Proceedings of 31st International Business Research Conference
27 - 29 July 2015, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-80-1
The Evolving Tech Startup Ecosystem in Pittsburgh: Economic Impact
and Case Studies
Adora Holstein*
The first accelerator program in Pittsburgh was not established until 2002, and the first
formalized university incubator was not established until 2007. A selection of seven tech
startups in Pittsburgh illustrates the evolution of the tech ecosystem in Pittsburgh from
2000 to the present. The first startup, Vivisimo, Inc. received funding from state and
federal government agencies, and on its own, but only in its eigth year, obtained funding
from a venture capital. The six other startups founded later (4Moms, BlackLocus,
Insurance Zebra, Qrono, Identified Technologies, and MeshNet) received support from
one or more organizations in the form of free co-working space, mentoring,
entrepreneurship education, and organized pitch day that facilitate their access to angel
and venture capital investors. The case studies also illustrate the critical roles of two
research universities as incubators of innovation, and of accelerator programs in reducing
the information asymmetry and externality problems that inhibit the birth of new
enterprises. Venture capital firms and angel investors benefit from the highly selective
application process and mentorship, which reduce their cost of searching for early-stage
startups with high commercial potential. The rigorous and short-term duration of these
programs accelerate the growth of some startups, but also accelerate the failure of others
so resources can move to higher valued uses.
JEL Codes: O31, O43
1. Introduction
The transformation of Pittsburgh from a declining industrial city to a vibrant, globally competitive
knowledge economy was internationally recognized when it was chosen as the site of the G-20
Summit in 2009. Since the early 1980s, a network of university and non-profit incubators, accelerators,
and economic development organizations funded by taxpayers has catalyzed the emergence of tech
startups in Pittsburgh. Pittsburgh Mayor William Peduto was proud to say, "Pittsburgh's tech
community has built great success, and continuing momentum, through an inter-related system of
strong university partnerships, a steady stream of talent and investment and a nurturing community for
startups. These numbers will grow even better in coming years" (Tierney 2014).
This paper traces the increase in the amount and the number of organizations funding and assisting
Pittsburgh-based tech startups in various ways. In the following sections,
I will review the literature on: (a) the economic rationale for government intervention in
promoting small businesses in general, and tech startups in particular, and (b) the economic impact of
incubators and accelerators. The focus then shifts to the different types of support tech startups get in
Pittsburgh, highlighting seven cases of startups founded from 2000 to 2014. This is followed by a
review of reported impact on the economies of Pittsburgh and the state of Pennsylvania.
______________
*Professor of Economics, Department of Economics & Legal Studies, School of Business, Robert Morris University, 231
Massey Hall, 6001 University Blvd, Moon Township, PA 15108. Email: Holstein@rmu.edu
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Proceedings of 31st International Business Research Conference
27 - 29 July 2015, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-80-1
2. Literature Review
Economic Rationale for Government Intervention
Innovative firms naturally start out as small enterprises, but they play an important role in economic
growth and job creation. The link between “creative destruction” by innovation and economic growth
was first proposed by Schumpeter (1942). As innovative enterprises challenge incumbent businesses,
there is „churn‟ in the market: the least productive firms exit and the most productive grow, resulting in
an increase in total productivity of the economy. That small firms make a disproportionately large
contribution to job creation was confirmed by a World Bank study (Ayyagari et al 2011).
Unfortunately, there are market failures that inhibit business startups and increase the failure rate
among those that do get started.
Perhaps, the biggest obstacle faced by entrepreneurs is information asymmetry (Ackerlof 1970) that
increases their perception of risk and limits their access to financing. Given the opportunity cost of
giving up a job with predictable income, many potential entrepreneurs may be inhibited by the lack of
information on whether the product or business model they want to develop will meet market
acceptance, and how long it will take before a critical mass of paying customers is reached.
Technology startups, in particular, need an organized support for collecting, sharing, and analyzing
information to create partnerships that connect the research base to the marketing, talent recruitment
and retention, supply chain management, accounting and legal aspects of running a successful
business.
Lack of information on alternative sources of financing available to high risk, new ventures can also
inhibit entrepreneurship. Tech startups, in particular, face the added need for investors who are willing
to absorb the risk associated with lending funds on a long-term basis without being secured by
tangible assets. The traditional bank faces imperfect information resulting in adverse selection and
moral hazard (Mishkin 2014). Banks are less aware of the ability and reliability of startup founders and
the potential for success of their business models or products. While banks rely on the existence of a
proven track record or on collateral to offset the credit risk, first-time, often young tech entrepreneurs
do not have these. As a result, many entrepreneurs may not apply for loans on the expectation of
being rejected, or may turn to lenders that charge very high rates of interest to offset the high credit
risk. There is a need to connect tech entrepreneurs with angel investors and venture capital firms who
are willing to take the risk, but the latter face a high cost of searching for information on which tech
startups have high commercial promise, and where they are located in the country.
