CC013: how Pittsburgh leverages state funding to spur innovation // a Coffee Chat with Terri Glueck and Leah Simoncelli (Innovation Works)

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Terri Glueck 0:00
We, over the years have put almost $80 million into startups. And those startups have leveraged an additional two and a half billion with a be billion dollars in investment. That’s really the same as it cost to build the sports facilities for the penguins, pirates and the Steelers. I mean, that’s a lot of money churning through the economy.

Jay Clouse 0:26
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them talk with them and discuss the upside of investing in them.

Welcome to upside.

Hello. Hello. Hello. And welcome to the upside podcast first podcast finding upside outside of Silicon Valley. I’m Jay Klaus and I’m accompanied by my co host Mr. study study study himself Eric horn on it

Eric Hornung 1:07
is that time of year Jay it is CFA crunch time I’m going after level two. Again, it’s a tough one. But you got to take it. You got to take it on the nose. You gotta buckle down, sit in a bunch of coffee shops, not drink on the weekends. It’s a lifestyle choice.

Jay Clouse 1:24
I would say that upside is partially responsible for you doing level two again, as opposed to doing level three. I would 100% agree with that.

Eric Hornung 1:36
Yeah, it’s well, it’s partially upside. It’s partially the fact that I have a full time job that sometimes I have to work 70 plus hours a week. And it’s partially the fact that you know, I have a life and it’s very hard to pass all three levels of the CFA when you have a life so you got to push all that to the back burner. not pushing upside to the backburner this year maybe just the middle burner while I pursue the CFA

Jay Clouse 2:00
you’ve got more than a life. You’ve got hobbies. You got side projects, you’ve got a dog, you’ve got a girlfriend, you’ve got all the things. It’s

Eric Hornung 2:08
gotta be hard. I have all of the things that all of the things that that’s all I have. I am trying to work out, which is like, yeah, that’s a time suck. So you gotta, you got to emerge the workout with some of the other stuff. So I do upside stuff while I work out. I read while I worked out podcasts while I work out. Listen to my CFO, a podcast while I work out. Talk about exhilarating, it pumps you up.

Jay Clouse 2:30
What’s your most important short term goal? Is it passing the CFA or being able to dunk a basketball again?

Eric Hornung 2:36
Well, I’m not training to dunk a basketball, but so I would say it’s passing the CFA maybe after June 15, I’ll turn my gaze upwards and

focus on that big orange rim.

Jay Clouse 2:52
Take it to the hoop. Take the CFA all the way to the hoop. I can’t remember the last time that I took a test

Eric Hornung 2:56
college it had to be college right had to be

Jay Clouse 2:58
I don’t think I don’t think there’s anything postcard maybe an eye test. I didn’t take an eye test a couple years ago because I needed to renew my prescription.

Eric Hornung 3:04
See, what you don’t know is that upside is actually just been a big test I’ve been testing you ever for sure. So

Jay Clouse 3:09
yeah, the world is testing us 100%. Well today, my friends, we are speaking with two individuals in Pittsburgh, Pennsylvania. We’re talking to Terry Gleevec and Leah Simoncelli. Terry is the Director of Communications at innovation works. And Leah is the coordinator for alpha lab gear, specifically their hardware cup international hardware cup innovation works is an organization in Pittsburgh, Pennsylvania. Their mission is to introduce Connect, support and expand the startup and entrepreneurial ecosystem within Southwestern Pennsylvania making their region a center for innovative startups and tech investors from around the country. They are the largest seed stage investor in southwestern Pennsylvania, they’ve invested $70 million to date across 376 companies. They’ve had 57 exits provided $2.1 billion in follow on capital, Eric, big numbers,

Eric Hornung 4:05
a lot of big numbers, everything about this group just feels big. They reached out to us, and that’s how we heard about them. And they said, Hey, we have this hardware cup thing going on, we’d like to talk about it. And we did a little bit of digging. And then we found that they have the hardware cup and they have alpha gear labs, and they have this and they have this and this and it feels like it keeps on going with all of this stuff that they’re doing. So I’m really excited to hear about that because we’re not just focusing on the hardware cup. Today, we’re kind of talking about all of innovation works.

Jay Clouse 4:32
That’s right. It’s our first dip into Pennsylvania

Eric Hornung 4:34
first dip into Pittsburgh, first up into Pennsylvania. I guess if it’s your first dip into Pennsylvania, it has to be your first step into Pittsburgh.

