Language learning platform Duolingos The upcoming IPO will mark the first major public debut of Pittsburgh’s burgeoning startup scene. Those familiar with local tech players say we can expect more large exits from the historic steel city and that, in turn, could spur more startup activity in the city.
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For its part, Duolingo has been all-in in Pittsburgh from the get-go and even put up a billboard along a major San Francisco freeway in 2018 encouraging people to move to his hometown, where the company advertised that they work in the tech field and it could afford to own a home.
The company, which went public in late June, is one of Pittsburgh’s most prestigious tech companies after raising more than $ 183 million from investors, including General Atlantic and Little Perkins. With this in mind, we look at the city’s technology ecosystem and what the upcoming Duolingo IPO could mean for the startups there.
Funding for venture-backed companies in Pittsburgh has gone up and down over the years, with 2021 getting off to a slow start. VC-backed companies based in Pittsburgh and East Pittsburgh raised just over $ 61 million on 38 transactions in the first half of 2021, Crunchbase figures show.
That’s a sharp drop from the same period in 2020 when venture capital-funded startups raised more than $ 119 million in 59 deals, though last year’s deals included later rounds of funding, which are typically larger. For the entire past year, Pittsburgh-based companies raised approximately $ 288 million.
Duolingo dollars could boost startups
Duolingo’s initial public offering is a positive development for the city as the wealth created by exiting the public market is likely to be invested in the local startups emerging there Catherine Mott, a longtime investor and founder of the BlueTree Capital Group, BlueTree Allied Angels, and the BlueTree Venture Fund.
“It creates additional entrepreneurs and additional rich people who invest in other entrepreneurs,” Mott said. “It creates more of an angel community and venture climate because most of the money in Pittsburgh is old money and risk averse.”
Crunchbase figures show that funding from VC-backed Pittsburgh-based companies peaked in 2019 when they raised nearly $ 3.9 billion. However, that number is skewed to order by the oversized rounds of funding Argo AI ($ 2.6 billion) and About Advanced Technologies ($ 1 billion). Both ArgoAI and Uber Advanced Technologies are in the autonomous vehicle space, which is known to be capital intensive. Without these two big rounds, startups from the Pittsburgh area raised about $ 263 million in 2019 – roughly at the 2020 level.
Duolingo was among the companies that raised the largest funding rounds in 2020, 2019 and 2017. The company was last valued at $ 2.4 billion, and its IPO would provide major endorsement to the city’s startup ecosystem, which has brought only four big-name companies public over the past two decades or so.
Robotics and autonomous driving are two of the industries Pittsburgh is known for “Robotics Series” Home to a number of companies in the AI, robotics, autonomous vehicles and related fields.
Carnegie Mellon University, known for its computer science programs, is also home to the Argo AI Center for Autonomous Vehicle Research. And the autonomous vehicle company Aurora last year acquired Uber Advanced Technologies, based in Pittsburgh.
The city also has many of the qualities of a growing startup hub, including access to talent from both the CMU and the University of Pittsburgh and the presence of large technology companies, including Google and Amazon.
While venture funding for businesses in Pittsburgh remains comparatively meager, other important parts of a dynamic startup ecosystem have grown steadily. When Mott founded BlueTree in 2003, there was only one incubator in town, she said. But before the pandemic broke out in 2020, there were nearly 30 incubators, accelerators, and co-working spaces.
While major tech companies have offices in Pittsburgh, many of the city’s startups are native and incubated there, according to Nadyli Nunez, executive director of Ascender, a Pittsburgh entrepreneurship community.
“We’re seeing more and more people stay,” said Nunez. “Four new funds were launched last year.”
A Pittsburgh perspective
Matt Spettel, co-founder of the fitness startup DeltaTrainer and a CMU graduate who viewed Pittsburgh, the Boston area, and California as places to build their business that provide users with a personal training experience. Its co-founder had attended the Massachusetts Institute of Technology and Spettel got a taste of life in California after attending a summer program there by the CMU.
But the two eventually chose Pittsburgh after discovering that the cost of hiring personal trainers for the company was much lower in Pennsylvania than in California. They were able to raise their entire pre-seed round of $ 700,000 from 11 angel investors who were either CMU alumni or closely associated with the university.
The stay in Pittsburgh also helped them identify the need for a fitness product that wasn’t as good quality as Pelotonsaid Spettel.
“It was a completely different startup atmosphere,” said Spettel. “People built products for people like themselves and people who were in the [San Francisco] bay [Area]which makes sense … but I think by creating a product for the people around us here in Pittsburgh rather than in other big places like LA or New York, we stumbled upon this market that the pelotons of the world are not targeting becomes. ”
One problem with Pittsburgh’s ability to scale businesses, however, is the number of venture capital firms in the region, according to Mott. There are many angel investors out there who can help entrepreneurs in need of between $ 1 million and $ 3 million.
But there aren’t enough funds for the growth phase to get companies to the place where they would attract coastal investors looking to raise more than $ 10 million, Mott said.
More funds create a healthy ecosystem and help companies achieve the metrics that even large VC companies want to invest in. According to Crunchbase data, there are 39 venture capital, corporate VC and micro VC firms in Pittsburgh and East Pittsburgh.
“It is a challenge for these young companies and this is exactly where the gap lies. We need more people willing to support the Growth Fund, Series A and Series B rounds, ”said Mott.
Duolingo may be one of just a handful of Pittsburgh-based companies to go public, but it’s not the only start-up getting out of town. Notable acquisitions include the acquisition of Uber Advanced Technologies Aurora and Wombat security ‘s takeover by Point of evidence.
Exits have been coming from Pittsburgh for a while, and the returns are helping to fuel more investment, Mott said, suggesting more startup activity.
“It also helps attract new founders who have the opportunity to make money and start their own businesses,” said Mott. “So this ecosystem – it wasn’t that obvious because we don’t have the big IPOs – but we have some really great success stories and it’s growing and growing. And I think we will continue to attract the attention of many other investors. “
Illustration: Dom Guzman
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