The few, the proud Featured

10:09am EDT July 22, 2002
Venture capital firms based in Pittsburgh invested more than $7.4 million in 16 Pennsylvania companies in 1997, an amount dwarfed by the $17 million invested the previous year.

"Obviously, it's not the trend you want," says Tom Canfield, president and CEO of the Enterprise Corp. of Pittsburgh, a non-profit entrepreneurial assistance organization that is expected to become part of the state-funded Ben Franklin Technology Center of Western Pennsylvania next year.

The venture capital-investment figure is but one snippet of information contained in The Enterprise Corp.'s report, "A Survey of Venture Capital in Pittsburgh 1998," but it's notably not a trend that Canfield expects to continue into this year.

Canfield says that, already in 1998, a few major deals have closed, foretelling a much bigger year in 1998. And, he adds, the quality of some of the presenters of late indicate that at least some local entrepreneurs are getting better at making their case to the venture capital community.

Canfield cites as examples former executives of Automated Healthcare and Fore Systems, two highly successful companies launched in Pittsburgh, who have been able to raise significant blocks of capital for new ventures.

And while venture capitalists locally are looking for deals with strong potential for big returns, they aren't necessarily interested only in mature, sure-thing investments.

"My perception is that there is much more interest in the private investment community in investing in early-stage companies," says Canfield.

Indeed, start-ups accounted for $3.2 million in venture capital investment last year, according to the survey. And, as in previous years, more than $6.6 million of the $7.4 million invested went to new portfolio companies.

Moreover, investments by small funds, such as the Western Pennsylvania Adventure Capital Fund, which was launched in 1997, and the Enterprise Corp.'s Private Investor Group, have attracted larger investments from other funds.

The report notes that, as in prior years, companies in southwestern Pennsylvania in the software and medical products industries received the most investments.

By contrast, industrial-product companies in southwestern Pennsylvania that received capital from Pittsburgh-based venture capital firms employed 818 people, the most of any category, yet only three firms received venture capital investment. Twenty-one companies in computer software and medical products and services received investments.

Says Canfield: "The venture capital industry as a whole is looking for extraordinary products and services, high value-added products," which means most of the investment is going to go into medical and other innovative high-tech businesses that have rapid growth potential.

Of course, the kind of manufacturing typically found in southwestern Pennsylvania doesn't fit in that category.

"We don't make much that goes inside a computer," says Canfield.

Entrepreneurs who want a reasonable shot at landing venture capital should do two things, he says: have a well-prepared business plan and at least one well-satisfied customer.

"They need a solid business plan, they need to be able to effectively communicate it to investors-and we see a lot who can't do that-and a clear acceptance by key customers who can offer powerful testimonials," says Canfield.

Who's who in Pittsburgh venture capital

Following are the 15 venture capital funds and fund managers either based in Pittsburgh or with regional offices here at the end of 1997. They also are listed in "A Survey of Venture Capital in Pittsburgh 1998."

1. Adams Capital Management-(412) 749-9454

2. ALCOA/Advent Venture Capital Fund-(412) 553-2982

3. Birchmere Investments Inc.-(412) 803-8000

4. C&L Ventures-(412) 341-1144

5. CEO Venture Fund-(412) 687-3451

6. Keystone Minority Capital Fund L.P.-(412) 338-2230

7. Mellon Ventures Inc.-(412) 236-3595

8. Pennsylvania Growth Fund-(412) 361-0500

9. Pittsburgh Seed Fund-(412) 687-4411

10. PNC Equity Management Corp.-(412) 762-8892

11. Point Venture Partners-(412) 261-1966

12. Robinson Venture Partners-(412) 661-1200

13. Stonebridge Partners-(724) 223-0707

14. Wesmar Partners-(412) 392-2350

15. Western Pennsylvania Adventure Capital Fund-(412) 687-0977