Jay Clouse 4:40
Yeah, it’s kind of Yeah, it’s it’s in that direction. And you know,

Eric Hornung 4:44
I think various in Pennsylvania Yes,

Jay Clouse 4:47
I think there’s potentially some similar themes in Pennsylvania as there are in Ohio and specifically I’m guessing that Pittsburgh has some similarities to Cleveland and we just talked to Bernie and Todd in the Cleveland area so I’m going to try and pull some themes there

Eric Hornung 5:04
let’s do it let’s pull some rust belt themes let’s jump into this interview

Jay Clouse 5:08
let’s do it and if you guys have any thoughts as we go along here you can tweet at us at upside FM or email us hello@upside.fm love to hear your thoughts on this interview with Terry which we’ll get to right after this

Eric Hornung 5:19
and now for some validation

Jay Clouse 5:23
Eric When’s the last time you went to an all you can eat buffet like a Golden Corral

Eric Hornung 5:28
I used to go to Hong Kong King buffet up in Parma Ohio quite frequently but that was about a decade ago

Jay Clouse 5:35
no more all you can eat buffets

Eric Hornung 5:37
I very rarely eat all I can

Jay Clouse 5:40
yeah it seems like a great idea but you feel pretty gross afterwards but at the same time there’s a lot to like about all you can eat buffets and that is the same title of this review by Bill Horvath

Eric Hornung 5:52
bill was a title that said there’s a lot to like about all you can eat buffets

Jay Clouse 5:56
know it is a lot to like he says there’s a lot to like about this part cast. Even if you’re not interested in the particular business featured in an episode, you’ll usually find great insights about things like entrepreneurship, venture capital startup accelerators, and the trials and tribulations of being a founder give it a listen, I doubt you’ll be disappointed.

Eric Hornung 6:14
And that is a thorough review and a very thoughtful review. Shout out to bill for giving us a lot to chew on their

Jay Clouse 6:20
UI. Love it. Love the puns. If you guys think there’s a lot to like about this show as well, please leave us a review on iTunes. And we just may read on air here on the pod.

Terry and Leah, welcome to the show.

Terri Glueck 6:36
Morning.

Leah Simoncelli 6:36
Thanks for having us.

Jay Clouse 6:40
I would love to start with just a little bit of your personal histories as it relates to Pittsburgh. Terry, can you talk to me about when you got to Pittsburgh?

Terri Glueck 6:49
Sure. Yes. Hold on to your hats. I got to Pittsburgh in 1981. So I was a student at Carnegie Mellon. I came from Akron, Ohio, little, little 18 year old came to Pittsburgh, I had no idea what was happening in this city. For the four years I was on campus, like most students totally heads down and then ended up staying here making a career here raising a family here. And it’s it’s been great, although I did come at the lowest point in Pittsburgh history. So it’s been an amazing journey to see what it’s grown into.

Jay Clouse 7:23
And can you talk to me about what that lowest point was why you call that out?

Terri Glueck 7:27
Well, again, I didn’t recognize it. But I certainly saw this in my own family going through a D industrialization in the Midwest. So you know, acronym is built on the rubber industry. And that was declining at the time. And I certainly knew about that I didn’t realize at the same time, Pittsburgh was going through exactly the same thing, losing the steel industry, the constriction of all kinds of industrial activity that was associated with it. So cold glass, everything else that was supported by and, and supporting the steel industry. And when I entered business in the sort of mid 80s, the city was shedding 10s of thousands of jobs. And it took decades really, for the city to recuperate. And one of the amazing things about that was a gamble really by the governor at the time, who is dick Thornburgh on technology. There’s a lot of technology throughout the state of Pennsylvania and all of Pennsylvania was going through that contraction in the industrial areas and sectors. And so the governor at the time and then the legislature put a small gamble on transferring the technology out of Carnegie Mellon pit Lehigh Valley pen Penn State and put it into small startup technology company that was revolutionary at the time and grew into what is a very vibrant contributor to the economy now, and so we are now seeing the benefits and reaping the benefits of those seeds that were planted nearly, you know, almost 40 years ago.

Jay Clouse 9:18
What year was that happening where that gamble was happening?

Terri Glueck 9:21
Well, it started in 1983. And the project still goes on today. It’s called the Ben Franklin technology partners. We were one of the first in the nation to put money into the startup technology companies to hedge against the decline of large industries, including airline industries, which left Pittsburgh and Pennsylvania and other kinds of industrial traditional sectors. So the legislature put, I think it was, I don’t know, if it was 20 million at the time into four different centers, they still exist. Today, we are the Ben Franklin, partner of southwestern Pennsylvania, we are called innovation works just to keep you on your toes. But each one of the Ben Franklin’s covers the entire state with support and investment for innovation. So that could be startups and tends to be in the Philadelphia and Pittsburgh area, more so than the rest of the rural parts of the state. But innovation in general, could be innovative manufacturers, and we, over the years have put almost $80 million into startups. And those startups have leveraged an additional two and a half billion with a be billion dollars in investment. That’s really the same as it cost to build the sports facilities for the penguins, pirates and the Steelers. I mean, that’s a lot of money churning through the economy. So it’s been the program more than pays for itself. And it’s been an incredible spark that has been the catalyst for a lot of economic activity.

Eric Hornung 11:04
We talked to a lot of communities across the United States. And the influence or importance of the state versus the city is something that is always waxing and waning and is different between cities. I’m curious what that looks like in Pennsylvania, because you mentioned this kind of statewide initiative, but the geography of Pennsylvania is such that you kind of have like a dumbbell, where you have Pittsburgh on one side, Philadelphia on the other, and almost nothing in the middle. So is it to, like, warring states? Or is it like, Hey, we’re all in this together? And like, how does how does the State versus the city’s play out because in Ohio, we have three state cities that are two hours away from each other. So you kind of have to play nicely, but you guys are just such an interesting geography.

