A decade of growth: investment in Pittsburgh’s technology ...

A decade of growth: investment in Pittsburgh's technology sector

Trends and highlights, 2008--2017

A decade of growth in Pittsburgh's technology community

Ernst & Young LLP and Innovation Works, Inc. are proud to present our sixth annual review of Pittsburgh's technology investment landscape. We've now analyzed a decade's worth of comprehensive data on the companies attracting capital in the region, the investors funding them and the exits they generate. The trends emerging from the past 10 years paint a compelling portrait of regional growth and point towards a bright future.

Over 450 unique Pittsburgh companies attracted a total of $3.5 billion in investment over the past 10 years. The amount of capital invested and number of companies receiving funding have both increased dramatically over the 10-year period, pointing to a robust pipeline of early-stage companies to drive growth over the next decade and beyond. From 2008 to 2017, annual investment amounts grew 198%, and the number of annual deals increased by 129%.

Pittsburgh's strong reputation and growing population of technology companies have proven a major attraction for investors. Over 250 investment firms from around the world have invested in Pittsburgh-based companies in the past 10 years, including 20 out-of-town firms making their first investments in Pittsburgh in 2017.

Pittsburgh's technology ecosystem also attracts A-list corporations. In the past decade, more than 80 local companies were acquired by the likes of Amazon, Autodesk, Delphi Automotive, IBM, Philips Healthcare, Smith & Nephew, and Yelp ? all of which maintained operations in Pittsburgh. These deals, along with several public offerings, generated more than $8.7 billion in disclosed exit proceeds. The values of many deals are undisclosed, so the total exceeds the reported figure.

Furthermore, major technology companies, including Uber, Facebook, Apple, Bosch, GE and Tata, have opened technical or research offices in Pittsburgh in the past five years. This is a testament to the high-quality research faculty and students at the local universities, which help furnish Pittsburgh with an exceptional base of technical talent. In the past decade, Carnegie Mellon University, the University of Pittsburgh and Duquesne University attracted nearly $10 billion in research funding. In the same period, the universities doubled the number of technology licenses granted and more than tripled the number of patents issued.

Both EY and Innovation Works are committed to supporting entrepreneurial growth in the region. Tracking investment activity helps us begin conversations with new investors interested in regional deals, informs local investors about our status versus other communities, and chronicles what's working and where we need to focus efforts. We hope this report provides you with useful insights into the state of the local technology community and venture capital ecosystem and inspires new ways to move it forward.

Leon Hoffman Pittsburgh Office Managing Partner, Ernst & Young LLP

Rich Lunak CEO, Innovation Works, Inc.

Investment in Pittsburgh's technology sector | Trends and highlights

Record year for tech investment in

$687.7

Pittsburgh

$45.5

$3.9

230.9 $6.4 $24.3 $47.5

152.7

2008

$1$52390..19 $6$6.3.4

$24.3 $47.5

$96.3

$$2185.28.7 $27.7 20200098

$407.6

$317.2

$140.6 $407.6 $6.3

$4.5 $20.4 $36.3

$159.1

$29.3

$317.2

$140.6 $92.3$6.3

$4.5 $20.4

$36.3

$29.3 $92.3

$$6.2305.8

$189.3

$96.3

$205.8

$189.3

$332.8

$4.7 $34.1

$332.8

$66.7

$4.7 $34.1 $66.7

$227.3

$227.3

$28.8 $27.7

20209010

VC

2010 20112011

20210122

VACngel Angel CorpCoorrapotreat&e &OOtthheerr

$437.8

$3.8 $28.2

$299.9

$437.8$72.9

$3.8 $28.2

$29$99.95.4

$4.7 $21.6

$95.4

$4$.57 4.2

$21.6

$54.2

$72.9

$279.6

$4.9

$23.4

$332.9$33.9

$332.9

$124.0

$217.4

$124.0

$279.6

$376.2

$4$.59.1 $23.4 $3$36.69.4

$69.6

$217.4

$235.1

202103 13 2014 2014 2015 SeeSdeFeudndFsu&nAdcsce&lerAatcocrseleratIoPrOs

20210516 IPO

$687.7 $45.5 $3.9

$376.2 $21$65.1.1

$66.4 $8$26.09.6

$3$4203.25.1

20210716

$216.1

More than

$687 $82.0 million

was invested in Pittsburgh technology companies in 2017, the

$340.2

largest amount in at least 10 years.

2017

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

2017 marked the largest single year for total investment in Pittsburgh tech companies in at least a decade. Funding from VCs and corporate investors were each at 10-year highs, driven by Ford's $1 billion commitment to Argo AI* and Petuum's $93 million Series B financing round. The two aforementioned financing events are among the largest on record for privately held Pittsburgh tech companies.