Externality presents yet another market failure (Pigou 1932). In the absence of intellectual property
protection (IP) through patents and trademarks, businesses cannot appropriate the full return from
their innovation. Many tech entrepreneurs need assistance in understanding IP laws, and often cannot
afford to pay expensive legal fees. A survey in the United Kingdom (BIS 2013) documented evidence
that the smaller the firm size, the lower is awareness of IP protection.
Nature and Impact of Support for Tech Startups
The support system for tech startups in the United States includes research universities and other
non-profit incubators, accelerators, angel investors, and venture capitalists. An incubator is a co2
Proceedings of 31st International Business Research Conference
27 - 29 July 2015, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-80-1
working space providing tenants with shared resources and mentorship for 1~5 years, while a seed
accelerator provides a cohort of firms with equity investment, mentorship, and other resources for a
very short term (three months typically) that culminates in a public pitch event or demo day (Isabelle
2013). Incubators are mostly publicly owned, professionally managed, and do not invest in their
tenants while accelerators may be privately or publicly owned and take an equity stake in their portfolio
of firms (Hacket and Dilts 2004).
An empirical study by Fehder and Hochberg (2014) of 59 accelerators founded in 38 Metropolitan
Statistical Areas (MSA) found that the establishment of an accelerator significantly increases the
number of deals and the amount of seed and early stage financing in an MSA. Potential investors in
tech companies include angel investors and venture capitalists. An angel investor is an individual
(including a relative or friend) who provides seed capital investment and varying amounts of advice to
a startup founder at the early stage of developing the product (Feld and Mendelson 2011). Most
angels do not plan to spend a great deal of time helping entrepreneurs build the company. They do not
manage huge pools of capital, so entrepreneurs often turn to venture capitalists to fund the building of
the company. Venture capitalists are set up to take large risks and follow a lengthy diligence process
to evaluate those risks before they decide to invest a minimum of $3 million. They usually require a
serious commitment from an entrepreneur to pursue an idea that is highly experimental, and require a
seat in the venture‟s Board of Directors (Horowitz 2010). Most venture capital firms expect to reap the
rewards from their risk-taking when their companies make a successful exit usually within five years by
way of an IPO or acquisition by another company.
3. METHODOLOGY
This is a descriptive study based on a combination of interviews and review of official websites of
startups, and various organizations that support them in their early stages.
These organizations include government agencies at the federal, state, and local levels, universities,
incubators, accelerators, angel and venture capital investors, and trade associations. Secondary
sources such as published reports of these organizations and media coverage are also used. Brief
case studies of seven startups founded from 2000 to 2014 are provided in order to showcase the
evolution and increase over time of the number of supporting organizations and the types of support
available to tech startups in Pittsburgh.
4. FINDINGS/DISCUSSION
As of July 2015, the tech ecosystem in Pittsburgh consists of two incubators based in the city‟s top two
research universities (Carnegie Mellon University and the University of Pittsburgh), four accelerators
(Idea Foundry, Alpha Lab, Alpha Lab Gear, and Thrill Mill), and government funding and information
services (National Science Foundation and Small Business Administration at the federal level, and the
Benjamin Franklin Technology Partners –Innovation Works at the state level), angel and venture
capital investors, as well as university-based education and consulting services.
Case Studies of Tech Startups and Support Received
The first accelerator program in Pittsburgh was not established until 2002, and the first. organized
incubator within a university was not established until 2007. A selection of seven tech startups in
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Proceedings of 31st International Business Research Conference
27 - 29 July 2015, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-80-1
Pittsburgh demonstrates the evolution of the tech ecosystem in Pittsburgh from 2000 to the present
(Tables 1-7). The first case, Vivisimo, Inc. received funding from state and federal government
agencies, and on its own, found a venture capital firm to invest in it. The six other startups founded
later received support from one or more organizations in the form of free co-working space,
mentoring, entrepreneurship education, and organized pitch day that facilitates their access to angel
and venture capital investors. Following is a detailed description of the nature of support provided by
different organizations highlighted in the case studies, and their sources of funding.
Small Business Innovation Research Grant
The Small Business Innovation Development Act, which was passed by Congress in July 1982,
authorized the Small Business Innovation Research (SBIR) Grant. Administered by the National
Science Foundation, it assists early-stage companies with innovative technologies that require
additional research and development in order to advance development and commercialization. The
grants are provided in two phases. The first is a proof of concept/feasibility grant for six months
ranging from $150,000 to $225,000, which if successful is followed by a two-year development grant of
$750,000. The SBIR grantee may be an individual, i.e. an academic or non-profit research institution is
not required as a partner. The government grant has the advantage of not diluting the ownership stake
of the startup founders, unlike angel and venture capital funding. To be eligible, an applicant must
demonstrate that the innovation:
a) Involves a high degree of technical risk, either because it has never been attempted and/or
successfully done before, or it is still facing technical hurdles that the NSF-funded R&D work is
intended to overcome; and
b) Has the potential for significant commercial impact and/or societal benefit.