Terri Glueck 11:52
Yeah, it isn’t interesting geography. I think that’s the beauty of the Ben Franklin technology partnership, because what look like a technology opportunity or innovative opportunity in Philadelphia, Pittsburgh is very different in Scranton. And each one of our organizations has the capacity and the people. So the board the staff, the mentors, that’s appropriate for your region. So if you’re more in a manufacturing or ag centric area, then that’s the innovation that you’re plowing money into. All four of the Ben Franklin’s split the pot equally, so about 50% of our funding comes through the state of Pennsylvania, that is money that can go directly into pockets of startup tech companies. That’s the other great advantage of the state money save money is unencumbered and it’s not earmarked for any one program so that money can go to entrepreneurs, which is where the great need is, as opposed to say, federal dollars or money from charitable organizations, which Pittsburgh is really blessed with, those things help to pay for the operations that keep the wheels turning, but they can’t go into an entrepreneurs business and a state money can now Ohio for example, has the third frontier and they have other kinds of state support. Some of its been modeled after the Ben Franklin program. And a lot of states actually, and many other countries around the world have modeled after the Ben Franklin program and tweaked it for their own unique needs. Those have been really successful. But I agree with you, the geography of Ohio, for example, and a lot of the rest of the Midwest is such that there are a lot of markets, there’s a lot of consumer goods expertise, like in Cincinnati. And so what’s really working in all of these kinds of Midwest and and Pennsylvania economies is to build on the strength of what you have and take the people and ideas that are really moving, moving forward and plowing money in there.

Jay Clouse 14:02
Maybe I missed this, how was the Benjamin Franklin program funded? It sounds like a state program, where did the funds come from?

Terri Glueck 14:11
So the Ben Franklin technology partnership when it started in 1983, and and today, it’s a two step process, the governor has to recommend the amount of money that the legislature then has to come back and Okay, they can actually they can raise that amount, or they can lower that amount, or they can keep it the same as the governor. And you can imagine over, you know, three plus decades, we’ve had Democratic governors and legislative bodies we’ve had republican so this is totally bipartisan, and you have to have a program that works for every county, because you’ve got legislators representing the entire state. So not just the engines of economic activity, as we think of them in the cities. But it also has to be good for a rural legislator who has to go back to his her tax base and say, this is where it’s supporting. So the initial amount was set aside or proposed by Governor Thornburg at the time and then every governor since as put it into the budget, and then the legislature has to approve that. I think that in other states, it’s gone to referendum for voters of believe that’s what happened in Ohio, everybody has a little bit of a tweak on it. But the great thing about it is that it enjoys a lot of support, and it brings back a lot of money into the coffers of the state.

Jay Clouse 15:44
And what is it and Leah you can probably speak to this too, from the standpoint of residents of Pennsylvania, what is their perspective on the Ben Franklin program, how much visibility that even have into its existence and that some of their dollars are going towards it. But overall, you know, how do they feel about it.

Leah Simoncelli 16:03
So, I have been in Pittsburgh for most of my life, I grew up about an hour from here, and I’m a boomerang or like many of the folks that are about my age. So I went to college in DC, went to South America for four years and then bounced back to Pittsburgh three years ago, because there’s a lot of exciting stuff happening there. Because the cost of living is so good. So I’m, I’m one of many, many people who decided, Okay, Pittsburgh has has got something going on that I want to be a part of so bounced back. But as just a general resident of Pennsylvania, I wasn’t aware of, of these programs. What we do do at our accelerators and at innovation works is host lots of groups that come through to tour our spaces to learn about startups and innovation. And, and I feel like the general response that we get is that it’s incredible that, you know, the Chamber of Commerce types of groups, and the government groups love the 3.8 dollar return. That’s a pretty incredible number to be able to share with people. And it’s really easy to get on board with something like that, especially when you’re faced directly with all of these entrepreneurs in the space who are doing these incredible things.

Terri Glueck 17:30
I think that like many communities and Pittsburgh isn’t tiredly typical in this way, if you’re not in S ilicon Valley, or Boston, or New York City, I think that that we have to work extra hard to attract the best entrepreneurial teams, top investors and media attention and we work really hard we connect a lot of the dots that happened organically in some of the bigger markets. But where those dollars come from, I think is a total mystery I totally agree with with Leah and it is one reason why we do events like we do where 1000 people come at a time to our demo day health that stage he huge concert venue that every Pittsburgh or would recognize where the heroes for the day and the people on the stage or the entrepreneurs and those thousand people then go and talk to their friends and neighbors and others. And it’s a way to build excitement. I think the thrive or festival does the same thing. Another group puts that on, it’s a music festival and innovation and celebration in the fall. And you know, thousands of people are exposed to what’s really happening that’s fresh and exciting and innovative. But where does that funding come from? I think it’s a surprise to me any that their economic development groups or that the charitable foundations in town put their energies here, and that it’s had such an important resonance in the community. I think we’ve come to sort of take that for granted. But in a way, that’s a good thing, because it means that the ecosystem is moving along. It’s moving downstream, and it’s becoming more accepted.

