7 Lessons Learned about the Pittsburgh Technology Landscape
Innovation Works and Ernst & Young LLP (EY US) released our tenth annual review of Pittsburgh’s technology investment landscape. This report provides a comprehensive review of investment and exit activity in the Pittsburgh region from 2011–2021.
The report was launched with a live event featuring Rich Lunak, IW President & CEO, and Leon Hoffman, Managing Partner of EY Pittsburgh highlighting major insights. Then Rimsys Founder & CEO James Gianoutsos, Andrew Hedin Partner at Bessemer Venture Partners and IW Chief Investment Officer Ven Raju dove further into the entrepreneur’s experience building his business in Pittsburgh. Here are some of the major lessons learned:
*Please note that some comments were edited for length and clarity. Watch the entire panel here.
- Entrepreneurs should use the investment report as part of their fundraising strategy.
Rich Lunak (RL): If I’m an entrepreneur who’s looking to raise money, the investment report gives a list of the more than 300 firms over the last decade that have invested here. And so, those are the firms that have shown an affinity for the Pittsburgh market. It’s obviously in their geography. They probably have partners that may be coming here on a regular basis and looking for other deals to make their visits efficient. So the investment report is a great place to start to put together a list of investors to reach out to and pitch your company.
2. Exits are a sign of a healthy ecosystem.
RL: Exits create liquidity for the investors and they also create the wealth and experience for entrepreneurs who may turn around and become angel investors. Or better yet, they may become serial entrepreneurs launching new companies.
Over the past decade, we have generated $21.3 billion of exit proceeds. Keep in mind, the term ‘exit’ doesn’t mean these companies leave our region. It means that there’s a liquidity event and in most cases these companies stay and grow in our region.
3. Think about how you are telling your story.
James Gianoutsos (JG): I approached investors to pitch an idea of what I thought Rimsys was like. I came out with a completely different idea of what the company’s value was truly like to the ears of investors. We went out to 75 different VCs, angel investors, private equity, things of that nature. And, there were some interested, some not. And it primarily came down to where they wanted to invest their money and how confident they were as an organization to support us as a business. And I would say that it was some of the highest highs that I’ve had and definitely some of the lowest that I’ve ever felt with the company, because you’re out there selling yourself, selling what’s deeply your soul.
And it’s natural as a human being to feel rejected. But as I thought about it, it was more around not the business, but sometimes how I told the story or how somebody reacted to the way I was telling the story. You know, start picking up those cues and start rearranging some of the slides of how you would present the information or tell that story. As a founder, you have to be moldable in terms of how you tell your story.
It was almost like I was blaming investors for not being interested in us. Right? Because I was so proud of what we were doing back in the day. I had to kind of frame the company a little bit differently because, you know, the number one thing that potential investors said was they didn’t want to be in the medical space. Sometimes that’s just a no–go for some investors. And I think the way that I was telling the story was that it was perceived that we were kind of creating medical devices. But Rimsys wasn’t, (it was) a vertical SaaS solution serving the medical device industry. And I had to change the way I told the story to make it clearer.
What it all came down to was finding the right partner. And, I almost wish going back that I wrote down exactly what I wanted out of a partner — who I wanted to spend my time with as a partner, you know, with the VC. It’s not just necessarily about the name of the VC that matters.
4. Know about the investors that you are pitching to.
Andrew Hedin (AH): So as an individual partner at a larger fund, I decided to focus on seed and Series A investing because that’s where I thought I’d be able to generate the best returns for our limited partners who invest in us. And so that was an intentional move on my end. But, some of my colleagues saw a lot of opportunity in later stages. And so as a firm, we are investing across the spectrum from the earliest stages and in later-stage investing.
I think there’s two questions that are really important to me.
1. One is why is now the right time to be building a company in this particular space?
2. And then why is this team the right team to be building and executing on that vision?
And, I think those two questions are really, really important at the earliest stages for me to build conviction around. In the Rimsys case, I think both were absolutely true and rang very true to me…Beyond that, as a firm, we’re what we call ‘roadmap driven’, which is a term we use as sort of a euphemism for investment thesis driven.
And so for all of us internally at Bessemer, we try to create investment theses across different areas and understand the dynamics of that market. We study the market pretty deeply, understand who the players are, who the best companies are, and you know, what that opportunity ultimately will look like. And why now is a really interesting time to be investing in that space.
5. Think about what you need from an investor (hint, it’s not just about the money).
JG: What it all came down to was I wish I knew previously that I really needed to focus on who I wanted as a partner. Who’s in the space? What companies or what VCs fit this solution that we’re in or this market that we’re in. Who has the experience to help us build this company as we grow? Who has networks, who has the knowledge around that? Because what I’ve learned is that there’s a lot of folks that are interested in us and you waste a lot of time giving everyone information about your company. And I just thought, “Hey, I’m going to throw everything at you. If you like it, great. If not, great, we’re going to go to somebody else.”
But at the end of the day, that took a lot of time away from the business and myself and my family. And, you just need to be very focused on what you’re doing and how you want to proceed forward. I wish I knew that a year ago. Right? But fortunately, you know, through that effort, we found Allos Ventures. They led us to Bessemer Venture Partners and we very much aligned with their portfolio, what they were looking for, where they were seeing the need and where they wanted to put their money to work. And it very much aligned with us as a business and as an entrepreneur and a founder and the vision of the company where we wanted to go as well.