The technology areas currently supported include educational technologies and
applications, information technologies, Internet of Things, semiconductors, electronic hardware,
robotics and wireless technologies, advanced manufacturing and nanotechnology, advanced materials
and instrumentation, chemical and environmental technologies, biological technologies, and Smart
Health and biomedical technologies.
Table 1: Case Study – Vivisimo - IBM
01.ibm.com/software/data/information-optimization/
http://www-
Vivisimo Inc. was a startup that started with a free consumer search engine but evolved into a
profitable enterprise search vendor. Vivisimo‟s patents and tech talent were acquired by IBM in May
2012, and has been rebranded as IBM‟s Watson Explorer, one of its cloud-based big data services for
large enterprises.
It was founded in 2000, seven years before a formal incubator program called Project Olympus was
established at Carnegie Mellon University (CMU). Raul Valdes-Perez, a Computer Science Faculty
member, Jerome Pesenti, a visiting scientist, and Chris Palmer, a graduate student, developed the
initial research which led to their clustering algorithm and metasearch engine with university salary or
stipend, office space, support staff, and facilities from the Fall of 1998 to the Spring of 2000. When it
was spun off from CMU and incorporated in June 2000, the co-founders agreed to grant CMU the right
to 20% of future proceeds. The co-founders pooled $70,000 from their own savings and contributions
from their families (their angel investors). Early stage funding to further develop the product line and
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Proceedings of 31st International Business Research Conference
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initiate marketing came from taxpayers. On June 1, 2000, Innovation Works, provided $100,000 in
convertible loans in the first stage, and on July 4, 2002 additional funds of $500,000 in the second
stage of seed funding. Vivisimo, Inc. also got a NSF-Small Business Innovation Research Grant of
$100,000 as Phase 1 funding in January 2001, and a total of $860,000 in subsequent SBIR funding
phases. With this funding, they rented their first office and hired their first employees. The company‟s
own revenues funded its early expansion. In 2004, Vivisimo considered seeking venture capital but
decided to put this off when it entered a big deal with AOL. It was not until its eight year of operation,
that Vivisimo first accessed venture capital. North Atlantic Capital (based in Maine) provided a $4
million Series A loan, payable over five years at 12% annual amortization. Additional cash flow of $5.5
million came from selling Clusty, its consumer service metasearch engine (www.clusty.com) in May
2010 to Yippy, Inc. Yippy, is an Internet startup based in Fort Myers, Florida who incorporated the
Clusty metasearch technology into its search website to provide parents, educational institutions, and
government entities a much safer alternative for all web-based activities. These two major cash inflows
financed Vivisimo‟s expansion in marketing, sales, and customer support. Before being acquired by
IBM, Vivisimo had 120 employees, and $24 million in revenues from about 140 customers globally.
Innovation Works – Incubator/Investor
Innovation Works (IW) was established in 1999 with seed funding from the Ben Franklin Technology
Partners (BFTP), a statewide network founded 16 years earlier to provide business expertise and
capital to early stage companies with the greatest likelihood for economic impact in Pennsylvania.
BFTP is funded by the Pennsylvania taxpayers through the Pennsylvania Department of Community
and Economic Development. Innovation works and the three other BFTP centers across the state
works in partnership with universities to identify and cultivate research ideas that have viable markets,
and provide grants to help speed commercialization through early-stage companies or third-party
licensing. It provides seed funding to promising, early-stage technology companies in the areas of
advanced electronics, robotics, life sciences, advanced materials, information technology, new
manufacturing processes, and clean energy. In 2008 and 2013, Innovation Workers provided the
funding to establish two affiliate accelerator programs in Pittsburgh (see pp. 8 and 10).
