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Entrepreneurship thrives in Pittsburgh despite technology, dot.com downturn

Across the nation and here in Western Pennsylvania, many people
have been quick to write the obituary of the so-called "new economy."
Technology stock prices have all but collapsed, "dot.coms" are dying
by the dozen, and venture funding has dried up. Yet almost unnoticed,
here in Western Pennsylvania entrepreneurship and venture investing
are on a marked upswing. What’s going on?

By:
Sean D. S. Sebastian
Pittsburgh Post Gazette
Pittsburgh, PA
http://www.post-gazette.com

(Daniel Marsula, Post-Gazette)

Pittsburgh’s technology economy has not collapsed in the same
dramatic fashion as we have seen elsewhere in the country because it
never rose to unsustainable heights fueled by frivolous business
models. True, the region’s Internet icon, FreeMarkets, has seen its
stock price fall by over 90 percent since its dramatic 1999 IPO, but its
market capitalization today still approaches $1 billion, and it has
distanced itself in the market from its many one-time competitors.

The majority of local innovation is truly technology-based, significantly
advancing or creating new functionalities in telecommunications,
medical devices and many other areas. In general, these companies
sell to corporate buyers, not consumers. My theory is that our "new
economy" mirrors our "old economy": Both make intermediate
products or services — be it ATM switches, online materials
procurement, steel or aluminum — used by other businesses to
produce their wares. Old and new are both fundamentally "B2B." We
just don’t see many "DogfoodOnline.com" type companies here.

More than $1 billion of venture capital has been invested in more than
100 Western Pennsylvania companies in the past two years — this in
a climate of severe retrenchment elsewhere in the country. According
to National Venture Capital Association statistics, in this time period
Allegheny County alone was the beneficiary of more venture funding
than Philadelphia and its six surrounding counties. More nationally
prominent venture funds than ever are investing here. For example,
one of Silicon Valley’s most prominent venture funds, Mohr Davidow
Ventures, opened an East Coast office in northern Virginia recently,
but then did its first deal in Pittsburgh.

The University of Pittsburgh and Carnegie Mellon University are both
stepping up the pace of technology transfer and are beginning to win
national attention as centers of world-class, commercial-grade
intellectual property. At least one West Coast venture fund is recruiting
local graduate students to help source on-campus opportunities.

Further evidence of local entrepreneurial vitality was seen recently at
the Three Rivers Venture Fair held at Heinz Field. Innovation Works,
the Pittsburgh Technology Council, and the Pittsburgh Venture Capital
Association jointly sponsored the fair, bringing together more than
400 institutional investors, entrepreneurs and technology pundits for
two days of investment pitches, keynote speeches by industry
luminaries, and networking. While venture fairs are a mainstay of the
national early-stage private equity market, Pittsburgh has never
before hosted an affair of this scale and ambition. Despite a general
depression throughout the venture community, more than 100 people
flew to Pittsburgh to attend this inaugural event. The draw was the
opportunity to visit and learn about this underinvested, opportunity-rich
market.

America’s first big fortunes were made right here in Pittsburgh by risk
takers in steel, banking, oil and railroads. As Glen Meakem noted in
his address to the Three Rivers Venture Fair, the cocky nouveau
riche industrialist character in the movie "Titanic" was from Pittsburgh.
He really couldn’t have been from anywhere else: This is where
venture capital was invented. (Of course, modern venture capitalists
are much nicer people than he was.)

Yes, get-rich-quick investors and entrepreneurs have gotten their
well-deserved comeuppance in the past two years, but they are not
representative of a larger, much more important cadre of serious,
dedicated, driven people who are shaping the future. Not all of them
will be successful. Those who are will be richly rewarded, and many of
those who fail will learn from their setbacks and strive again to make
their mark. These people are significant contributors to making the
American economy the most robust in the world. They are equally
necessary — indeed vital — players in growing Western Pennsylvania’s
economy.

Sean D.S. Sebastian of Sewickley is a partner at Birchmere
Ventures and president of the Pittsburgh Venture Capital
Association.

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