Pittsburgh shines as beacon of opportunity for tech firms
Pittsburgh was not on Jeh Kazimi's radar when he eyed North American expansion for his tech startup, Breezie. Then he met an executive from an Ohio-based private equity fund who grew up near Pittsburgh.
“People who were born here or lived here, no matter where they are in the world, have such a strong connection to this place. They love to talk about it. That's how we got to know about Pittsburgh, and I'm glad we did,” said Kazimi, an India-born entrepreneur from London who splits his time between the United Kingdom and Pittsburgh.
Tom Link, director of the Urban Redevelopment Authority of Pittsburgh's Center for Innovation and Entrepreneurship, said such “serendipity” goes only so far in economic development.
“Once you make that connection with a company, you have to be in a position to accept it and help it flourish,” Link said.
Technology-related companies appear to be flourishing.
About 300,000 workers in tech-related jobs across the 13-county Western Pennsylvania region made a combined $21 billion in 2013, or 34 percent of the region's total wages, according to a Pittsburgh Technology Council report this year. That represented the highest share in at least 15 years and an increase of more than 15 percent from 2010, council findings show.
“There is a plurality of development-related projects being driven by the growth of the technology industry and what's occurring in our tech corridor in Oakland,” said Kevin Acklin, chief of staff and chief development officer for Mayor Bill Peduto.
He pointed to $1 billion in anticipated development at a former Hazelwood mill site along the Monongahela River, just downhill from Oakland.
For Breezie, a startup that makes tablets user-friendly for senior citizens and others, Pittsburgh is an ideal location.
Kazimi said it offers easy access to brainpower at Carnegie Mellon University and the University of Pittsburgh, particularly in the fields of artificial intelligence and machine learning that are critical to his product; the region's large health systems, insurers and senior care providers; and other large markets throughout the Northeast, Midwest and South.
Kazimi recently launched Breezie's operations out of a Forbes Avenue building in Oakland where multiple startups share office space, though he spends much of his time in the United States on the road.
“I-79 is sort of my new best friend,” said Kazimi, who lives in Squirrel Hill.
He plans to hire 30 to 40 employees in the company's first year in Pittsburgh. None would be imported from the London operation.
“I'm meeting candidates almost every single day now. They are very high-caliber,” Kazimi said.
The Pittsburgh alternative
Link said he has noticed increased interest from “inbound” companies — those looking to locate at least some of their operations in Pittsburgh because of the university talent and the lower cost of living and doing business, among other reasons.
In July, Link started sending a weekly update to various local officials listing companies that reached out to his office about establishing operations in Pittsburgh and what his office was doing to help them.
The list had five companies in its first week. The latest email included updates on more than 40 companies across a range of sectors, Link said.
“Pittsburgh is a poster child for areas that should be considered as alternatives to high-cost areas,” said John Hopper, chief investment officer for Mason, Ohio-based Ziegler Link-age Longevity Fund, which led a $3 million investment round in Breezie last year. Hopper helped sell Kazimi on Pittsburgh.
Hopper grew up just over the Ohio line in East Liverpool, earned an MBA from Pitt and held several corporate jobs in Pittsburgh. His private equity fund invests in companies that provide health services, technology and other products geared toward the nation's growing older population.
Hopper admits that he has “a strong affection for the area” but said that did not cloud his business judgment.
“As a default more than anything else, Jeh thought he might go to Silicon Valley. But from a capital-efficiency perspective, the costs there are really tremendous. Having CMU, Pitt, UPMC and Highmark ... there were clear opportunities for partnerships that would be stronger than anything he could find on the West Coast,” Hopper said.
Pittsburgh's inbound companies include tech giants such as California-based Google Inc., which employs hundreds of people in the East End's booming Bakery Square complex and is expanding into a second office building there.
California's Apple Inc. will lease office space in the Strip District's 3 Crossings complex. Uber Technologies Inc., the San Francisco-based ride-share company, established an autonomous vehicle research center in Lawrenceville and hired dozens of researchers and scientists away from Carnegie Mellon.
Audrey Russo of the technology council said Facebook employs about a half-dozen people locally who have expertise in facial recognition.
Other inbound companies' names are less recognizable.
Drink Command, based in Ireland, makes self-serve beer systems that are being used at bars and other venues around the world.
The company opted to move to the West End, in part because of connections made through the Pittsburgh Donnybrook boxing event, pitting Irish boxers against Americans to raise money for underprivileged children. The move made geographic sense from a distribution standpoint, said Kevin Power, the company's sales director.
Power said the company recently placed two employees in Pittsburgh and plans to set up technical support and distribution operations here early next year. Ultimately, it would like to offer software and high-end manufacturing jobs, Power said.
Pittsburgh “has all the amenities of a big city without all the hustle you would have in a big city,” Kazimi said. “I've noticed that it takes some effort to actually get someone to come here and visit.
“There's still a perception of how the city is ... but that fades away pretty quickly. Their first reaction is ‘Oh, I didn't think it was going to be so green.' ”
Need for seed capital
Some would like to see more green when it comes to investment.
“There is simply not enough venture capital to match the entrepreneurial activity. The investors here do a great job; we just need more of them. (The lack of more) early-stage seed capital is what kills a lot of young companies,” said Jacob Hanchar, CEO of North Side-based Digital Dream Labs, which grew out of Carnegie Mellon.
The university and other groups have worked to change that. Among initiatives, Carnegie Mellon's Open Field Entrepreneurs Fund provides seed money in the form of a $50,000 convertible note to recent alumni — provided they can secure $50,000 in matching funds. Forty-five of the 48 companies that received seed money are based in Pittsburgh, said Dave Mahwinney, co-director of the Carnegie Mellon Center for Innovation and Entrepreneurship.
Venture capital investment in Pittsburgh companies plummeted to its lowest third-quarter total in a decade as such investing nationally soared, according to an October report by the Washington-based National Venture Capital Association and PricewaterhouseCoopers.
But Hanchar, whose company's educational game system has received rave reviews from national publications such as The Wall Street Journal and Popular Mechanics, said, “Pittsburgh definitely has a really vibrant and supportive entrepreneurship space.”
Hanchar, a Johnstown native, said his company turned down an offer from a Silicon Valley firm to move out West.
“I have roots here. I have a family. I'm not going to be moving anytime soon,” he said. “I don't see any reason to pick up and move or disrupt our lives.”
Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or email@example.com.