Table 2: Case Study - 4Moms
Another startup that obtained early seed funding from Innovation Works is 4Moms, a robotics
company founded in 2006 that makes high-tech baby gears, such as a power-folding stroller, an infant
seat that replicates the bouncing and swaying motions parents make when soothing their babies, and
a playard that opens or closes in one simple step. The path from university to entrepreneurship was
different, however. Henry Thorne, one of the two founders, worked for industry in various parts of the
country for 21 years after graduating from Carnegie Institute of Technology (now CMU) with an
engineering bachelor‟s degree in 1982, and a master‟s degree in 1984. He became one of the world‟s
leading roboticists. In 2005, he and his friend, Rob Daley, an MBA graduate from Kellogg‟s Business
School in Chicago, founded Thorley Industries, which became the parent company of 4Moms a year
later. They now serve as Chief Technology Officer and CEO, respectively. As of July 2015, it has
received $84.8 million in funding, including $41 million in a second round of funding from Castanea
Partners (a private equity firm based in Newton, a suburb of Boston), Blue Tree Allied Investors (an
accredited angel investor group of Wexford, a suburb of Pittsburgh), Newell Rubbermaid (a global
marketer of consumer and commercial products based in Atlanta), Bain Capital Ventures (a venture
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Proceedings of 31st International Business Research Conference
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capital firm based in Boston), and other private investors. It now has 175 employees and is one of
Pittsburgh‟s fastest growing company, with a revenue growth rate of 354.55% from 2012 to 2014.
Project Olympus – a University Incubator
In January 2007, CMU‟s School of Computer Science founded Project Olympus, an incubator that later
partnered with the Dow Jones Center for Entrepreneurship in the Tepper School of Business to form
CMU‟s Center for Innovation and Entrepreneurship. Teams of faculty and students explore the
commercial potential of their research and ideas through the Olympus PROBE (Problem-oriented
Business Explorations). They receive incubator space, connections to a network of economic
development partners, and guidance at every stage from Entrepreneurs-in-Residence. Olympus hosts
Show & Tells, seminars and workshops, Start-up job fairs, seminars and workshops (in conjunction
with the Innovation Practice Institute of the University of Pittsburgh‟s Law School). Student participants
receive funding through the Kauffman Innovation Fellowship and Commercialization Leadership
awards, and the Olympus Spark Grant Fund. The latter fund is funded by charitable gifts from alumni
and other community donors. Donors who give over $10,000 with a 3-year commitment are
designated as Spark Donors, those who donate an amount between $500-$10,000 are designated as
Spark Friends, and those who donate a lower amount are designated as Friends of Olympus Fund.
Table 3: Case Study – BlackLocus [http://blacklocus.com/]
BlackLocus, a startup built on a powerful competitive pricing analysis technology for small and large
online retailers, was founded in 2009. By this time, CMU‟s incubator, Project Olympus, has been in
operation for two years. The machine-learning algorithm, which is able to find all online competitors for
every product in a retailer‟s online catalog based on a multitude of attributes and with up to 98%
accuracy, was developed by Francisco Uribe, a computer science student. Along with two Business
School students, Rodrigo Carvalho and Lukas Bouvrie, the business model was further developed as
an Olympus Probe Project. The project later received an Idea Transformation Fellowship from Idea
Foundry, an incubator, and was accepted into the 3-month accelerator program of AlphaLab. In
2013, it received $2.5 million in funding from two venture capital firms: DFJ Mercury (based in
Houston) and Silverton Partners (based in Austin). In the Fall of 2012, BlackLocus was acquired by
home improvement retail giant, Home Depot, to enable it to make data-driven pricing decisions. With
32 employees to date, BlackLocus is now part of Home Depot‟s Innovation Lab in Austin.
Table 4: Case Study – Qrono [http://qrono.com]
Qrono (formerly ChroKnow) was founded in 2010, based on technology invented by Sam Rothstein,
while he was a chemical engineering student at the University of Pittsburgh (Pitt), three years before
Pitt‟s formal incubator program was founded. Rothstein developed a predictive modeling method for
designing controlled release of FDA approved drug formulations, replacing the legacy trial-and-error
method. He has developed and produced more than 10 distinct controlled-release medications and
vaccines, of which a single administration provides a therapeutic effect ranging from several days to
many weeks or months. Seed funding came in the form of an award from the Randall Family Big Idea
Competition. Later, ChroKnow became the first company accepted into what was then called the PittIdea Foundry-URA Life Science Accelerator program, a joint effort of Pitt, Idea Foundry, and the
Urban Redevelopment Authority, Pittsburgh‟s tax-funded economic development agency.
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Idea Foundry - an Accelerator
Founded in 2002, Idea Foundry is Pittsburgh‟s first accelerator. It is funded by private foundations and
earned revenue, not by any government agency. According to its CEO, Michael Matesic, almost half of
the budget comes from returns on investments, which take the form of 5-year convertible loans. By
using a convertible debt model, it does not take equity at the early days of development but still share
in the success of enterprises it supports. The debt model is consistent with its non-profit mission and
does not give it the big rewards that an equity investor/founder might achieve.