Eric Hornung 19:25
Jay and I often ask ourselves at upside, whenever we build anything, put anything out whenever we’re thinking about an idea, we asked one simple question, which is what sucks, what sucks about this and often helps us find something that we can make a little bit better. No ecosystem is perfect. So I’m curious from a state level. And from a Pittsburgh level what what sucks,

Terri Glueck 19:50
I’ll tell you having worked in public relations for a long time in in the city that getting attention for us, this would go for any type of attention, investment or other attention, you could have the same idea located out in let’s say, you know, in Silicon Valley or elsewhere, which you’re right near the media. And the folks who can push that idea further, when a similar or better idea is coming out of a market like Pittsburgh, or Cleveland or others, and you have to work so much harder to get attention for that company. Now, the upside to that is that those companies her so scrappy and I do think that then it pushes the idea further, and it gets an incredible amount of traction, because those entrepreneurs have got to learn how to push against the wave. But it would be great to have that wave working with you more often.

Eric Hornung 20:59
Jaina I find that as well. It’s actually one of the reasons that we launched upside is because attention is such a valuable commodity. And it is. So what we found was it is so hard to capture that when you’re when you’re not getting posted in TechCrunch every week.

Leah Simoncelli 21:16
And I think I’ve seen something similar as I travel around the United States running the hardware cup pitch competition that we do bring all of those winners back to Pittsburgh for our international finals. Pittsburgh being the center of hardware and robotics makes a lot of sense. But as I go to each of those cities, Pittsburgh is gaining notoriety for sure. But they still go, Oh, I have a friend who visited and they said it was beautiful. I couldn’t believe it. You know, there’s still there’s still a bit of that story out there of the Pittsburgh you know, of decades ago. But we get a New York Times article once a year about how did this Rust Belt town turn around and become this this hub of innovation, right? So that story is being told. But I don’t know that across the entire United States. Pittsburgh is really understood to be as strategic of a location to start a startup as it really is,

Terri Glueck 22:19
I think the flip side to that is also coming to light, which is living in Silicon Valley is expensive, it’s hectic, it’s a hall between places, and you know, they’ve got school issues, they’ve got housing issues, San Francisco’s got its own challenges. I think that more truth about the the beauty of a place where like, where we live, we were talking earlier about the music scene and the food scene. And all of our communities, there is just there’s a growing wealth of knowledge about and information about what’s great about midway, certain cities, cost of living here, cost of doing business, and you’re starting to see some of the real what’s behind the facade and the glitter of what we’ve traditionally thought as the places to be. And I think that we’re equalizing on the information about these communities. So more entrepreneurs, and more people can make a good choice that works for them.

Jay Clouse 23:27
We had a guest from Cleveland on a couple of weeks ago. And he spoke to, you know, Cleveland had a similar similar D industrialization. And he spoke to one an image problem of Cleveland into some of the baggage that comes with the mindset of the people some self deprecation and this, some people saying, how could we be a tech town? So could you talk about the mindset of Pittsburgh, post de industrialization, as you kind of called it and how people on the inside of Pittsburgh feel about the tech community there?

Terri Glueck 24:03
I think if you asked your Uber driver or anybody else today, 2019, you’re going to get a really positive answer. I think they universally I shouldn’t say that. There are also challenges, right? There’s a challenge of gentrification, there’s a challenge of authenticity, you don’t want to just paper over communities and the past and ups and downs and everything that comes with being a authentic real community that has struggled and made it but I do think that overall, you’re going to see people who have a lot of positive reaction to an acceptance Yeah, this is a tech town, this is an innovative places a progressive place where I think that was not necessarily the case 10 years ago, or longer. But I do think that there’s more of a realization that we want to do this, right. We want the tech community and the innovative community to be diverse, to be inclusive, to truly reflect the community where these companies grow, not just be located in them, but be good for and something additive to those communities. So I think that there’s a lot of greater nuance than there used to be. But I think there’s great acceptance and excitement about Yeah, we really are a tech center.

Leah Simoncelli 25:33
And I think because we’re a city where autonomous vehicles are tested, that is a really visual thing that anybody can see, right? You don’t need to be involved in the tech scene or know anyone who has ever worked in entrepreneurship to see these vehicles going down the street in our town in Pittsburgh. So I think that can be you know, of course, there are, there are questions around it. They’re both sides of everything. But I think that there’s a point of pride there to that. Look, what we’ve got going on in Pittsburgh,

Eric Hornung 26:10
I want to dive a little bit deeper into innovation works. There’s a lot going on here. There’s innovation works. There is a seed funders, alpha lab, there’s alpha lab gear star double, there’s a hardware cup, it’s like, how does this all fit together help me make sense of what’s happening in Pittsburgh, because it just seems like a lot.

