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Optimizing Opportunities
Investment in Pittsburgh’s
technology sector
Trends and highlights, 2008—2012
Growing capital, growing companies
On behalf of Ernst & Young and Innovation Works, we are
pleased to present this review of investment trends and
highlights in the Pittsburgh region’s growing technology
sector. In this report, we’ve taken a look at the past five years
and the variety of sources of capital supporting our region’s
growing base of technology companies – including venture
capital firms (VCs), angel investors (angels), corporate/
strategic investors, seed funds, accelerators and other sources
of funding.
217 companies
$1.3 billion
Total investment, 2008—2012
Last year showed positive momentum for technology companies in the Pittsburgh region. Despite a national slowdown in
both the number of investment deals and amount of funding, the Pittsburgh region saw a marked increase in the number of
companies raising capital, and the overall amount of funding obtained by these companies increased slightly from 2011.
Software companies, including consumer and enterprise software, garnered the largest share of venture capital in our region
in 2012, followed by medical devices, energy technology and health care IT. The diversity of these sectors speaks to the
broad base of technical talent in the Pittsburgh region, as well as to the varied strengths of our region’s universities.
As Pittsburgh’s technology sector continues to grow and evolve, we hope that the recent trends in venture funding will
continue in a positive direction. We encourage you to explore this report, and we hope that it will provide useful insights into
the current state of the tech community and venture capital ecosystem in Pittsburgh.
Lynette Horrell
Managing Partner, Ernst & Young LLP
Rich Lunak
CEO, Innovation Works, Inc.
Investment in Pittsburgh’s technology sector | Trends and highlights
Overview
During the five-year period of 2008—2012, 217 technology
companies in the Pittsburgh region attracted a total of more
than $1.3 billion in investment from venture capital firms, angel
investors, strategic investors, accelerators, seed funds and
other sources. Last year saw a 54% increase in the number of
fundraising rounds, but the aggregate amount of investment
obtained by these companies increased only slightly compared
to 2011.
Prior to 2012, Pittsburgh experienced increases in the amount
of technology company investment during 2010 and 2011. The
2009 recession brought a decline in the amount of funding,
while holding steady the number of companies that were able to
obtain funds.
In 2012, more than
$329 million
was invested in Pittsburgh
technology companies by
VCs, angels, seed funds
and other sources.
As shown in the charts below, Pittsburgh’s investment performance during 2012 was more positive than the national trends,
which saw both the amount of funding and the number of deals decrease in the US as a whole.
Continued growth in Pittsburgh company investment compares favorably to national trends.
US venture financing
Pittsburgh technology company financing
Annual investment amount and number of deals
2008—2012
From all sources
2008—2012
190
3,505
3,363
3 116
3,116
3,049
2,759
126
123
113
85
$230.8
$159.1
$261.4
$326.9
$329.1
$33,100
$24,300
$29,300
$35,100
$29,700
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Amount invested ($ million)
Number of deals
Amount invested ($ million)
April 2013
Number of deals
1
Sector diversity, with strengths in software
and medical devices
The Pittsburgh region is not characterized by a single area of technical strength, but rather a diversity of sectors in which
regional companies are developing innovative products. The region benefits from its highly educated workforce across
multiple engineering disciplines – from computer science to electrical, biomedical, environmental and materials.
Among the 217 companies that attracted funding during the 2008-12 period, the largest number came from the software
and information technology sector – including enterprise and consumer software, electronics, robotics, telecom and IT
infrastructure. The second-largest sector was the combined life sciences/health care sectors – including medical devices,
health care IT, biotechnology/drug development and health care services. Among life sciences companies, medical device
firms experienced the most success in attracting funding.
According to Dow Jones VentureSource, software/IT and life sciences/health care were likewise the top two sectors receiving
funding nationally in 2012. Pittsburgh’s concentration in both sectors was higher than the US as a whole. Taken together,
companies in the software/IT segments accounted for 57% of all companies attracting venture investment in Pittsburgh,
versus 32% in the US. Pittsburgh’s life sciences/health care sectors accounted for 29% of all funded companies, versus 23%
nationally.