Entrepreneurs with innovation ideas are supported with a micro-grant of up to $10,000, one to three
months of business development services such as market research to assess and develop the
company‟s commercial potential. Participants avail of business planning, legal, and accounting
services as well as access to public- and private-sector industry leaders who can provide advice, offer
testing opportunities, and serve as potential customers or acquirers. The accelerator programs are in
six areas: Healthcare and Life Sciences, Entertainment & Education, InterSector (Social Enterprise),
Innovate H2O, Advanced Materials, and Intelligent Systems Development.
Upon graduating from the Accelerator Program, startups are eligible for expedited evaluation to the
Idea Transformation Fellowship Program, which provides convertible loans of up to $100,000 and
hands-on support to early stage startups for a period ranging from a few months to one year. The
program gets participants to the critical point where they can obtain follow-on funding or support
themselves through their own revenues. To be eligible, entrepreneurs are required to have an idea for
which necessary research has been completed and initial development has resulted in a prototype or
detailed design specification. They are also required to be prepared to reside in western Pennsylvania
and intend for their company to be primarily based in western Pennsylvania.
AlphaLab – an Accelerator
Innovation Works launched this accelerator program in 2008 to help early-stage tech startups achieve
product-market fit through rapid iterations of product, intensive customer feedback and market
validation. It ranked 15th in the 2014 ranking of the top 20 U.S. accelerator programs based on
valuations, funds raised, exits, survival rate, and satisfaction of its graduates (Hochberg et al. 2015). A
small cohort of six to eight startups are selected twice a year to participate in a 20-week program, in
which milestones are built in to ensure they stay on track. The program ends with a Demo Day, in
which participants make a pitch to prospective investors, and gets a chance to present their company
to the press. To prepare for Demo Day, multiple group review sessions and an Interim Demo Day are
held.
AlphaLab invests $25,000 into the startup in exchange for 5% common-stock equity. Innovation Works
is also a potential investor. Aside from seed funding, participants benefit from free office space, access
to collaborative working space and conference rooms, as well as educational sessions that cover
topics like customer validation, design, financing, marketing, and accounting. More importantly,
participants benefit from mentorship through Innovation Works‟ network of entrepreneurs,
technologists and investors who have developed and launched products, raised capital, and
negotiated manufacturing and distribution partnerships.
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Proceedings of 31st International Business Research Conference
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Table 5: Case Study - Insurance Zebra [https://www.thezebra.com]
Another startup that graduated from AlphaLab is Insurance Zebra, a web platform that aggregates car
insurance quotes. It was founded in 2012, by Adam Lyons, who had several years of prior experience
as an insurance broker. Along with two computer scientists, Lyons developed the software and
business model while at AlphaLab, an accelerator. Using state insurance filing data, the machine
learning software is able to replicate company pricing models, and estimate rates within a few dollars
accuracy. Users of www.thezebra.com can begin to see different quotes for different insurance
packages (deductibles, coverage inclusions), and they continue to input more information (e.g. car‟s
model and year, age, gender), the insurance quotes increase in accuracy in real time, educating users
on how much different variables affect their insurance rates. It was beta tested in Pennsylvania,
initially launched in Texas and California, and is now the most comprehensive online car insurance
comparison platform in all 50 states, making it easy to purchase auto insurance and then manage the
policy all in one place. As of July 2015, the company has received $4.5 million in early stage seed
funding --- $1.5 million from Mark Cuban, and a total of $3 million from Simon Nixon, founder of the
financial services price comparison engine MoneySuperMarket in the U.K., Floodgate Fund and
Birchmere Labs of Palo Alto, and Silverton Partners of Austin.
Table 6: Case Study - Identified Technologies [http://identifiedtech.com]
Identified Technologies, a company that automates land surveying and aerial mapping with selfpiloting aerial survey drones, was launched in 2014. The drones fly themselves, scan, land, charge,
and swap their own batteries, and send site surveying visual, infrared and gas data to the cloud for
secure access and analytics. The founder, Dick Zhang, is a Mechanical Engineering graduate of the
University of Pennsylvania (Penn). With flight control technology licensed from Penn‟s General
Robotics, Automation, Sensing and Perception Lab, the company modifies the drones for any data
collection, sensing needs, and operating environments. The company is among the first cohort that
graduated from AlphaLab Gear in 2013, and continued to work out of the AlphaLab Gear space in the
East Liberty neighborhood of Pittsburgh as alumni-in-residence, before moving in to their own office
this summer. After its Demo Day at the end of the AlphaLab Gear accelerator program, it received $2
million in seed funding from Birchmere Ventures of San Francisco, which now has a second office
near Pittsburgh‟s Strip District. Dick Zhang worked with Ned Renzi, Birchmere‟s founding partner, to
mold a predictable and scalable sales model. To build a critical mass of customers, the startup has
decided to focus their sales effort on the energy industry, specifically in the Marcellus Shale region,
which the company has identified as a $1.2 billion market. Identified Technologies is now generating
profits, with only eight full-time employees, including graduates from CMU‟s Robotics program and
School of Business, as well as former employees from Caterpillar, SAP, Hewlett-Packard, and Bristol
Meyers Squibb. Zhang is looking to grow the company's technology and software development team
and expects to be adding to the company's sales team in the near future (Coyne 2015).
