In The Lead: Working / Cash flow problem

Startup firms face tough going in Pittsburgh

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The conventional thinking says entrepreneurs need help most when they're getting started — with money, with space to work and with connections to people who can help bring their product to market.

While all that holds true, it's the next phase of the process — selling — that Pittsburgh's entrepreneurial community says it needs more focus and more resources.

According to a report from the Missouri-based Kauffman Foundation, Pittsburgh's entrepreneurial climate is long on ideas but short on cash. Of the 50 largest metropolitan areas, Pittsburgh ranked 20th in the amount of venture capital raised per 1,000 population in 2011.

And U.S. Census Bureau data show that in 2011, the most recent information available, southwestern Pennsylvania ranked 39th out of 40 regions in new business formation.

"There is a bit of a gap in our marketplace where we, collectively, could do better," said Tom Link, director of the Center for Innovation and Entrepreneurship at the Urban Redevelopment Authority. "Finding those connections between early-stage startups and more mature companies is important: How do you meet your customer?"

Ashton Thomas, CEO of wellness services startup Acrinta, went to the PowerUp Pittsburgh program, a collaborative partnership among economic development entities, universities and startup incubators. He got a lot of help he wouldn't have otherwise been able to afford, he said, including a high-quality video spot to highlight the Oakland company.

He said in his experience, Pittsburgh's established companies will make time to listen to a pitch, but entrepreneurs can end up feeling like they're getting a "silent no" before the conversation is finished.

"When it comes down to writing a check, Pittsburgh is still very conservative," he said. "When you're going to investors to seek money, they'll say to you 'show me your customers,' and not having local customers hurts you."

Mr. Thomas suggested one remedy might be for larger companies to partner with startups on a short-term basis, to reduce the risk for the larger company but lend some credibility, even if temporary, to the smaller one. And he suggested a larger number of venture capital firms in Pittsburgh would be another plus. As it stands now, startups coming out of the region's various incubators end up competing for the same limited pool of cash, he said.

"With more competition elsewhere, you're able to find a good match for your company."

Catherine Mott, CEO of Wexford-based Blue Tree Capital and Blue Tree Allied Angels, said while the entrepreneurial climate in the region has greatly improved since she started her firm in 2006, there are still some key problems that have long-lasting, negative effects.

"There are two major disconnects right now, both of which hurt our region," Ms. Mott said. "We need a source that connects these startups with buyable customer prospects. And, there's a dearth of resources for entrepreneurs to learn how to find customers."

She said follow-on capital, which lets small companies grow once they start growing and need to increase staff and infrastructure, is also lacking in Pittsburgh.

Chris Gormley, CEO of North Shore tech startup smiAware, has some experience as an entrepreneur and agreed that getting connected to customers is harder here than in Silicon Valley or Boston or New York. "Pittsburgh needs that commercialization skill set," Mr. Gormley said. Being funded isn't enough, he said, you need to find buyers for what you're selling.

"If I were to categorize one thing that would be really good to have, it would be to have less elevator pitches for investors and more elevator pitches for customers," he said. "That would be tremendous."

Until that happens, he sees companies continuing to leave Pittsburgh after getting through the initial startup phase. "Finding a place to go is tough, and there's a lot of trial and error to figure out which market makes sense," Mr. Gormley said. "You have to figure that out before you run out of money."

Ms. Mott called the exodus of companies that have incubated successfully in Pittsburgh "a crying shame," but said it was not surprising that startups head to Boston and Silicon Valley when they need to grow.

"Entrepreneurs go where the money is," she said.

State and federal resources should be aligned with helping companies stay local, Ms. Mott said. And the Pittsburgh area should reclaim its long-ago status as a breeding ground for industry innovation.

"That's what we were, in 1880 and 1900, we were the Silicon Valley of the United States at that time with the steel and aluminum industries creating new businesses," she said. "We should own this legacy, and bring it back here."

— Kim Lyons: or 412-263-1241. Twitter: @SocialKimly.

First Published May 13, 2014 11:26 AM

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