Pittsburgh’s AI expertise may give rise to an already growing startup market

Emerging markets tend to go in and out of vogue. First, Austin was the next biggest thing, then Atlanta and, more recently, Miami. Pittsburgh has yet to have its moment, but all the signs are there that it could be next. Having local expertise in the category every VC wants to invest in right now doesn’t hurt, either.

The Steel City has all the ingredients to be a hub for startups: a good university system, a cheaper cost of living — definitely when compared to places like New York and the Bay Area — and a proliferation of seed firms and startup accelerators. Plus, it has seen a homegrown success story in language learning app Duolingo, which went public at a nearly $4 billion valuation in 2021.

Startups in the city raised more than $534 million through December 12, 2022, according to PitchBook, which, while not a lot of capital, is better than 2021, when they raised $336 million. And while the data is not consistently trending up and to the right — there was a huge outlier deal (Uber Advanced Technologies) in 2019 that spiked the yearly investment total to $1.3 billion — venture investors on the ground can feel the city’s potential. (I talked about Pittsburgh’s startup ecosystem on the City Cast Pittsburgh podcast recently in the context of two high-profile startup failures there, Ford- and VW-backed Argo AI and robotic vertical farming outfit Fifth Season. You can give it a listen here.)

Ven Raju, the president and CEO of Innovation Works, a local startup accelerator and seed fund, said he’s seen the market grow 10x in the last decade and 6x in the last three years.

“The ecosystem is on a tremendous upward trajectory,” he added.

Multiple local investors echoed this. Zach Malone, a partner at Magarac Ventures, said that he’s seen the quality of deal flow improve greatly, in addition to the emergence of multiple repeat founders.

These building blocks alone don’t put Pittsburgh in a better position than any other emerging tech ecosystem, though. What does set Pittsburgh apart is the talent and prowess in the one particular sector that venture capitalists can’t stop talking about: artificial intelligence.

“[Artificial intelligence] has been a big part of the ecosystem here for a long time,” Malone said. “It helped start Duolingo and reCAPTCHA; same with robotics, two fields that have come into vogue recently. In the ’90s, they were more research projects, but now they are ready for mass adoption.”

Most of this expertise is the work of Pittsburgh-based Carnegie Mellon University, which has long been considered a powerhouse for AI research. It even claims on its website that AI was invented there, but there are mixed narratives for that. But regardless, the university currently ranks No. 1 on the subject, according to U.S. News & World Report, and almost consistently lands high on various lists.

But for the longest time, artificial intelligence was not a popular category with most VCs. After Microsoft’s chatbot Tay showcased how easy it is for AI tools to tap into bias and show hate, many VCs took a step back from the category, maybe because the social implications were too risky or the technology didn’t feel ready. But that’s now changing.

For Abridge co-founder and CEO Shiv Rao, Pittsburgh was the right place to build his company, which uses generative AI to take notes for medical professionals and draft summaries of appointments.

“Once we recognized what it would take to go after this challenge, we had all the ingredients we needed in front of us to build a real AI-centered startup,” Rao said about building in Pittsburgh. “From a talent perspective, our chief scientific officer is a professor at CMU, and he is a crucial aspect to what we do at the company.”

Abridge raised a $12.5 million Series A over the summer on capital from firms located outside the region, including Bessemer and Union Square Ventures — also an early backer in Duolingo. It wasn’t the only AI-focused company in the region to raise recently, either. Gather AI raised $10 million and Bloomfield Robotics raised $6.1 million, among many others.

Notice all of these are early-stage companies, which means VCs outside the region will largely be watching them grow. Ilana Diamond, a managing partner at 412 Venture Fund, told TechCrunch that she already spends a solid percentage of her time talking to later-stage VCs outside the region that want to keep abreast of which companies in Pittsburgh are rising through the ranks.

“I bet I spend a third of my time, maybe a quarter of my time, hearing from folks who want to meet on a regular basis and want to share deal flow,” she said.

Now Pittsburgh will have to learn to strike the balance. If VCs bring the hype to Pittsburgh’s AI scene, startups will have to make sure they don’t fall into many of the pitfalls of their coastal counterparts in taking on too much VC money at too high a valuation.

Hopefully, VCs will give a rise to the ecosystem and not swallow it whole.

“I think that it’s going to be an incredible tailwind for the Pittsburgh ecosystem in general,” Rao said. “There is so much talent from an AI perspective at Carnegie Mellon and research coming out of Carnegie Mellon is looking to translate a lot of this foundational work into real-world value.”