Pittsburgh companies receiving funding, by tech sector
2008—2012
Enterprise software
24%
Consumer products
2%
Consumer software
22%
Electronics
5%
Advanced materials
4%
Energy
8%
Health care services
1%
2
Robotics
3%
Telecom
2%
Medical device
14%
IT infrastructure
1%
Biotechnology
7%
Health care IT
7%
Investment in Pittsburgh’s technology sector | Trends and highlights
Pittsburgh
Number of investment rounds
by stage of company development
3
Increased number of
rounds for companies
at all stages
90
2
2
1
2
42
59
70
65
71
31
98
52
2008
2009
50
2010
Pre-revenue
2011
Generating revenue
2012
Profitable
Funding for Pittsburgh companies, by type of investor
($ million)
$5.7
$30.6
$4.8
$21.4
$5.3
$16.2
$6.4
In 2012, Pittsburgh experienced a dramatic increase in the
number of very early stage companies attracting funding,
with the number of “pre-revenue” companies nearly
doubling from 2011. The number of revenue-generating
companies that attracted funding also increased, growing by
approximately 27% in 2012.
$52.7
$79.3
VCs provide the majority
of funds, but lead a
minority of rounds
$27.7
$24 3
$24.3
$6.3
$47.5
$28.8
$237.9
$27.7
$212.2
$223.7
$152.7
$96.3
2008
2009
VC
Angels
2010
Corporate and other
2011
2012
Seed funds and accelerators
Number of investment rounds, by type of investor
2008—2012
48
26
42
50
16
Of the capital invested in Pittsburgh’s technology sector
during the five-year period of 2008—2012, nearly threequarters of the funding came from venture capital firms.
The second-largest share of funding was provided by angels,
followed by corporate investors and finally seed funds and
accelerators.
While the total amount of capital provided by venture capital
firms was large, such firms accounted for only a minority of
the number of deals in Pittsburgh. Instead, nearly two-thirds
of all Pittsburgh regional tech company financings consisted
of smaller rounds featuring angels or seed funds/accelerators
as the lead investor.
36
12
76
37
11
40
2
21
30
25
22
2008
2009
VC
Angels
28
2010
Corporate and other
43
32
2011
40
2012
Seed funds and accelerators
April 2013
3
Limited supply of indigenous venture capital
The chart below estimates the annual supply of uncommitted funds at venture capital firms based in Pittsburgh. This analysis
considers the timing of new fund closings by VC firms in the Pittsburgh region, and assumes that a firm will commit 25% of
a new fund’s capital during each of the first four years post-closing. Furthermore, if a fund is managed by partners who are
located outside of the Pittsburgh region, the total amount of the fund’s capital that is “located” in Pittsburgh is determined
by applying the percentage of the fund’s partners who work in the region.
According to this analysis, during the past decade, Pittsburgh’s supply of indigenous venture capital decreased from 2007 to
2011. In recent years, however, several smaller funds have been launched, with the largest being a $40 million fund in 2012.
These new funds enabled the total available capital in 2012 to increase to approximately $29.3 million, thereby reversing
the downward trend of the prior years.
While 2012’s increase in available capital is a positive sign, it may still represent a relatively modest source of financing
relative to the region’s growing supply of technology companies. By comparison, Pittsburgh’s total pool of available capital in
2012 ($29.3 million) would equal only 23% of the average size of a single venture capital fund in the United States
($149 million in 2010, as reported by the National Venture Capital Association).
Supply of Pittsburgh-based venture capital
Estimate of uncommitted capital at
VC firms
Pittsburgh-based
g
($ million)
$136.6
$120.5
$87.7
$81.1
$70.0
$48.3
$45.6
$29.3
$18.0
$7.1
2003
4
2004
2005
2006
2007
2008
2009
2010
Investment in Pittsburgh’s technology sector | Trends and highlights
2011
2012
Technology company exits on the rise
Consistent with national trends, M&A activity in Pittsburgh’s
tech sector began to increase in 2010 and saw continued
growth in the number and size of deals during 2011 and
2012. Of the 28 Pittsburgh tech company exit transactions
tracked during this period, several are believed to have been
in the $95+ million range. These included the acquisitions
of Vocollect ($190 million), M*Modal ($130 million) and
Carnegie Learning ($97 million), plus other deals with
undisclosed valuations.