Terri Glueck 26:30
Right. So what you just mentioned in that list, that’s just innovation works, right. So that’s not all the other activity of the venture capitalists here or other co working and small funds. But innovation works as a family has a philosophy that plays out in a number of different programs. And that philosophy is that when you put actual money and investment into companies, and you pair it up with a lot of systems and connections, that’s the secret sauce. So one without the other doesn’t get you far enough down the road. So sometimes that looks like a, you know, 16 to 20 week program for software companies, alpha lab, sometimes it looks like the combination of investment and education assistance and connections called alpha lab gear for hardware companies. We do a program in the summer to expose teens to that same sort of trajectory. That’s called Star table. And it really because we didn’t use to run a hardware program, we had extra space in the summer. And so we opened it up to teams. Well, that program got to be so exciting that even though we run alpha lab gear during the summer, find a way to continue that program. We have a program linking manufacturers to the hardware startups because the hardware startups needed assistance producing their first of all run their prototype, getting their distribution and their supply chain in order. And so we have that program. So there are a number of programs or big family, in essence, but it always comes back to that same formula of investment plus assistance and connections. That’s where it really works.

Leah Simoncelli 28:23
And I think it’s important to point out that many of those programs have come about in the last five and 10 years, because innovation works really grows and changes with the needs of the community, which is something so cool about working there, that, you know, we get to really live out the innovation and, you know, we take our own medicine, what we’re telling startups to do, I think we really tried to do as well as an organization that’s supporting them.

Eric Hornung 28:48
Does that mean that there have been programs that have been shut down as you guys kind of grow and evolve? Or is it just a growth? Is it all right, here’s a new program we need, or is it like pruning, and then growing?

Terri Glueck 29:00
Well, I think it’s more growth. But yeah, of course, over the time. And I mean, we’re a 20 plus year organization. So in that time, we have experimented, we’ve run a program. And for one reason or another, we’ve, we’ve it’s either morphed into something else, like our hardware programs, they’ve changed every time they’ve used to look like this. Now, they look like that they used to be called something now, they’re called something else. But for the most part, the formula has, has been consistent, and most of the programs just have been growing. And I think that’s partly because I agree with Leah 100%, when the community shows a need for something else. That’s when a new program comes about, for example, we started the alpha lab accelerator in 2008, thinking that, well, there might be this latent need for startup software companies, they don’t need as much as 100,000 dollars. And they don’t have a longer runway like a typical investment used to be, they probably have a short runway to get to market and they can get by on just a $25,000 investment. So we created alpha lab gear, I mean, alpha lab. So then when we, we saw some physical product companies, they were capstone projects at Carnegie Mellon, or an engineering student. And we thought, well, let’s take this model. And let’s see what doesn’t, doesn’t need to be done to grow a physical product company. And we experimented with that. And out of that grew alpha lab gear. And out of that grew the hardware cup to attract more companies across the country. So I think that it’s been additive. And it’s just partly because the innovation economy and the innovation community is growing here.

Jay Clouse 30:55
How big is the team at innovation works?

Terri Glueck 30:58
So we’re under 30 people? Oh, I think there’s like 27 of us.

Jay Clouse 31:02
And that’s counting the people who run the program s of alpha lab and alpha lab gear

Terri Glueck 31:07
Yeah, we have to be as efficient as the companies that we try to coach and work with, because that group is never going to grow too much bigger, regardless of how many programs we have. We are right, you know, we’re a nonprofit. And we need to be scrappy and innovative, just like the companies that we’re working with.

Jay Clouse 31:28
So something I’m I want to get a little bit more clarification on innovation works is the Ben Franklin technology partner of southwestern Pennsylvania. That’s correct, right?

Terri Glueck 31:37
Yeah, that is correct.

Jay Clouse 31:39
You guys deploy capital into these companies, the tune of $78 million invested over the history 376 companies, when those companies have a return, does innovation works benefit from that? Or does that go back up to the state to continue to be able to fund innovation works and the programs there?

Terri Glueck 31:58
It goes back into me innovation works, it’s not a completely sustainable model, because we do rely on additional funding from the federal government and the charitable foundations for some of our programs. But we are building the returns on those earlier investments. So you are totally right in that. So we do take equity in the companies so that when there is an opportunity to convert into shares in the company, we do so and that plus goes back into the seed fund to feed the next startup company.

Eric Hornung 32:35
So going into your team a little bit more, how does it break down? Like, how do how do the people break down? Is there an investment team? Is there an events team? Is there like, how does it How does it look?

Terri Glueck 32:46
There is an investment team. There’s a lot of us who work on the event side in one way or another. But the team basically looks like this, and so does the independent board. So we’re not a state organization in that way. Even though half of our funding comes from the state, we’ve got x CEOs and entrepreneurs, investors, people with operational experience, and say commercializing technology, financing, marketing, so the team looks a lot like the type of company that needs to be fleshed out. Often we’re working with just technologists and they need HR assistance, they need marketing help. And so our team helps to fill in those gaps. Because our whole history with the company is to grow the skills of the team that they have. So we’re not looking entrepreneur great we invest in you are going to change the CEO know, we are looking to build the skills of the entrepreneurial team. And if we don’t have those skills, internally, we have a network of mentors, industry experts, technological experts, who help us either investigate the end that the companies we’re going to invest in or help those companies grow.

