PITTSBURGH — With Terrible Towels waving in Times Square, language learning startup Duolingo, based near Pittsburgh, marked its first day of public trading on the Nasdaq stock market in July.
Two weeks earlier, self-driving startup Aurora Innovation, which has headquarters in Lawrenceville and the Strip District, had announced its own plans to go public through a merger with a special purpose acquisition company, or SPAC — a new type of company formed to raise money and help take others public.
Days after Aurora’s announcement, Cognition Therapeutics, a South Side-based clinical-stage neuroscience company, said it had filed its own plan to do an initial public offering.
As if all that wasn’t enough, Stronghold Digital Mining, a Venango County-based company that will work to turn waste coal plants into crypto hubs, filed in July to go public. And the brothers behind Rice Energy Inc., which was based in Canonsburg until being acquired by EQT in 2017, launched their first SPAC in 2020 and introduced a second one this June.
Pittsburgh companies, it seems, are having a moment — selling shares to tap into the money at play in the public markets.
The rush isn’t just happening in Pittsburgh as an ongoing bull market has investors looking for fresh places to put their money. Filings for initial public offerings are up 172% compared to the same time period last year, according to data from Renaissance Capital, a research group based in Greenwich, Connecticut.
Already, there have been 316 IPOs filed as of mid-August 2021, compared to 260 in all of 2020 and 203 in 2019. This year, there have also been 406 SPAC IPOs.
At $96.3 billion, IPO proceeds were up 170% as of mid-August 2021, compared to $78.2 billion for the full 2020, according to Renaissance Capital. In 2019, proceeds totaled $46 billion.
Health care was the most active sector in the last 12 months, accounting for 43% of the public listing activity. Technology was the second most active at 29%.
“The trend has skewed away from Silicon Valley more recently,” said Mark Thomas, president of the Pittsburgh Regional Alliance, an affiliate of the Allegheny Conference on Community Development.
“We haven’t historically been on the front end of that,” he said. “I think things change moving forward.”
Self-driving startup Aurora Innovation plans to put its driverless technology in trucks and cars.
In Pittsburgh, there are rumors that more still filings are coming, including from self-driving startup Argo AI.
Dave Mawhinney, the executive director for Carnegie Mellon University’s Swartz Center for Entrepreneurship, estimated as many as 10 more local companies could file to go public in the next year.
Pittsburgh may be following a national trend but many involved in the local tech ecosystem say the wave of listings is also a product of intentional efforts to build out the region’s technology landscape.
With more incubators to help startups grow and more venture capital funds to back those founders financially, many said Pittsburgh has been aiming to make itself a destination for entrepreneurs.
“I think it really speaks to the work that’s been going on for the last few decades to stimulate this region and it’s starting to pay off,” said Zach Malone, co-founder and partner at Magarac Venture Partners, an investment firm that launched in Pittsburgh this March. The firm is connected with Draper Triangle Ventures, another fund in the area.
“Nothing’s built overnight but slowly there’s been more companies started, more founded, more talent stays here,” he said.
Luckily for Pittsburgh, Malone said, the types of technologies that are gaining attention these days are already being built here — things like artificial intelligence and self-driving technology.
Duolingo — which closed its first day of trading on July 28 at $139 per share, well above the offering price of $102 — had the added benefit of a pandemic that pushed people to learn and work from home. Learners tapping into the language app grew 34% in 2020 compared to the year before, according to an SEC filing. Paying subscribers grew 84% year over year.
“I think some of our highest profile companies like Aurora, like Duolingo, most obviously, probably would have gone public around this time regardless of the markets. But the market’s appetite for exciting new companies has just pulled that forward,” said Sean Sebastian, a partner at two local investment firms: Black Tech Nation Ventures and Birchmere Ventures.
“It’s an interesting opportunity for Pittsburgh to show off a little bit, sort of bask in the reflected glory of the Duolingos and Auroras,” he said.
This isn’t the first wave of public listings for local companies although it may feel like that, said Catherine Mott, an angel investor and founder of BlueTree Allied Angels, an investment firm based in Wexford. In industry parlance, angel investors are those who support a company almost at the very beginning.
The last surge in public offerings that she could point to came more than 20 years ago.
In 1993 and 1994, nine companies from Pittsburgh filed to go public each year, according to Post-Gazette reporting from the time. The next year, seven companies filed and by October 1996, eight more had launched initial stock offerings.
That wave kicked off in 1994 when Fore Systems, a maker of computer networking equipment, saw its stock price nearly triple six months after it went public, ranking it among the top IPOs nationwide that year.
Five years later, FreeMarkets Inc., an online auction firm, made another splash when its shares jumped from an initial public offering price of $48 to a year-end-close of $341.
The initial high of successful public listings wore off quickly. In 1999, five years after going public, Fore Systems was sold to Marconi, a telecommunications and engineering company based in Britain, that later cut its staff. FreeMarkets was purchased in 2004 by Silicon Valley-based Ariba Inc., a software and services company.
“What I worry about is, we had FreeMarkets, Fore Systems and Respironics — [a medical supply company that went public and later merged with Philips], Ms. Mott said. “We had that wave and then nothing for 20 years. Is that going to happen again?”
Riding the wave
From her perspective, Mott said, there aren’t many other ways for companies that attract large amounts of investment as they’re growing to repay their investors.
To make that repayment, often referred to as an “exit” in tech industry lingo, companies usually file to go public or get acquired by a larger company.
As the numbers scale up — both Duolingo and Aurora were valued well over $1 billion by the time they went public — it can be hard to find an acquisition offer that can compete.
“At each stage, you are growing, you are raising more money,” Mott said. “So at each stage, you’ll have to demonstrate that you can continue down that pathway of this high probability of driving a return to your investors.”
Often going public is built into the growth plans for such companies, with employees taking equity as part of their compensation. So when the companies successfully go public, many of their employees can get big paydays — rewarding them for signing on in the risky early days.
More public listings or not, most people agree that the attention on the IPOs that have already happened will bring more investors, founders and money to the area.
The founders of FreeMarkets, for example, set up a venture capital fund to invest in new ventures in 2006.
James Swartz, an entrepreneur and founder of venture capital firm Accel Partners, was one of the first institutional investors in Facebook, Mawhinney said. In part due to his success in venture capital, he was able to invest back in Pittsburgh, creating the Swartz Center for Entrepreneurship with a donation of $31 million in 2015.
Reacting to the current focus on nurturing innovation, the Pittsburgh Regional Alliance is recruiting a “startup czar” to market Pittsburgh to the companies that are already growing here, Thomas said.
Taking a page from founders in Silicon Valley decades ago, Mott said this will create wealth for investors and employees.
“When you create that kind of wealth … people will plow it back into more startups and that’s what will make a difference. New wealth likes to create more wealth.”
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