28 companies
$2+ billion
Total value
(Disclosed and undisclosed)
Whereas many of the larger transactions were completed by companies that were more than 10 years old, several
Pittsburgh-born tech companies were acquired prior to their third birthdays at valuations of up to $40 million, after having
raised only a modest amount of outside capital.
In addition, during 2011—12, two publicly traded tech companies with Pittsburgh roots were taken private via acquisitions
by private equity firms. These included the 2011 acquisition of Tollgrade Communications ($137 million) and the 2012
acquisition of M*Modal (a $1.1 billion acquisition of the combined entity that resulted from M*Modal’s 2011 acquisition).
Representative deals
Vocollect
Vivisimo
Carnegie Learning
Inmedius
acquired by
acquired by
acquired by
acquired by
Intermec
IBM
Apollo Group
Boeing
2011
2012
2012
2012
BlueBelt
BlackLocus
Allpoint Systems
Invivodata
acquired by
acquired by
acquired by
acquired by
HealthpointCapital
The Home Depot
Autodesk
ERT
2011
2012
2012
2012
April 2013
5
Firms making investments in Pittsburgh
companies, 2008—2012
Pittsburgh region
Adams Capital Management
Alphalab
Birchmere Ventures
BlueTree Allied Angels
Bradford Capital Partners
Draper Triangle Ventures
Eagle Ventures
Idea Foundry
iNetworks Advisors
Innovation Works
Meakem Becker Venture Capital
Newlin Investment Company
Pittsburgh Equity Partners
Pittsburgh Life Sciences Greenhouse
Smithfield Trust
Stonewood Capital Management
California and Western region
Accel Partners
CrunchFund
El Dorado Ventures
ePlanet Capital
Floodgate
Foundation Capital
Harrison Metal Capital
Health Evolution Partners
Horizon Ventures
InCube Ventures
Kern Whelan Capital
Kleiner Perkins Caufield & Byers
Lightspeed Venture Partners
Lovell Minnick Partners
6
Menlo Ventures
Norwest Venture Partners
ONSET Ventures
Pacific Venture Group
Prescient Capital
Rincon Venture Partners
Sand Hill Angels
Sequoia Capital
Silicon Valley Bank
Silverton Partners
Tech Coast Angels
Tenaya Capital
Trident Capital
TriplePoint Capital
Investment in Pittsburgh’s technology sector | Trends and highlights
New England region
Advanced Technology Ventures
Bain Capital Ventures
FourWinds Capital Management
GE Healthcare
Harbor Light Capital Partners
Highland Capital Partners
Nexus Medical Partners
North Atlantic Capital Corp.
Polaris Venture Partners
Saturn Management
Spectrum Equity Investors
Summit Partners
New York region
Enhanced Capital Partners
ff Venture Capital
General Atlantic
Golden Seeds
ICV Capital Partners
Insight Venture Partners
Morgan Stanley
New York Angels
Northwood Ventures
Ogden Capital
Radius Ventures
Rose Tech Ventures
The NPD Group
The Vertical Group
Union Square Ventures
Warburg Pincus
Philadelphia region
Comcast Ventures
Cross Atlantic Capital Partners
Delaware Crossing Investor Group
Edison Ventures
First Round Capital
Innovation Ventures
Mid-Atlantic Angel Group Fund
NewSpring Capital
Novitas Capital
Originate Ventures
Osage Partners
Quaker Partners
Robin Hood Ventures
Midwest
Baltimore/Washington, DC region
Arboretum Ventures
Ascension Health Ventures
Capvest Venture Fund
Chrysalis Ventures
CID Capital Inc.
