Corporate Investments in Pittsburgh Startups Hit 5-Year High

Corporate dollars can be a boon to a startup. The infusion of cash can help bring a product to market or fund expansion, and a recognizable corporate logo can give an unknown startup visibility and creditably.

by Aaron Aupperlee, The Pittsburgh Tribune-Review / March 15, 2017
Pittsburgh, Pa. Flickr/Jaime Dillen-Seibel

(TNS) -- Ford's recent $1 billion investment in the Pittsburgh-based autonomous driving startup Argo AI turned a lot of heads.

But this type of corporate investment — not necessarily to this scale — is part of growing trend in Pittsburgh.

Corporate investment in Pittsburgh-area startups hit a five-year high in 2016, topping out at $66.4 million, according to a report released Tuesday by Innovation Works and Ernst & Young.

Investments from traditional venture capital firms still dominated the money flowing into Pittsburgh-area startups. Venture capital firms accounted for $235.1 million of the total $376 million investment in the region's startup scene in 2016, dwarfing the $66.4 million from corporate investment.

Corporate dollars can be a boon to a startup. The infusion of cash can help bring a product to market or fund expansion. A recognizable corporate logo can give an unknown startup visibility and creditably.

"You're always going to get at a minimum the value of the logo," said Don Charlton, founder and chief product officer of JazzHR, which landed a large investment from Salesforce in 2012. "You gotta trust us; Salesforce invested in us."

Pittsburgh startups have seen several infusions of corporate dollars. Yelp invested $8 million in Nowait about six months before the restaurant app bought the Pittsburgh startup for $40 million . And then there is Ford's $1 billion investment in Argo AI .

But unlike traditional venture capital investments — where the return on investment is the top priority — corporate investment is strategic. The investing company often looks at the investment as a way to help itself, not necessarily the company in which it invested.

Investors and the heads of successful Pittsburgh startups shared their experience with corporate investments and offered tips to entrepreneurs Tuesday during a discussion following the release of the annual investment report.

"You seek them. You should not necessarily be in a situation where they are seeking you," said Mark DeSantis, who cofounded kWantera Inc. , a developer of cost-saving energy management software that landed General Electric as a strategic corporate investor in 2014. "Because when a big fortune 100 company knocks on your door and says 'Do you want money?' suddenly your tight focus on your vision evaporates in a heartbeat if what they want is something different than what they asked for because it's money, it's prestige, and it's power, and you can fall in love with that and take yourself down a road you don't want to go."

DeSantis, now the CEO of Roadbotics, said he and his cofounder identified GE as a potential "ideal partner" two years before they approached GE.

Alissa Meade of UPMC Enterprises, the venture capital arm of the health care giant that invests in health care startups, said strategic corporate investment can be both sides of the deal. An investment from UPMC Enterprises can open up UPMC and its partners as the startup's next customer, and a big one at that, Meade said. UPMC also can help the startup prove its concept works and get it noticed in peer reviewed journals. Finally, and Meade said least importantly, UPMC Enterprises can provide money.

"It's more important that we can, as I said before, bring to bear our subject matter expertise, our know-how, our assets and our ability to move the needle for that company in a way that is advantageous for the company and doesn't require them to relinquish their mission but also adds value to our core company," Meade said.

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