And so, I would say it is definitely a learned lesson. Take the time, know who you want to invest in, and find investors that you know are in your space and just don’t go out there searching for everybody and anything. Don’t just look for money. Because that’s the biggest lesson I learned is (that) it’s not just the money. It’s the partner. It’s who is there going to support you along the way and down the road.
AH: Absolutely. So it’s at the highest level, I’m as involved as a company wants me to be involved. You know, I recognize that we’re minority investors in almost all of the businesses we invest in. We don’t run the business. James and his team have the privilege of doing that. And our goal is just to support them in all aspects where they want support and just help them.
Given the experiences we’ve had as a fund over a century of investing, we share best practices and where we can be helpful. As someone who focuses a lot on health care, I sometimes talk about the Hippocratic Oath of investing, where the first role is to do no harm. And so my primary goal is not to get in the way and prevent the business from running well.
But beyond that, we do have a team that helps support our companies. You know, we have a couple of folks who help with hiring and recruiting executive talent across the company. We help with benchmarking, showing the company where we see best in class businesses across all geographies and helping make sure that we’re pushing the team to think about what it’s going to take to look like a phenomenal business. We connect our portfolio companies to each other and the executives across many different functional areas.
And so we not only connect our CEOs together, but we connect our CTOs, our chief revenue officers, our operations folks, our finance folks across eight different functional areas to just get help as investors and let those teams talk to each other and share best practices and ask questions of each other across the 200 portfolio companies we have.
We have a set of advisors who help our companies. And so occasionally we’ll tap into the chief revenue officer who’s been really successful in their career to talk about best practices and sales comp or whatever it might be. You know, over time we’ve been fortunate to be part of a lot of great M&A and IPO stories.
And so, we’re helping our teams think through what that looks like and sharing practices there. And then, I just try to be, hopefully, a first-call relationship where I want to hear when things are going well. I also want to hear when things are a challenge where I can potentially be helpful if I don’t have an answer.
Is there a way I can get to an answer for the company’s team and help them answer any questions that they might have. Bessemer is a relatively large fund, the fund we’re working out of is a two and a half billion dollar fund. So we have a lot of resources. We can help grow the portfolio company’s business over time. And so we’re in a fortunate position that we can start with a modest size check in our view, but that’s our typical first check and, then hopefully, if the starting line continues to grow with the company as they grow and they need more capital, we can be there for them.
6. You had a successful round of raising capital.. Now what?
JG: After that Series A closed, it was all happy. And then we’re like, “Oh, crap, what are we going to do with all this money?” And, where are we going to invest it and how are we going to master certain things?
We had a plan for that. But, you know, I think reality clicks in real quick because that’s the most money you ever see in a bank account, right? And you enter a different phase. It’s a different set of challenges and they’re harder. At the end of the day, they’re good challenges to have. You have to think: now we’re going to have to hire. We’re going from 28 employees at the end of 2021 to potentially 80 by the end of this year depending on how we continue to invest in having the infrastructure that needs to be in place to build a company.
So we’re going to have an H.R. department now. We hired a director of talent acquisition. We have an entire marketing department. And, I would say that it is not easy to build and scale the way we want because you’re literally building the foundation to scale up even more somewhere further down the road. But you’ve got to do that now or else you’re just not going to be in a good position later. You know, 12, 18, 24 months down the road, we’ve got to be ready to scale even further.
And so,
1. Number one it’s investing in the people, our people geographically. You know, certainly in Pittsburgh. I’m Pittsburgh born and bred. And it is a passion of mine that I’m very proud to be a Pittsburgher and it’s something that I want to make sure we continue to do and retain talent here locally. Certainly with COVID, it’s an interesting time because you’re not necessarily geographically bound anymore. But the primary focus certainly is in the Pittsburgh region in building that up. And so, number one, investing in the people.
2. Number two is investing in the product, making sure that it’s sustainable, scalable, making sure that it meets the quality from our customer expectations standpoint.
3. And then three, is geographic growth. So growth in terms of dedicating certain geographic markets, whether it be the EU or the U.S. or South America or the Asian market, whatever the case may be, but trying to figure out where the best approach is to go and be strategic about it . We want to go into a market and start selling and do everything right from day one. We’ve got to make sure we’re still capital efficient, right?
We want to make sure we’re using our money wisely. But there’s also a lot of structural things that I knew were going to be challenging. But when you get into it, it is a challenging time because you’re building those processes that never existed before. I think we’re actually past that now, which is fantastic. It took about a quarter to do and we’re really in a position now to expedite our growth and be in a better position moving forward.
7. Remember you are never alone.
James: I would just say that as an entrepreneur and a founder, it can feel lonely sometimes because you really don’t know where to go or what to do or even who to ask. And, I think just keeping that open and honest communication and that network available to you helps tremendously from a business standpoint and, honestly, from a mental health standpoint. Just make sure that you know you’re doing the right thing because you’re second- and third-guessing yourself at every step of the way. Just having that network support system is crucial. And make sure you also fall back on your friends and family, too, because that’s the most important thing.