Hopewell Ventures
River Cities Capital Funds
Salix Ventures
Seneca Partners
ABS Capital Partners
Active Angel Investors
Columbia Capital LLC
Horizon Technology Finance
New Atlantic Ventures
April 2013
New Enterprise Associates
Oxford Finance Corporation
Square1 Bank
Virginia Active Angel Network
Vital Financial LLC
7
2012 Pittsburgh investment highlights
The following were among the Pittsburgh companies completing funding rounds in 2012:
4moms
www.4moms.com
CEO: Robert Daley
Investors: Bain Capital Ventures, Blue Tree Allied Angels,
Innovation Works
4moms (Thorley Industries, LLC) has introduced robotics
technology to the juvenile industry with its innovative
4moms baby gear products. Products include: mamaRoo®
infant seat designed to move the way parents do when
comforting their babies; origami® stroller, the world’s
first power-folding stroller; breeze™ playard that opens or
closes in one easy step; and infant tub and spout cover with
built-in digital thermometers to make bath time safe and
comfortable.
Aethon, Inc.
www.aethon.com
CEO: Aldo Zini
Investors: Ascension Health Ventures, Draper Triangle
Ventures, Mitsui USA, Radius Ventures, Robert Bosch
Venture Capital Group, Salix Ventures, Trident Capital
Aethon improves healthcare efficiency and patient care
by providing innovative logistics solutions. Its industry
leading mobile robotic platform (TUG) enables hospitals to
automate and improve the delivery and retrieval process
across all major functions – including medications, supplies,
meals, linen, and waste removal. Its product tracking and
security software (MedEx) gives hospitals the ability to track,
monitor and electronically document the delivery process,
particularly for high-value medications and other items
requiring consistent chain-of-custody documentation
ALung Technologies, Inc.
www.alung.com
CEO: Pete DeComo
Investors: Birchmere Ventures, Eagle Ventures, BlueTree
Allied Angels, Innovation Works, Pittsburgh Life Sciences
Greenhouse, Private Investors
8
ALung is commercializing the Hemolung Respiratory Assist
System (RAS), a dialysis-like alternative or supplement to
mechanical ventilation originally developed at the University
of Pittsburgh. The Hemolung RAS removes carbon dioxide
and delivers oxygen directly to the blood, allowing the
patient’s lungs to rest and heal. A simple extracorporeal
circuit, small venous catheter, and techniques similar to
hemodialysis make the Hemolung RAS easy to use.
Investment in Pittsburgh’s technology sector | Trends and highlights
Aquion Energy, Inc.
www.aquionenergy.com
CEO: Scott Pearson
Investors: Advanced Technology Ventures,
Kleiner Perkins Caufield & Byers, Foundation Capital
Aquion Energy is fundamentally changing the economics
of power generation and distribution by developing and
commercializing a safe, reliable, and affordable energy
storage solution from nontoxic components as simple
as saltwater. Based on the research of Carnegie Mellon
University Professor Jay Whitacre, Aquion’s proprietary
Aqueous Hybrid Ion (AHI) battery overcomes the pitfalls of
conventional energy storage technologies. AHI systems will
enhance the electrical grid by providing flexible, emissionsfree capacity that optimizes existing generation assets and
enables broad adoption of renewable energy technologies.
Avere Systems
www.averesystems.com
CEO: Ron Bianchini
Investors: Lightspeed Venture Partners, Menlo Partners,
Norwest Venture Partners, Tenaya Capital
Avere is defining a new architecture for data storage
that enables customers to achieve unlimited storage
performance scaling, locate storage and compute resources
where it is most advantageous for the business – all while
cutting storage costs by more than half. In a broad range of
industries from Media to Financial Services, from Software
Development to Oil & Gas, from Life Sciences to Web, Avere
customers are using its products to optimize their NAS
infrastructure and increase the throughput and scalability
of key applications and workflows, resulting in productivity
gains that translate to higher revenues and happier
customers.
Branding Brand
www.brandingbrand.com
CEO: Chris Mason
Investors: Insight Venture Partners, CrunchFund
Branding Brand powers mobile commerce sites and apps for
over 150 of the world’s leading retailers, including American
Eagle Outfitters, Crate & Barrel, Ralph Lauren, and Sephora.