AlphaLab Gear- an Accelerator
Based on the AlphaLab model, this hardware and robotics accelerator program was established in
2013, with funding from Innovation Works and the Small Business Administration. AlphaLab Gear
provides expertise in areas specific to physical product companies, including product design,
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manufacturing, supply chain, and retail distribution. With a small cohort, each of eight to ten startups
gets a mentor team of 4-6 experts in areas critical to their business, such as design for manufacture,
supply chain, retail and commercial distribution. Mentor teams include entrepreneurs who have
founded physical product startups, raised investment capital, and led their companies to successful
exits. If accepted to the 40-week program, a startup entrepreneur will receive $25,000 in exchange for
5% common stock equity or $50,000 in exchange for 9% equity. Promising AlphaLab Gear companies
can also look forward to Innovation Works as a potential investor.
The entrepreneur and his team receives a private office, access to collaborative working spaces,
workshop with light tools and equipment, and membership to TechShop Pittsburgh, which has
prototyping and manufacturing equipment and software, and conducts technical sessions on how to
use these. Companies with a robotics focus will receive additional support from Startbot, an
investment firm specializing in early-stage robotics companies. Startbot‟s management is comprised of
senior executives who are experienced in advanced manufacturing techniques and have links with
parts suppliers.
AlphaLab Gear companies also receive discounts to buy components or development kits, Amazon
Web Services, Apple, and ZipCar. They have access to free or discounted legal services including a
complimentary incorporation package, as well as accounting and tax services. AlphaLab Gear
regularly holds entrepreneurship and tech events in their 10,000 square foot facility, located close to
TechShop, Google and many other startups, co-working spaces, and incubators in Pittsburgh‟s East
End, which has rapidly become an entrepreneurial community.
Innovation Institute – a University Incubator
This is the University of Pittsburgh‟s hub for activities that promote and foster innovation and
entrepreneurship among faculty, students, and local Business. Launched in 2013, the Institute brings
together two Pitt organizations established earlier. One develops startup venture opportunities around
Pitt innovations (Office of Enterprise Development - OED) and the other provides entrepreneurial
education, networking, and assistance for local entrepreneurs and small businesses in the growth and
transition stages (Institute for Entrepreneurial Excellence). The OED offers student and faculty
entrepreneurial education, co-working space, micro-grants, legal assistance, and mentorship to help
bring their innovative ideas to the market. Among its programs are:
1. Blast Furnace- a student accelerator program that provides co-working space, access to a
mentor network, and a rich curriculum preparing student startups for creating and growing their
businesses. Student entrepreneurs can obtain funding through the Randall Family Big Idea
Competition which awards an amount ranging from $2,000 to $25,000, depending on
commercial potential, to 14 students every year. Students that are developing innovations
related to the healthcare field can also compete for the Wells Entrepreneurial Scholar‟s award
of $10,000 in cash and up to $5,000 of legal services offered by Morgan, Lewis and Bockius, a
global law firm; and
2. Pitt Ventures Initiative –Each year a grant of $3,000 is awarded to each of 30 innovator or
Venture Teams of faculty, student, and business mentors who want to translate early-stage
innovation that emerges from their research at Pitt into products, services and, ultimately, a
virtual startup. Starting in 2015, funds will come from the NSF‟s I-Corps commercialization
initiative. Venture teams go through a series of eight intensive hands-on workshops on
customer discovery and validation over a two-month period. The Venture Team learns from
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talking to industry leaders, customers, partners, competitors, and fellow entrepreneurs to
establish and test their hypotheses about their innovation, their value proposition, who the
customers are, and how the innovation will reach them. Each team that participates in the ICorps site program will also be eligible to apply for an NSF grant of $50,000 to further
investigate the economic impact of their innovation.
Table 7: Case Study - MeshNet Enterprises [http://www.meshnetenterprises.com/]
MeshNet Enterprises is a startup that employs intelligent big data to reinvent career counselling within
universities by optimizing the interaction between students, educators, and employers. It is the
brainchild of Mark Visco, who was among 40 Pitt students who pitched their startup ideas at the first
Startup Weekend hosted by Pitt’s Innovation Institute in late January 2014. After pitching his idea,
Visco recruited nine team members from the larger audience to join him in advancing the concept. His
team won the first prize of $25,000 in Randall‟s Big Idea Competition, and was later accepted by Thrill
Mill, an accelerator founded in 2012. MeshNet‟s web platform helps university administrators identify
exactly which institutional activities are most effective and where there is room for improvement by
allowing them to define core metrics, student archetypes, and ideal career development pathways,
and then intuitively track their student population’s alignment to these pathways. It helps students
explore their identities, determine what careers best fit them, and then received a recommendation on
sequences of tasks, including college courses they need to take, so they can land their first jobs.