Eric Hornung 34:12
Leah, what about this was so compelling that this is what you want to do. And you came back to Pittsburgh, you had some really unique experiences, it sounds like you’ve had probably more opportunities, why innovation works.

Leah Simoncelli 34:25
So upon arrival back in Pittsburgh, I said, All right, I’m going to check out the nonprofit world and see what’s here, because that’s the background that I came from marketing events, communication in the nonprofit world. And I found this job posting that was a mix of hardware cup, which is running events across the entire country. Also, some of the program work at alpha lab gear, and also the prize, which is a social innovation competition. And it just sort of sounded like it was meant for me. So without knowing anyone in this space, which is kind of unheard of in Pittsburgh, you know, I sent my resume in and interviewed and pretty immediately was blown away by the people that were interviewing me. So a lot of diamond, the managing director of hardware for innovation works as well as alpha lab gear is just such a force and the program manager of alpha lab gear had started this hardware Cup competition. And I just saw this opportunity to jump in to something really cool and exciting, that was obviously going to be growing and expanding. And I think allowing me to grow and expand with it. So here I am.

Jay Clouse 35:51
How long has the hardware cup been around?

Leah Simoncelli 35:54
five years, this is our fifth year. So as long as alpha lab gear our heart accelerator has been around the hardware cup has to and that’s because when alpha lab gear started, it was one of four hardware accelerators in the world. So understanding that hardware companies really need something a bit different than software companies was new five years ago, if you can believe that. And we saw a need to really raise the profile of hardware show what a good investment it can be. Make sure that investors and corporate partners and entrepreneurs, we’re all getting in the same room and giving a literal stage to startups to put them in front of these folks that can help them grow their companies with kind of the impetus for the hardware cup started as an experiment, you know, a couple cities around the US and has now grown into something that covers the entire United States and seven regions and another four or five countries around the world.

Eric Hornung 36:57
For the listeners. Can you just kind of clarify that? What is the hardware cup?

Leah Simoncelli 37:02
Certainly, it is an international pitch competition for early stage hardware startups with a $50,000 Grand Prize. So it has the the excitement of a pitch competition. But really, at its core, it’s meant to be connecting startups finding the cream of the crop across the entire United States and highlighting them and getting them in front of our panel of judges who are always investors, inviting folks into the room, who could be contacts for the startups. And then also just inviting the general community, they can get excited about what is going on, in entrepreneurship in their town in their region. And of course, someone gets a $50,000 investment. And that’s awesome. But every year, we’ve had investments come from the audience that are, you know, it’s not even the grand prize. It’s not even companies that have placed necessary early, but it’s folks who see potential in the startups and we can help them get connected. And then investment.

Jay Clouse 38:08
The growth of the maker movement is really interesting to me when I went to Pittsburgh and visited our tour guide for the day was Matt Verlinich, do you know, Matt?

Leah Simoncelli 38:17
Of course, he’s on our team.

Jay Clouse 38:18
I have the clear ice products right in front of me right here. Matt showed us around. And he talked about the maker space that he had run for a little bit that is no longer and we talked about the maker space here in Columbus, because it’s a very unique model as well. So what have you seen, you know, you mentioned that there were four hardware accelerators in the world when you started five years ago. How has that changed since that time.

Leah Simoncelli 38:43
So there’s certainly been an expansion in hardware specific accelerators. And I think verticals within accelerators as well. So, you know, focusing on mobility or focusing on IoT specifically. But then what that means at a local level is that there’s more interest in how can I get my hands on tools to build these things to become one of those startups to be able to get into one of these accelerators to grow my business. So without tech shop in town, we have now seen before five maker spaces, some of whom have grown because they’ve seen an opportunity, some of whom have popped up in the meantime that are serving different needs in our community. So there’s one called proto haven that even has some of the equipment that came from Tech Shop, there’s prototype, which is a feminist maker space that makes both the materials and the education sessions really accessible. There’s hack Pittsburgh, which has been around for years, really just a ton only in the city of Pittsburgh. And that is pretty nice, parallel with the thousands and thousands and thousands and thousands of manufacturers and supply chain partners that are in western Pennsylvania. I think it’s 40,000. It’s some unbelievable number of manufacturers and supply chain partners that have been in Pittsburgh for for ever, and we’ve got programs with innovation works that help startups connect with these manufacturers to really be able to take advantage of the resources that we have in our community. So you know, you can kind of start at the at the Maker Space level, you can go through an accelerator, you can find seed funding for hardware companies, once you’re ready to manufacture it scale, then there are folks right in town who can likely build your product and help you run a smaller run and then manufacturing at scale as well.

Eric Hornung 40:57
What does that level of expertise piece mean from an investor side because I feel like since Marc Andreessen software eating the world came out there is this distain almost in the series A and above VC community for hardware because it doesn’t scale as well. So what does it mean for Pittsburgh in terms of series, a Series B type funding for hardware companies? What are you seeing there?

