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Pittsburgh tech sector generated $22B in last decade, report finds

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A smartphone sits on top of the latest report from Innovation Works and Ernst & Young about investment in Pittsburgh's technology sector during an event to release the report on Tuesday, March 20, 2018, at Alloy 26 inside Nova Place on Pittsburgh's North Side. (Photo by Aaron Aupperlee)

Pittsburgh’s technology sector has boomed for the past decade, increasing the number of companies and the amount invested nearly every year.

Last year was no exception.

More than $687 million was invested in nearly 160 companies in 2017, both decade-high marks, according to a report on Pittsburgh technology investment released Tuesday.

“The story here locally continues to get better,” said Leon Hoffman, managing partner of Ernst & Young’s Pittsburgh office, which worked with Innovation Works on the report, “A decade of growth: Investment in Pittsburgh’s technology sector.”

There were more deals than any other year in the past decade and record-high investments in self-driving and artificial intelligence technologies.

During the last decade, Pittsburgh’s tech sector has generated more than $22 billion in investment and research and development spending, according to the report.

But the region still has work to do, said Rich Lunak, CEO of the startup incubator and funder Innovation Works. Pittsburgh needs more local and outside venture capital and corporate investment to support its growing startup community. While investments grew nearly 200 percent over the past decade, the number of companies applying to any of the various programs through Innovation Works jumped 600 percent, Lunak said.

“We’re in a terrific growth trend, but we still have a ways to go to reach that top tier,” Lunak said.

That top tier includes tech-heavyweight areas such as Silicon Valley and the Bay Area, Boston, New York, Seattle and Denver. Pittsburgh trails those cities and others in both the deals and dollars. Pittsburgh ranked ninth in the number of deals per million residents. The city ranked 17th in the amount of money invested per capita.

Lunak said Pittsburgh’s active “front-end feeder system,” referring to its universities, flood the region with so many ideas and startup companies that the financial mechanism can’t keep up. And Lunak doesn’t want the startups to slow down.

“You want that to be as vibrant as possible,” he said.

Helping Pittsburgh’s tech ecosystem along for the last decade has been a string of strong exits for local companies. An exit means the company either went public or was bought by or merged with another company. Contrary to the name, exits typically don’t mean the company leaves town. Joe Ferrara, the CEO and president of Wombat Security when it had its exit — a $225 million acquisition by Proofpoint in February — said it is nearly “business as usual” at the company since the deal. The Wombat team transferred to Proofpoint. They will stay in Pittsburgh, and now they are hiring more than 100 people this year.

In the last decade, 82 Pittsburgh-area companies have gone public, merged or been bought, creating $8.7 billion in value.

“That’s a big number. That’s a powerful number,” Hoffman said. “Successful exits really help sprinkle back down on the local ecosystem.”

Hoffman said success breeds success. Lunak said those successful exits are what gets the attention of outside investment firms and gets them excited about Pittsburgh.

Sixteen Pittsburgh companies had exits in 2017, generating a disclosed value of about $250 million. For example, Yelp bought NoWait for $40 million in March 2017 and the Singapore-based firm ST Engineering bought Aethon, a mobile robotics company, for a deal estimated at $36 million. In most cases, however, the financial details of mergers and acquisitions are not disclosed.

Aaron Aupperlee is a Tribune-Review staff writer.

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