Founded in 2008 by three friends from Carnegie Mellon
University, the company launched a mobile platform at the
end of 2009 to seamlessly extend brands into optimized
experiences for smartphones, tablets, and in-store. It is now
the largest m-commerce provider to the Internet Retailer
Top 500. Partners include eBay and Google.
April 2013
9
2012 Pittsburgh investment highlights
CivicScience, Inc.
www.civicscience.com
CEO: John Dick
Investors: Cox Enterprises, Innovation Works,
New Atlantic Ventures
CivicScience polls millions of consumers every week on their
favorite websites and social networks. The company’s polls
ask users about favorite brands, TV shows, current events,
and just about anything else you can think of. CivicScience
then helps the world’s leading marketers and other decisionmakers see results in real-time and dive deep into the most
important trends. The company makes survey research
super-fast, super-easy, and super-smart. CivicScience’s
proprietary data mining technology uncovers the most
important insights automatically and makes them easy to
understand.
Cohera Medical, Inc.
www.coheramedical.com
CEO: Patrick Daly
Investors: Bradford Capital Partners, Kern Medical LLC,
Innovation Works, Pittsburgh Life Sciences Greenhouse
Cohera Medical, Inc is a leading innovator and developer of
absorbable surgical adhesives and sealants that improve
patient care and quality of life. Cohera has entered the
European market with its first product offering, TissuGlu®
Surgical Adhesive, which Cohera’s researchers designed to
help plastic and aesthetic surgeons to eliminate or reduce
fluid accumulation and the need for post-surgical drains in
abdominoplasty (tummy tuck) and other large flap surgical
procedures. TissuGlu Surgical Adhesive is resorbable,
biocompatible for internal use, uses no human or animal
based ingredients and forms a strong bond between tissue
layers.
Cognition Therapeutics, Inc.
www.cogrx.com
CEO: Hank Safferstein
Investors: Alzheimer’s Drug Discovery Foundation, Golden
Seeds, Innovation Works, OgdenCAP, Pittsburgh Life
Sciences Greenhouse, Tech Coast Angels
10
Cognition Therapeutics is committed to the discovery
of new, disease-modifying therapeutics to improve the
lives of those living with Alzheimer’s disease and other
neurodegenerative disorders. The company is developing
first-in-class small molecule drugs that effectively block
the interaction of toxic Abeta proteins with their receptor
on brain cells and thus stop memory loss. CogRx’s drugs
are the first small molecule Abeta oligomer receptor
antagonists ever reported.
Investment in Pittsburgh’s technology sector | Trends and highlights
Complexa, Inc.
Complexa, Inc. is a biopharmaceutical company focused
on discovering and developing innovative therapies for the
treatment inflammatory and metabolic diseases. Though
www.complexarx.com
strong preclinical proof of concept data exists in several
CEO: Joshua Tarnoff
disease categories, initial focus is placed on acute and
Investors: Scientific Health Development, Innovation Works, chronic kidney disease. The Company’s human pathway
Pittsburgh Life Sciences Greenhouse, Upstart, and Individual signaling discoveries have revealed new classes of drug
candidates that are based on naturally-occurring nitro-fattyInvestor
acids. Complexa’s lead compound CXA-10 is expected to
receive IND status and enter into human trials 2013.
ModCloth, Inc.
www.modcloth.com
CEO: Eric Koger
Investors: Accel Partners, First Round Capital, Floodgate,
Harrison Metal, StubHub Founder Jeff Fluhr,
Norwest Venture Partners
ModCloth’s mission is to democratize the fashion industry.
ModCloth seeks to do so by empowering its community of
shoppers through a social commerce platform that brings
products to market with customer feedback and validation.
Programs like Be the Buyer™ allow customers to vote items
from emerging designers into production. In just several
years, ModCloth has grown from its humble beginnings
in a Carnegie Mellon University dorm room to “America’s
Fastest-Growing Retailer.”