Leah Simoncelli 41:25
So I think that there, there is more understanding of hardware as a great investment. As this movement continues. There’s predictable IP in hardware, that is not always the case and software, it’s harder to reverse engineer something when, when it’s a physical product. So there are a lot of advantages that are really coming to light that said, where we really focus as alpha lab gear and innovation works are these riskier early stage companies that need infusions of 25, $50,000,

and then 100 to $600,000. And our goal is to help those companies grow to a point where we can introduce them to our network of investors that are in Pittsburgh, and across the United States, who can see, hey, this company really has this incredible traction, they’ve got their manufacturing figured out, this is something that would make sense. But as innovation works, we’re not we’re not putting up series a kind, right? It’s really more about the connections, I was

Eric Hornung 42:35
more curious on that network on the back end, because you guys are taking on the risk on the front end. But how big is that that network? And are those specialized VC firms? Or what are the what are the what does that network look like.

Leah Simoncelli 42:50
So with the hardware cup, specifically, part of our goal is strengthen our relationships and all of the other cities that go to so we front markets in LA and San Jose, and Chicago, and Boston, Austin folder, Atlanta. So that means that investors that are located in those cities are learning a little bit more about the exciting hardware companies that we put in front of them, and what our programs are, so that we could potentially make those those connections with investors after each hardware cup, I will have investors coming up to me afterwards saying, I’m really interested in something like clean tech. And that tends to be hardware. So more of the vertical is what they’re interested in. And when that’s hardware, we’ve got some ideas for you. We also had our international finals for the hardware cup will have investors there who are hardware only, which I think is so interesting. But there there are really specialized investors who that’s where they want to put their money. I think much more often, we are seeing investing across the United States who will have portfolios that looks something like 8020 on software, and then hardware, but the interest is there and we’re just working hard to make those connections.

Terri Glueck 44:12
I would say that something that Leah had said earlier, can’t be stressed enough, which is Pittsburgh really is this nexus between hardware and software and you need one to talk to and run the other. You’ve got to have software in most cases with the hardware. Pittsburgh is an amazing place for both. A lot of innovation comes out of Carnegie Mellon, a lot comes out of the University of Pittsburgh, and I think that a good example is we had an investor only conference last year for robotics and AI companies we expected about I don’t know, we were hoping for 2530 investors to come to town for this 100% us investors came for our very first robotics a investor fair, this year’s looks to be even bigger. And it’s just been amazing the amount of attention and again, what Leah said about self driving cars, you know, that is a huge sector in Pittsburgh. And Volkswagen just put $1.7 billion and a local company Argo AI, so and they’ve got I think it was I looked on their site today, I think they’ve got 45 open engineering jobs in Pittsburgh alone. So it’s a great recognition that there’s a lot of talent here. There’s a lot of know how here and the hardware cup takes advantage of that. And I think that all of our investing in hardware and software, Internet of Things, they all converge AI, you know, all of the hot sectors right now is a great opportunity for Pittsburgh to jump on.

Jay Clouse 45:56
You just mentioned talent. Can you talk about that a little bit more. I also remember when I visited Google was opening an office, which seems to be some sort of indication of available software engineering talent. But talent is something that a lot of communities outside of Silicon Valley struggle with, what does the landscape look like in Pittsburgh for all types of roles as it relates to talent.

Terri Glueck 46:19
So your Google example, they started with, I think, 10 people on campus at Carnegie Mellon, when they were first in Pittsburgh, they are now building their third and fourth buildings to house their people to their operations and associated apartments and living spaces in Pittsburgh. So I want to say they’re at almost 500 people locally. So the, you’re right. The insatiable thirst for talent is an area where the Midwest can truly Excel. We have amazing facilities and attracting billions of dollars in research at our regional universities. The Midwest is full of research institutions. So they are churning out engineers, software developers, people who understand the marketing and, and the operations and they’re attracting the best people in the world to run these programs. And then who graduate from these programs. And you can then afford to live a good life with great amenities, great outdoor accessibility. And it is in stark contrast to other parts of especially the coastal cities. So I think attracting talent, when they sample of location, like Pittsburgh, or Cincinnati, or someplace where you need, you can get on the water, you can get out to the trails, you can go to a world class sporting or arts venue or something that’s just down in funky that’s unique to your own community that you can afford to go there. And so the, the talent attraction and retention component cannot be underscored enough.