Entrepreneurial education is delivered by way of seminars and courses, such as:
1. Start Smart Series – seminars to help startups with the legal requirements for patenting their
innovations, forming a business, and negotiating funding terms. This is a joint effort with the Pitt
School of Law‟s Innovation Practice Institute, Carnegie Mellon‟s Project Olympus, and law
firm K&L Gates. The Innovation Practice Institute, which connects students with entrepreneurs,
trains new lawyers to partner with innovators, and teaches lawyers to be innovators;
2. Academic Entrepreneurship: The Business of Innovation Commercialization Course –
designed to motivate faculty, staff, and students to engage in the process of turning ideas into
innovations and entrepreneurial ventures; and
3. Benchtop to Bedside (B2B) Course –designed to introduce clinicians, research faculty, and
select graduate students to the concepts behind new technology commercialization in the
healthcare arena. A special section of this course is designed for research teams who are
submitting innovation development projects for funding consideration by Pitt‟s Coulter
Translational Research Partners II program.
Thrill Mill – an Accelerator
Thrill Mill was founded in 2012 to support tech and non-tech startups. It was conceived during informal
networking parties at CMU organized by Bobby Zappala (now the CEO) and four friends. According to
its CEO, it is primarily funded through private foundations, like the McCune Foundation, the Hillman
Foundation, and the RK Mellon Foundation. It has also received a small amount of support from
Pennsylvania taxpayers through the Discovered and Developed in Pennsylvania (D2PA) program.
Thrill Mill provides free co-working space in what they call the “Hustle Den”, which is located in the
East Liberty Neighborhood, close to AlphaLab and AlphaLab Gear. The law firm Buchanan Ingersoll &
Rooney PC, where Zappala was a corporate attorney before forming Thrill Mill, as well as members of
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the Thrill Mill board, created its entrepreneur education curriculum. It takes a one percent (1%)
common stock equity in each for-profit entity that obtains seed funding from outside investors, in which
case an initial $500,000 valuation for each startup is established.
Thrill Mill‟s competitive application process starts in September of every year, in which 50 startups are
selected to participate in a two-week boot camp or crash course on entrepreneurship, including
exercises around market analysis, mission development, elevator pitch creation, and other crucial
inputs to the startup process. At the end of this boot camp, each startup delivers a five-minute pitch to
Thrill Mill staff, program directors, board members, and other key stakeholders. About 20 of the 50
startups are selected to move to the next phase---an eight-week customer discovery course intended
to challenge and question virtually every aspect of each startup‟s respective ideas. Startups that have
demonstrated growth since their Thrill Mill experience began are accepted into the 9-month
acceleration phase, including a Demo Day in September. They receive $5,000 in financial support,
and mentorship on how to streamline operations, raise funds, build a customer base, and develop
growth-focused partnerships. Startups that are not ready to move to their next phase of growth are
allowed to continue using the Hustle Den as “Startups-in-Residence” in exchange for mentorship and
advising roles with the next cohort.
5. Summary and Conclusions
Contribution of University Incubators
As the case studies presented in this paper illustrate, the presence of two research universities is a
key factor in the birth of tech entrepreneurs in Pittsburgh. CMU has strengths in robotics, software and
electrical engineering, while Pitt has strengths in energy, materials, and chemical engineering, as well
as learning and health sciences. The two universities collaborate on many projects, including
Pittsburgh Supercomputing Center, the Pittsburgh Life Sciences Greenhouse, the Center for the
Neural Basis of Cognition, the University of Pittsburgh Cancer Institute, as well as the NSFsupported Pittsburgh Science of Learning Center. According to an Innovation Works report (2013), the
number of patents issued to university-developed technologies doubled, and the number of technology
licenses, options, and agreements increased more than 200 percent from 2009-2013. Moreover, the
universities generated over 80 spinout companies in that period through direct licensing activity.
CMU‟s Project Olympus alone has supported 161 PROBE projects from various departments, out of
which 122 companies were formed since it was established in 2006. Of the companies formed, 84
were founded by students and 38 were founded by Faculty or Innovation Fellows. Four of these
companies have been acquired by Google, Home Depot, Turnitin, and Paladin Energy Ltd. Seven of
these companies received funding from venture capital, seven from NSF SBIR grants, eight from
Innovation Works, and 21 received Open Field Entrepreneurship Funds of $50,000 each granted to
CMU alumni entrepreneurs. Ten of these companies were accepted by Alpha Lab/Gear, seven by
Idea Foundry, and 10 graduated from incubator programs outside the state (Kaplan EdTech, YCombinator, Acceleprise, Plug & Play, LaunchHouse, DreamIt Ventures, and Tech Columbus). Over
$166 million in follow-on funding has been awarded to 63 student and 31 Faculty PROBE projects
from university and outside sources (CMU 2015).
