Silicon Valley, New York City and Pittsburgh? While not typically thought of as a traditional venture capital (VC) market, on an annual basis, Pittsburgh venture capital activity shows more than $120 million in funding per year since 2010. In fact, in the third quarter of 2017 alone, the city raised more than $110 million across 10 deals, according to the PwC/CB Insights Q3 MoneyTree Report.
VC across the U.S.
From a national perspective, VC funding continues to be strong throughout the U.S., with $19 billion deployed across 1,207 deals – the strongest quarter for funding in two years. This is being driven by the rising number of mega-rounds (deals valued at $100 million+), with 26 occurring in Q3. And with startups choosing to stay private longer, instead of entering the public market, this trend is expected to continue for the foreseeable future.
Pennsylvania ranks in top 10 for VC
Pennsylvania ranked among the top 10 for both dollars and deals compared to other states. Specifically, the state tied with North Carolina at eighth for deals and was ranked 10th for dollars. For Q3 2017, the state pulled in a notable $225.8 million in venture capital funding across 23 deals, with dollars being split almost evenly between the state’s two largest cities: Philadelphia Metro and Pittsburgh.
So far this year, the state has clocked 73 deals for $536.8 million. And while a few large deals can skew the findings for a single quarter or year, it is clear that Pennsylvania has continued to take a larger slice of the venture capital pie, going from only $145 million in 1995 (when the MoneyTree report began) to $693 million for all of 2016.
While health care is the largest sector for the state, thanks to the strong biotech presence in the eastern part of Pennsylvania, the area also draws funding for a number of other sectors, including internet, automotive and transportation, industrial, mobile and telecom and software. Having a diverse lineup of industries regularly receiving funding is critical for the long-term success of any VC ecosystem. This diversity is important to the overall health of the investments in the state because it prevents the decline of one sector from having a significant negative effect.
A spotlight on Pittsburgh
Taking a closer look at Pittsburgh venture capital activity, expansion stage deals count for more than half of the dollars raised for the year through Q3 of 2017 at $114 million. It is typical that expansion and later-stage deals will receive the majority of funding in a market, as these more established companies typically need a higher investment to continue innovation. But, despite this, there is still a mix of startups from all stages securing funding on a regular basis in Pittsburgh. Similar to the need for diversification in business areas, having startups in a variety of stages is also key to a strong VC economy.
So how can Pittsburgh attract more VC investments?
The most important way is by continuing to reinforce the city’s reputation as a center for innovation. While much of the country may picture the steel factories that once were the backbone of our great city, Pittsburgh is also home to some of the most cutting-edge industries. From the burgeoning driverless car industry to life sciences innovations, continuing to develop these new areas will also help the city to flourish.
We continue to see that VC funding doesn’t have to be concentrated in Silicon Valley. In fact, for Q3 2017, four of the top five deals were outside of the region, further underscoring that venture capital is alive and well even in non-traditional markets. So, while Pittsburgh is still a long way from dethroning the Valley, it still is a solid incubator for companies looking to establish themselves.
By Bob McCutcheon, US Industrial Products Leader, PwC
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