investing in, we hope to be customers of,”
says senior managing director Karen Kerr.
For medical-device makers—which,
like energy companies, often draw little
interest from VCs—crowdfunding has
strategic advantages. Scanadu, the maker
of a small device packed with sensors that
can measure temperature, heart rate,
blood pressure, and other bodily signals,
has smartly use its fund-raising to prove
market interest. By raising $1.6 million on
Indiegogo, the company got 7,000 backers
eager to test its prototypes. That provided
valuable data to show regulators reviewing the device and helped persuade later-round venture capital funders that there
is a market for Scanadu’s products.
Now four years old, the company has
$49.7 million in backing—including funds
from two strategic Chinese backers, the
Internet giant Tencent and the investment
group Fosun, which has a large health
business. It has begun thinking of rolling
out in China after the U.S.
The dominance of venture capital
in the innovation-funding environment
is not just a U.S. phenomenon. China,
once exclusively a bastion of government-funded research, is now the second-largest
VC market, behind the United States.
Companies in China collected 18 percent
of global VC investment in 2014, or about
$15.6 billion, compared with $4.8 billion
the year before, according to data compiled by the global accounting firm EY.
India’s share has been climbing too, with
$5.2 billion invested in 2014—more than
double the 2013 total of $1.9 billion.
Yet in this increasingly global funding picture, certain innovations are still
struggling: potential breakthroughs in
energy production and medicine, among
others, that take too much money and
time to develop. A better financing system, says Harvard’s Nanda, would support
a sort of Darwinian evolution of technology. “Each new technology is like a mutation,” he says. “Most will end up failing.
A few will be an incredible success. We
want to develop financial systems that will
encourage experimentation and a high
rate of new variations and then be quick
at shutting down those that don’t work.”
Can a midsize Rust Belt city compete
with Silicon Valley?
● Shortly after Luis von Ahn helped
launch Duolingo, his popular language-learning app, he started to receive the
same piece of well-meaning advice from
investors and fellow entrepreneurs: Why
don’t you move from Pittsburgh to Silicon
Valley, where you can really grow?
Presumptuous? Sure. But not that surprising. The Bay Area is the center of the
tech world, a siren for software developers, deep-pocketed investors, and enterprising businesspeople. Companies based
in San Francisco and San Jose pulled in
$22.6 billion in venture capital funding in
2014, dwarfing the cities’ closest competitors, Boston ($4.4 billion) and New York
($4.2 billion). Pittsburgh firms scored a
paltry $338 million.
Smaller tech cities do have a serious downside when it comes to the tech
world: they often lack big-time venture
capitalists and the pool of startup-savvy
business and marketing talent that can
help a small company grow.
Von Ahn and other startup CEOs,
though, are beginning to push back
against this argument.
They make the case that Pittsburgh
and other second-tier tech cities—includ-
ing Raleigh, St. Louis, and Minneapo-
lis—are places with strong university
pipelines, affordable living costs, great
quality of life, and collaborative tech eco-
systems. “Despite the fact that a lot of peo-
ple have told us to leave,” von Ahn says,
“we’re happy here.”
Expanding the tech economy beyond
the West and East Coasts could support
inventors tackling problems that those
based in the Bay Area might overlook.
“The culture of Silicon Valley is really
a bunch of twentysomethings solving
twentysomethings’ problems,” says Matt
Zieger, the vice president of the Forbes
Funds in Pittsburgh, which has invested
in local startups that fight human traffick-
ing and provide voice-based apps for the
Pittsburgh “has a culture of a broader
purpose,” says Zieger. “We have a legacy
of building things.” Some of the hottest
companies in the city today are working
on complex technologies with real-world
applications, including advanced robotics, low-cost batteries to store renewable
energy, and self-driving cars.
Pittsburgh has not always evolved
smoothly. Thirty years ago, it was a hollowed-out, crumbling Rust Belt city whose
economic engine had seized with the
meltdown of the American steel industry. As unemployment soared and home
values plummeted, young people left to
find jobs and lives elsewhere.
Today, that’s history. Neighborhoods are undergoing building booms,
industrial wastelands on the riverfronts
have become bike trails and parks, and
the city’s percentage of educated 25- to
34-year-olds is among the highest in the
country. While a strong manufacturing
base remains, health care and technology
have become the twin economic engines
of the region. They’re supported by the
neighboring urban campuses of the University of Pittsburgh, which pulls in over
$400 million in National Institutes of
Health funding annually, and Carnegie
Mellon University, which has top graduate
programs in computer science, engineering, and robotics and tight connections
Thirty years ago, Pittsburgh was a hollowed-out, crumbling Rust
Belt city whose economic engine had seized with the meltdown of
the American steel industry.