NoWait, Inc.
www.nowaitapp.com
NoWait is aiming to become the OpenTable for restaurants
that don’t take reservations. The Pittsburgh company, which
helps would-be diners find out wait times in advance and get
text messages when a table is ready, has seated more than
9.2 million patrons to date.
CEO: Ware Sykes
Investors: Birchmere Ventures, Sand Hill Angels,
Innovation Works, Alphalab
April 2013
11
2012 Pittsburgh investment highlights
RedZone Robotics, Inc.
www.redzone.com
CEO: Michael Lach
Investors: ABF Capital Partners, FourWinds Capital
Management, Smithfield Trust, Innovation Works
RedZone Robotics simplifies wastewater management by
providing municipal clients with the information and tools
necessary to address their most valuable wastewater assets
– their sewer pipes. RedZone delivers high performance
pipeline inspection products and services for municipalities,
contractors and engineering firms across North America.
The Resumator
www.theresumator.com
CEO: Don Charlton
Investors: Birchmere Ventures, Rincon Venture Partners,
ff Venture Capital, Innovation Works, Alphalab
The Resumator is a Pittsburgh-based software company
that develops Web 2.0 recruiting software. Featured on
TechCrunch, Mashable and CNET, the company’s software
empowers growing businesses with fun-to-use recruiting
tools they’ve never had, but have always needed. The
Resumator helps employers extend the reach of their jobs
and makes reviewing resumes very efficient.
Voci Technologies
www.vocitec.com
CEO: Anthony Gadient
Investors: BlueTree Allied Angels, Innovation Works,
Pittsburgh Equity Partners
12
Based on 8 years of research conducted at Carnegie Mellon
University, Voci’s mission is to enable enterprises to extract
intelligence from voice data. Voci’s patented technology
provides a unique combination of superior accuracy, lowest
operating costs and ability to extract emotional-sentiment
from voice data allowing enterprises to obtain business
intelligence and hear the tone of their customers in
real-time.
Investment in Pittsburgh’s technology sector | Trends and highlights
Methodology
The data in this report comes from a combination of the Dow Jones VentureSource database and private company data from
Innovation Works, Inc. The investment rounds tracked in these datasets were completed by companies in the Pittsburgh
region from January 1, 2008 to December 31, 2012. For the purpose of this report, both equity and convertible note
investments were counted as “venture” investment. The geographic boundary of the Pittsburgh region used in this report
corresponds to the Pittsburgh Metropolitan Statistical Area, as utilized by the U.S. Census Bureau. Throughout this report,
the terms “deal” and “round” are used interchangeably, and refer to a single reported round of funding. Companies may
complete more than one fundraising round in a single year, in which case each round is counted as a separate “deal.”
About Ernst & Young
About Innovation Works
Ernst & Young is a global leader in assurance, tax,
transaction and advisory services. Worldwide, our
167,000 people are united by our shared values and
an unwavering commitment to quality. We make a
difference by helping our people, our clients and our
wider communities achieve their potential.
Innovation Works, Inc. (IW) invests capital, business
expertise and other resources into high-potential
companies with the greatest likelihood for regional
economic impact in the Pittsburgh region. IW is the
single largest investor in seed-stage companies in this
region and is one of the most active seed-stage investors
in the United States. Three-quarters of all recent
venture-funded companies in the Pittsburgh region had
previously received funding from IW. Innovation Works
is an initiative of the PA Department of Community and
Economic Development and is funded by the Ben Franklin
Technology Development Authority.
Ernst & Young refers to the global organization of
member firms of Ernst & Young Global Limited, each of
which is a separate legal entity.
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Ernst & Young Global Limited operating in the US.
April 2013
13
This publication contains information in summary
form and is therefore intended for general guidance
only. It is not intended to be a substitute for detailed
research or the exercise of professional judgment.
Neither Innovation Works, Inc, Ernst & Young LLP
nor any other member of the global Ernst & Young
organization can accept any responsibility for loss
occasioned to any person acting or refraining from
action as a result of any material in this publication.
On any specific matter, reference should be made to
the appropriate advisor.
© 2013 Ernst & Young LLP.
© 2013 Innovation Works, Inc.
All Rights Reserved.
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