The total investment in technology companies experiences significant year-to-year fluctuations. To uncover the underlying trend, it is helpful to examine a three-year rolling average as shown in the adjacent chart. The value displayed for each year is the average of the total investment amount in the three prior years (i.e., the value for 2010 is the average of the total investment in 2008, 2009 and 2010). The average investment increased in each of the last three years and grew 68.4% since 2010.

Total funding: three-year rolling average ($ millions)

$447.8

$265.9

$294.6

$352.5

$316.6

$356.8

$339.1

$364.5

2010

2011

2012

2013

2014

2015

2016

2017

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

*Press releases from Ford and Argo AI described the financing round as a $1 billion commitment over five years. For the purposes of this report, it was assumed that $200 million would be invested each year over the five-year period. The 2017 investment amount for this report was prorated to reflect the fact that the financing round occurred in February.

March 2018

1

Pittsburgh presents a robust pipeline of opportunities

In 2017, the number of financing rounds and the number of unique companies raising funding continued to grow, each reaching 10-year highs. The number of deals funded by angels and VCs both reached 10-year highs in 2017. The number of deals led by corporate investors decreased in 2017; however, corporate venture capital groups were participants in six of the 10 largest, local financing events in 2017.

71

85 37 2 21 25 2008

83

113 50 11 30 22 2009

95

127* 42 16 40 28

2010

104

123 36 12 43 32 2011

125

165 48 23 59 35 2012

VC Seed Funds & Accelerators

Angel IPO

108

148* 59

19 38 31 2013

125 177 62

15 61 39 2014

152

158

137

179

188

195*

73

59

56

10 12

16

78

85

55

35 2015

39 2016

43

* Includes IPO

2017

Corporate & Other Unique Companies Funded

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

Number of investment rounds: three-year rolling average

181

187

163

168

138

145

149 138

121 108

94

108

112

119

123

83

2010

2011 2012 2013 2014

2015 2016

2017

Investment Rounds

Unique Companies

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

The three-year rolling averages of the above data reveal a strong upward trajectory from 2010 to 2017. Specifically, the data indicates a 79.5% increase in the number of unique companies funded, a 73.1% increase in the number of deals. While the number of deals has increased, the median deal size has decreased, indicating a proliferation of early-stage companies raising smaller rounds, which serve as a pipeline for future growth.

2

Investment in Pittsburgh's technology sector | Trends and highlights

Increased diversification among sectors funded

Pittsburgh tech companies have attracted over $3.5 billion in funding over the past 10 years, including $2.1 billion in the past five years. The majority of investment dollars flowed to software and life sciences companies. The percentage of total capital attracted by hardware and robotics companies has increased over the past several years while the percentage flowing to energy and industrial deals has receded.

Dollars invested in Pittsburgh technology companies ($ millions) by tech sector

$230.9 7.0% 10.8% 10.3%

54.0%

17.9% 2008

$159.1 $407.6 $317.2 $332.7 $299.9

14.4% 13.0% 15.8%

33.3%

23.4% 2009

19.3% 0.9% 39.4%

32.6% 7.8% 2010

5.2% 13.4%

38.5%

26.6% 16.4% 2011

31.5% 8.4% 11.8%

31.4%

16.9% 2012

2.4%

44.9% 7.3% 27.0% 18.4% 2013

Software Life Sciences Hardware & Robotics

$437.8 $279.5 $376.2

14.3% 21.9% 22.1% 20.6% 21.2%

10.0% 3.6% 13.5%

39.1%

33.8%

6.7% 12.2% 25.5%

28.5%

27.1%

2014

2015

2016

Energy & Industrial Other

$687.7 3.5% 1.6% 32.4%

27.2%

35.3% 2017

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

More than 450 unique local companies raised funding in the past 10 years. This chart illustrates the industry sector composition of the unique companies receiving investment in each of the past 10 years. While life sciences and software companies still comprise the majority of companies receiving funding, their relative percentage of total companies decreased from 83% in 2008 to 63% in 2017, propelled by growth in hardware, robotics and other investments.

Pittsburgh companies receiving funding - by tech sector

71

83

95

104

125

108

125

137

152

158

3%

3%

4%

5%

5%

6%

7%

10%

11%

11%

10%

10%

10% 12%

14% 9%

14% 9%

19%

19%

15%

15%

13%

9%

39%

29%

31%

25%

10%

10%

10%

16%

22%

18%

32%

26%

26%

21%

28%

22%

44%

44%

41%

49%

32%

38%

38%

37%

32%

35%

2008

2009

2010

2011

Software Life Sciences

2012

2013

Hardware & Robotics

2014

2015

Energy & Industrial

2016 Other

2017

Source: CB Insights, Dow Jones VentureSource, Innovation Works, Pitchbook and Thomson Reuters ThomsonOne Database

March 2018

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