By Audrey Russo, President/CEO, Pittsburgh Technology Council
Every year we release our State of the Industry Report, which provides a three-year overview of technology-related businesses in the Pittsburgh region. While this data tells us about salary and growth in the number of companies, it also provides information about venture capital. An area of needed growth is to ensure that we have access to risk capital, which provides the fuel many companies need to start, as well as manage their accelerated growth.
While the region’s unemployment rate has remained lower than the national average over this same three-year period (2009 – 2011)* , we see that IT, Advanced Manufacturing, Advanced Materials and Environmental Tech company formation and job growth has remained essentially flat with wages increasing. The most noteworthy growth is in Energy Technology, with company formation up more than eight percent, and wages and number of employees both up 11 percent. This is the largest growth of any sector we track.
When I look at the Life Sciences, which is the smallest cluster in terms of companies and jobs, there was a slight, almost negligible increase in companies; however the wage growth of six percent with an earning average slightly below that of the energy technology sector tells me that we have a life sciences cluster that remains strong. This is the area where the region could benefit the most from additional venture capital investment. Based upon the longer lifecycle inherent to life science companies getting their products to market, companies in this sector seem to pursue product development at a rate proportionate to the amount of money raised, the number of companies receiving investment and the number of venture capital funds investing. Hence, the smallest cluster attracted the most investment. This is also the most difficult cluster in which to launch a company, given the FDA requirements and the human clinical protocols. The long-term investment strategy in this sector is well recognized. We have strong deal flow evident by the research strength of our universities. This cluster may well be our region’s solid underpinning for long-term, post-secondary degree talent attraction and retention. A higher base salary average for specialty skills paired with research should serve as a hub for diverse talent.
Intuitively, the growth in energy should come as no surprise, but the flat performance of the remaining tech sector is certainly worth exploring. Salaries are increasing in these sectors, but at the Council, we hear about the difficulty in finding developers and engineers to fill positions at startups, as well as at established companies. The alignment of existing skills with vacancies appears to be mismatched. The overall unemployment rate remains relatively low, the demand for jobs is high and the actual growth of jobs remains flat. Are we at risk for new companies to be built here if the talent in these clusters is not available?
Life sciences companies, while small in number, have contributed to the exposure of the region through the follow-on investments they have attracted. More than 30 venture firms from outside of the region have invested in this cluster, comprising 34 percent of funds raised. Many of these same investors are discovering great companies as a result of their life sciences investments and subsequently are exploring Pittsburgh’s information technology startup companies. We find that once they connect with our tech ecosystem, these outside investors are very interested in establishing deeper relationships across all the business growth areas.
The 2013 State of the Industry Report provides an insightful review of where we have been, but it also guides us in planning where we need to focus our efforts. Access to risk capital across the information technology cluster remains critical for the region. Supporting the commercialization of technology from the universities also serves as a pipeline for company creation. Talent attraction strategies for seasoned entrepreneurs in addition to technical skills will augment the efforts of new business development. But we have to be more focused and aggressive with these efforts. Building this ecosystem for the next 30 years should take on more urgency for us. We cannot remain flat in information technology, advanced manufacturing and finance, while we build the life sciences and energy tech sectors. A diverse portfolio has long been this region’s strength.
* 2009 – 2011 were the last years for which data was available