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Pittsburgh tech companies raised just over $3 billion in funding last year, led by landmark investments in autonomous vehicle startups, a report published March 20 by Ernst and Young and Innovation Works found.
The sector continues to suffer from a lack of local venture capital but attracted 57 new investors in 2023, contributing to the region’s second-largest annual total since the groups started collecting data on local tech companies 12 years ago.
Autonomous vehicle startups Aurora and Stack AV dominated the year’s capital gains, which totaled $3.12 billion, a 203% increase from 2022 that occurred despite a nationwide decline in VC funding, the report found.
But even beyond those two companies, the tech economy appeared to do well.
The average deal size, with Stack and Aurora excluded, was $6.9 million, a 50% increase from 2022. The rise came even as the total number of investment rounds, 175, fell to its lowest level since 2015. Ven Raju, CEO of Innovation Works, said that’s partially because companies are closing larger rounds.
Stack AV, which grew out of the now-shuttered Argo.ai, secured $1 billion from Softbank last fall, while Aurora raised $820 million over the summer through a second public offering and private raise. Gecko Robotics also had a banner year, with a $100 million Series C.
Stack AV is developing autonomous driving technology for on-highway Class 8 trucks. (Stack AV)
Series A, B and C funding rounds are separate fundraising events that businesses use to raise capital, according to Investopedia. Each round is named for the series of stock being issued.
The 2023 report showed that Pittsburgh continues to lag behind other cities in venture dollars invested per capita. The region ranks 15th nationally, immediately below Miami and Minneapolis.
Even in AI-related deals, where Pittsburgh cracks the top 10, it ranks lower than Miami and Raleigh, N.C., surprising some observers who point to the extensive AI expertise at Carnegie Mellon University.
“Pittsburgh should be the number one in that list,” said Justin McElhattan, a newly minted venture capitalist who founded Nicely Road Capital last year after more than 20 years at Industrial Scientific.
Less surprising, the report found that Pittsburgh continues to lack the local venture capital dollars other technology hubs enjoy.
A few local funds have emerged in recent years, including Blue Tree Capital Group, Black Tech Nation Ventures, Magarac Venture Partners, Reinforced Ventures and Riverfront Ventures, but they are all still nascent, Raju said.
“Right now, many of them are in the sub-$50 million range. My hope and expectation is that once they get to their fund three, fund four, we’ll see a market step up in terms of overall assets under management,” he said. “It takes time for these funds to grow organically.”
Larger institutional funds like Sequoia Capital, often based on the coasts, could also set up an outpost in Pittsburgh, especially as the city continues to grow its reputation, Raju said.
“Part of our job … is to promote and underscore what’s happening,” he said.
Pittsburgh might never be Silicon Valley, but it has its own strengths worth celebrating, said Sean Sebastian, a local venture capitalist who co-directs Black Tech Nation Ventures, which recently completed its $50 million raise.
“We have an incredibly vibrant university space [with] students and faculty spinning off ideas that are super compelling,” he said.
Pennsylvania officials have said recently that research and development dollars are not translating to commercialized success in the state. Raju said there could be some truth to that claim, but he emphasized that not all R&D spending is in pursuit of profit. For groups that are looking to scale, he said “there are avenues in the region.”
“The onus is on organizations like Innovation Works and others who help shepherd companies at the very earliest stages,” Raju said.
Those opportunities include IW’s Scale residency, which welcomed its first cohort earlier this month, as well as CMU’s annual McGinnis Venture Competition, overseen by the Swartz Center for Entrepreneurship, which granted five student teams nearly $60,000 on March 19.
The IW/EY report highlighted several life sciences leaders, including Carmell Therapeutics, Krystal Biotech, Imagine Pharma, Seegrid and Abridge, as well as early-stage companies that landed Series A deals — Optimus Technologies, LyGenesis, Agile Space Industries, Formlogic and BlastPoint. Agile helped build the rocket thrusters for Astrobotic’s next trip to the moon.
Ten tech companies included in the report had exits through acquisitions last year, while Aurora and Coeptis Therapeutics each had second public offerings. Not mentioned in the report, however, was Sarcos, which closed its Pittsburgh office in November, after acquiring RE2 Robotics in 2022. Some observers said the saga demonstrated that exits don’t always translate to lasting success.
There have been other losses too, said Audrey Russo, president and CEO of the Pittsburgh Technology Council, citing Neubase Therapeutics, which was approaching an initial public offering but instead closed down.
Russo said she wanted to see the underlying data in the IW/EY report to better understand what companies were included. IW said it couldn’t provide the full list of companies, as some of the investment figures are not publicly disclosed.
So far, 2024 has been a mixed bag for local tech companies, with a significant $150 million raise by AI health-care startup Abridge, and layoffs at the college review software company Niche. Excelitas Technologies Corp announced in January it is relocating from Boston to the Strip District, a four-year move that promises to bring at least 250 jobs.
