Change in the Startup Industry Means Opportunity for Pittsburgh

Change in the Startup Industry Means Opportunity for Pittsburgh

The venture capital business is contracting. There are less VC funds than there were a few years ago. And there will be fewer in a few more years. And the birthrate of web startups is expanding. That is the challenge we all face.

So, if you are an entrepreneur you should be very focused on either getting to profitability or getting a VC firm or two with deep pockets into your company (or both). If you are a seed investor, don’t go quite so fast. Reserve some funds for follow on investments. And help your portfolio companies get to profitability or get a VC firm or two with deep pockets into your company.

I think this expanding birthrate is a great thing. Entrepreneurship is alive and well all around the world. Smart and scrappy entrepreneurs are imaging new products and services and building them. But we all should be careful to think about how we are going to fund all of this company creation. Not just the first part of it, but all of it.

The above passage is from Fred Wilson’s blog post on AVC yesterday.  The post, which is well worth the read, is about a new breed of web startups.  They primarily fund themselves mostly and achieve profitability quickly.  They require a different sort of funding then the traditional giant VCs that look at multi-round, 5-10 year paths to profitability.  Fred’s not talking about anything new, this trend has been extremely evident since late last year and well documented in many other places.

What might be a relatively new thought, is how this can impact the balance of power between technology scenes.  If we (the Pittsburgh Technology Scene) play our cards right, this is a giant opportunity.  It is no secret that Pittsburgh’s lack of a Sand Hill Row (a large set of serious, big, deep pocketed VCs) is one of the glaring negatives of starting a company in Pittsburgh.  However, if the trend towards smaller, more self-sufficient startups continues that may become less and less of a penalty.  In fact if Pittsburgh can mature more incubators (like AlphaLab), the presence of VCs may begin to actually weigh down the technology scenes that are saturated with them (Silicon Valley and to a lesser extent, NYC).