of financiers, managers and serial-entrepreneurs could be the key that launches the city into the Top 10 for venture capital.

"A critical mass of leaders can build businesses," he said. "Pittsburgh is strong in terms of innovations, with all of its technology-based universities. It has all of the conditions for a potentially strong startup ecosystem, but it doesn't have the human capital."

Catherine Mott of Wexford-based angel investor group BlueTree Allied Angels disagreed on the city's level of human capital, noting that the founders of supply management software FreeMarkets have launched several companies since selling FreeMarkets to Ariba in 2004. She also said venture capital might not be the best way to measure success for startups, since early-stage companies often receive their first funding rounds through personal loans or gifts from angel investors.

In terms of startup support, Ms. Mott said there hasn't been a higher level of incubators, institutional support, tech-centered events or financial resources in the region than there is today. She said the recent successes urged her to lobby for the Angel Capital Association's Leaders Workshop to come to the region in October.

"If we didn't have really strong deal-flow opportunities in Pittsburgh I would not have pushed for the ACA conference to be here. I would have been embarrassed," she said.

The city's 30-year journey to becoming a national tech player is similar to that of Boulder, in several ways, but distinctly different in terms of the class of investors who inhabit the cities today, said Brad Bernthal, director of the Silicon Flatirons Center's Entrepreneurship Initiative at the University of Colorado School of Law.

He said the key difference is the number of Boulder entrepreneurs and their dedication to helping the next entrepreneur in line to succeed. He cited Brad Feld, managing director of venture company Foundry Group, who has helped to create a culture of serial entrepreneurship that is built upon staying in Boulder and keeping doors open to give new innovators in the region a helping hand.

"There is a lot of mentorship and mentors who have been giving their time [and expect proteges] will give back and mentor the next generation," he said. "If Brad has time to meet with everybody, everybody else in the system has time to meet with everybody."

Mr. Zoller added that cities could support targeted initiatives for tech companies, such as sales tax breaks, tax breaks for angel investors and turning unused properties into offices for startups.

Pittsburgh Technology Council president Audrey Russo said the policy ideas were a good start but also said the city might need to address a lack of cultural and ethnic diversity to keep the coveted 25- to 34-year-old demographic in the city.

As new ideas come and failed initiatives are pushed to the wayside, the region's tech sector will continue to thrive and could soon reach the peak it has been climbing toward the past three decades, Ms. Mott said.

"We did not have the entrepreneurial culture back in 2003 that we have today," she said. "Innovation Works was just getting turned around, the Pittsburgh Life Sciences Greenhouse and The Tech Collaborative were just getting off the ground. Since then we've had Project Olympus, Innovation Works has gotten money from the Ben Franklin Technology Partners and they have also given money to the University of Pittsburgh. There were five or six incubators here in 2003; now we have them in Oakland, we have the Beauty Shop in East Liberty, we have one in the Hill District.

"We didn't have any of this when we were just getting started, and that's reflected in the quality of our deals today."

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