Bubble Free Burgh?

I traded a couple tweets with Mike Capsambelis (@mikecaps) several weeks ago and it got me thinking about the bubble in tech investing. The Pittsburgh startup scene is one of the fastest growing tech startup scenes around, for the full year of 2010 the VC dollars in our system were up almost 68% compared to a national increase of only 12%. If this growth is bubble related, it would make Pittsburgh a likely target to become a GIANT splatter when the bubble bursts. I’m not overly concerned about this though, and I’ll give you three reasons why:

First, let’s get on the same page. When we talk about the bubble, we’re talking about Tech (and probably more specifically software). While I would love to say that all $159.5M that was invested in Pittsburgh in 2010 went towards tech and software, that just wouldn’t be true. Pittsburgh is a medical town and a lot of that investment was medical, and should be unimpacted by the bubble in tech (I don’t think, at this point, that the bubble is something that’s likely to spread across the entire economy).
Second, Pittsburgh’s startup infrastructure has improved, keeping pace with the increase in the size of our startup market. I don’t have any empirical evidence to support this, but I would point to Alphalab’s continued success both as an incubator and as a catalyst for the community (through things like Open Coffee Club). They have also been focused on integrating nationally with the TechStars network, which would gives them some ability to scale. I would also point to the continued public investment from Innovation Works, the new life sciences VC, and the continued support of Blue Tree and MBVC.
Third is what I’ll call the Yinzer effect. The fact is, there are certain number of talented entrepreneurs and VCs who WANT to be in Pittsburgh. The evidence of this is all over the place, look at the involvement in the local scene of Sean Ammirati from Read, Write, Web and mSpoke or the guys from FreeMarkets who stayed to create MBVC or even (humbly submitted) me. These types of people form the same kind of recession proof core that keeps us out of the housing droughts. This will become less and less reliable as we expand, but for the time being is a serious mitigating factor if the current bubble bursts.

Anybody else have any more reasons to fear or not fear the bubble bursting?

http://twitter.com/mikecaps Mike Capsambelis

I see a bubble growing around web 2.0 startups with narrow product concepts, not a more general tech bubble. There is a lot of angel and VC money going into “the next Facebook/Twitter/Groupons” of the world, but there are too many of them and only a few will survive. Plus, valuations of some of the leading web 2.0 companies are over-inflated again.

I don’t think Pittsburgh will feel much of the pain if that bubble bursts before it right-sizes. I agree with the points you make, plus I think Pittsburgh startups and their more established peers operate more rationally – valuing revenue over eyeballs and leveraging the local infrastructure you mention for more sustained growth. Maybe this is because we don’t have a steady stream of anxious investors pushing firms to grow fast (yet), but I look at Silicon Valley and wonder if all that money flying around makes it too easy to ignore basic business tenets and rush to exit strategies.

Whether any kind of bubble pops or not, Pittsburgh will continue to emerge to the rest of the world as a great place to start and grow a business.

Bubble Free Burgh?

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