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In its 20 years, Pitt‟s Institute for Entrepreneurial Excellence, which became part of Pitt‟s Innovation
Institute in 2013, reportedly developed and delivered more than 1,400 educational programs attended
by over 40,000 business leaders, and impacted 7,000 jobs in the region. Client companies have
reportedly obtained $300 million in new funding and increased revenues by $245 million. In 2013
alone, the Pitt‟s Innovation Institute reports that 47 startup companies were created raising $13.3
million in funding
(Pitt 2015).
Contribution of Non-Profit Accelerators
The contributions of accelerators are also significant. Accelerators benefit venture capital firms and
angel investors by reducing the cost of search for early-stage startups with high commercial potential
through their highly selective application process, and rigorous, fixed, and short-term programs.
Moreover, the short duration of accelerator programs force startups to either grow or fail fast so they
can move on to other higher value opportunities. Over 14 years, Idea Foundry has supported more
than 170 companies, 75 of which received convertible loans through its Idea Transformation
Fellowship Program. Three-year old Thrill Mill has 21 companies in its portfolio. Since its founding in
2008, AlphaLab has graduated 52 companies, and a cohort of seven is still in the program. Its twoyear old hardware and robotics counterpart, AlphaLab Gear, has graduated 10 companies, and also
has a cohort of seven still in the program. In 2014 alone, accelerators AlphaLab and AlphaGear were
reportedly able to attract more than $140 million in investments from venture capital firms, angel
investors, corporate-strategic investors, and other sources. Innovation Works (IW), which provided the
seed funds for these two accelerators, has invested more than $62 million in over 175 technology
startups from 1999 to 2014, becoming the single largest investor in seed-stage companies in
Southwest Pennsylvania.
Economic Impact on Pittsburgh and the State of Pennsylvania
For the whole state of Pennsylvania, Ben Franklin Technology Partners (BFTP), which provided the
seed fund for Innovation Works (IW), reports that the client firms of IW and its three other BFTP
counterparts in the state have contributed over $23.5 billion to Pennsylvania‟s gross state product from
1989 to 2014. Over the same period, 140,000 new jobs have been generated (51,000 jobs in client
firms and another 89,000 jobs through multiplier effects). More importantly, the jobs created, on
average, paid about 36% more than the average wage in the state. In addition, from 2007-2011 state
revenue of the Commonwealth of Pennsylvania increased by a total of $502 million as a direct result of
BFTP investments in client firms, including $144 million in state taxes from related BFTP client
services. Compared to the state‟s $137.7 million investment in BFTP over the same period, the
increase in state tax revenue is 3.6 times larger, implying an average annual return on investment of
about 53%. In 2013, BFTP‟s Impact Report states that 98 new businesses were formed. That same
year, client companies secured $468,448,160 of financing in addition to BFTP‟s seed funds. They
were awarded 118 patents and software copyrights and launched 318 new products and processes.
They generated $412.71 million in sales revenue, created 1,365 new jobs, and retained another 951
jobs (PA Economy League and KLIOS Consulting 2015).
The entrepreneurs and companies Innovation Works has supported have helped to change the image
of Pittsburgh in the minds of investors nationwide. By connecting entrepreneurs to investors across the
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country, IW has helped to catalyze more than $1.5 billion of later stage capital from more than 80
venture capital firms from across the country. Among the 40 largest Metropolitan Statistical Areas in
the U.S., Pittsburgh now ranks 5th in terms of deals per million residents, and 11th in terms of
investment dollars per capita. For the whole Pittsburgh tech sector, investors provided $437.8 million
in early-stage funding across 177 deals in 2014, marking a 46% increase in dollars and a 19.6%
increase in deals over the previous year. Venture capital firms invested $332.9 million into 39 deals in
2014, an annual increase of 168% in dollars and 26% increase in the number of deals. Eleven venture
capital firms made their first investments, joining over 100 firms from around the country that have
invested in Pittsburgh over the past five years. Local angel investors invested $72.9 million or 35%
more than the previous year (Innovation Works and Ernst and Young 2015).
These contributions provide evidence for what Steve Case, Chairman and CEO of Revolution
Ventures and co-founder of America Online, said during his 2014 visit in
Pittsburgh (Tierney 2014): “Steel town is fast becoming startup town." The growth of Pittsburgh‟s tech
sector continues to accelerate and diversify led by software, medical devices, energy, and robotics.
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