Pittsburgh Ventures

National VC Trends:

Monday, Dow Jones VentureSource came out with their 3rd quarter venture capital deal totals for the United States.  As expected, the national trends in venture investing are not encouraging.   It appears that the number of venture deals fell in all sectors, compared to the same quarter last year.   

Some quick takeaways:

• The number of healthcare deals declined only 1%, perhaps reflecting investors’ belief that healthcare is relatively recession-proof.  
• VC investment in IT companies declined 21%, and the number of IT venture deals fell to a 10-year low.   Additional bad news can be found in a September report in which Datamonitor released the results of a survey of large corporations, half of which said they are planning to freeze their IT budgets in 2009. 
• Continuing recent trends, the big winners seem to be energy-related companies.  The total amount of energy-related investment was higher by 91%, but the total number of deals declined, perhaps suggesting that energy investors are getting more selective and may be trending toward later-stage deals.

Local VC Trends:

So how did Pittsburgh fare in the third quarter?  [Note: Here I'm shifting to Thomson VentureXpert data.] Compared to the third quarter of 2007, local VC investment levels experienced greater declines than the U.S. as a whole, exhibiting a 31% drop in the number of deals and an 11% decline in the amount of dollars raised by local companies.  

Since Pittsburgh’s venture market is relatively small, and therefore a single deal can cause a large percentage increase or decrease, it’s difficult to draw too much of a conclusion from one quarter’s numbers.  But it is interesting to note that healthcare-related IT deals led the way in Pittsburgh’s Q3 venture stats:   Three of the four largest rounds were raised by:

• Aethon - a robotics company that sells to hospitals;
• Immunetrics - a bio-simulation company that uses software to model acute illnesses; and
• ClearCount - utilizes RFID technology for patient-safety solutions in the operating room.

[Disclaimer:  Innovation Works is an investor in all of the above companies]

Given the Pittsburgh region’s (and CMU’s) historical strength in software, robotics and IT, as well as the presence of one of the Nation’s largest integrated healthcare providers (UPMC), it shouldn’t come as a surprise that the convergence of healthcare and IT continues to be a strength in Pittsburgh’s tech community.  

Regarding the overall downward trend in venture investing, industry watchers are predicting continued declines in the amount of funding and number of deals nationwide.   Here in Pittsburgh, we should likewise expect some tough sledding ahead - but smart application of our tech strengths toward targeted industries may help to soften the blow.   As we saw in Healthcare IT, when we align our technology strengths with industry sectors that are recession-resistant, we are likely to continue to see companies in Pittsburgh that are able to raise funding and grow.   Also, with a continued trend toward energy investing nationwide, we should likewise be looking for ways to use our IT talents in this sector.