Jay Clouse 48:12
So you guys have mentioned hardware, Ai, robotics, manufacturing, supply chain, these seem to be some of the strengths that you guys have. And then you have, you know, dual lingo as this gorilla in in Pittsburgh, that’s not any of those things, really, when you guys you know, are trying to, in some ways compete for national attention to say, this city in the Midwest is doing something special. Where do you point to, first to say, this is what Pittsburgh does really well,

Terri Glueck 48:44
I think that what we talked about covers a lot of ground software, hardware Life Sciences, which is one that we haven’t talked about which we actually share with Cleveland, right? Cleveland has amazing life sciences capabilities within hospitals. And with the universities. That is very much the case in Pittsburgh, almost everything falls within that somewhere, Life Sciences, hardware software. And so we are sort of organized around those three sectors. Within each one of those sectors. There’s about 9 million I mean, even within robotics and Life Sciences. For example, let’s take let’s take life sciences, sorry, that’s medical devices, which we definitely see a lot of in Pittsburgh, but it’s also therapeutics and diagnostics. It’s a growing area for Pittsburgh, we’re not nearly as robust as, say, a Boston, but we are developing those partnerships. But when we have an opportunity to invest again, let’s say, in the life sciences company, as innovation works, we have to decide, well, can our money go far enough? Do we have deep enough relationships that we can really be beneficial to this company? Or do we need to pass so that that company can really grow in the way that they need to that may be here that may be somewhere else. But within those three sectors, Life Sciences, software and hardware, we do have a huge network of mentors and industry experts, we can attract hundred plus investors from around the country. And we can grow those companies so you can cover a lot of innovative space in those.

Jay Clouse 50:28
Awesome. Well, Terry, I’ll start with you. If people want to learn more about innovation works after the show, where should they go?

Terri Glueck 50:36
They can go to the website, which is innovationworks.org, or follow us on social media, we make all of our events free and open to the public. So there’s never a charge, we invite people to either come in person, we’re trying to put more content online and distribute through other channels that people can drop into. So check out the website, follow us on social

Jay Clouse 51:01
and Leah. I know the hardware cup is coming up, what should people know about the hardware cop and the timeline for that.

Leah Simoncelli 51:10
So we are right in the middle of the 2019 hardware cup, we’ve held our regional competitions in Pittsburgh, Boston, and DC. But next, we are heading to Atlanta, Chicago, Boulder and San Jose. So all of those competitions are again, free, open to the public. And you can find that at hardware cup calm. And we’ve got our international finals back here in Pittsburgh on May 15. So that’s a really exciting event that if anybody is interested in coming to town for it, that’s a good way to spend a day and get to see at least 12 of the top startups in hardware across the United States. And across the world.

Eric Hornung 51:57
Jay, we just spoke with Terry and Leah. And we can a ton of information, there was your kind of first takeaway

Jay Clouse 52:04
covered a lot of ground, there was a lot of ground to cover, kind of going from the macro. This is what innovation works does, how it fits within the Pennsylvania startup and innovation plan, all the way down to the specific program of the hardware cup. The biggest stand out to me was I had so little expectation or awareness of what was going on in Pennsylvania. And this is one data point, obviously, we only have as much as Leah and Terry shared with us, but I was unaware of this Benjamin Franklin technology partner program, I was unaware that innovation works was as large of an organization as they are, I mean, the numbers that we had at the beginning of the show, those are big numbers that you would think I would have had some awareness about, but I didn’t even having been in the space two years ago, I didn’t have that information. And granted we stayed most alpha lab. So I do agree with Terry that it seems that there is not much attention on Pittsburgh or on what innovation works is doing. And so it really whetted my appetite wet my appetite wedded

Eric Hornung 53:13
what All I know is that that word is spelled differently than what like what happens with water, there’s an agent.

Jay Clouse 53:19
Yeah, it definitely whet my appetite for learning more about Pennsylvania and specifically Pittsburgh, from different members of the ecosystem. For me, I really want to learn

Eric Hornung 53:27
from Philadelphia now, because you open this up by saying we covered a lot of ground and there is a lot of ground in between Pittsburgh and Philadelphia. And that distance likely means that those ecosystems are very different. I feel that Pittsburgh x a lot more like Ohio, or Ann Arbor, Detroit or Chicago or Indianapolis, and I feel like Philadelphia x a lot more like a, like a New York. So I think it’d be interesting to hear how if we could get someone from Philadelphia on and get their version of innovation works on how they utilize this Benjamin Franklin program in a potentially different way.

Jay Clouse 54:08
Yeah, the one thing I knew about Pittsburgh moving into this was that dual lingo is in Pittsburgh, Dr. Capital here in Columbus is invested into a lingo, which is probably a large reason I know that but also they they made national headlines when dual then go put up a billboard in San Francisco that said, own a home work in tech

Eric Hornung 54:26
moved to Pittsburgh. And what I knew about Pittsburgh coming into this was that autonomous driving is just massive there. I didn’t know why. I guess this makes a lot of sense that it started in the 80s. And they made a big bet. And this is 40 years of working through that that. But Carnegie Mellon I think that there was one point where as either nine or 19 like professors left Carnegie Mellon to go join or start a autonomous maybe was cruise I don’t even remember which company it was, but it was a big time company.

Jay Clouse 54:56
Yeah, that was Carnegie Mellon is a huge reason why autonomous is big in Pittsburgh. And now I’m questioning I thought it was Uber, I thought they love to go to Ober could have one tuber the big. The big, big takeaway that I want to talk about here is this Benjamin Franklin technology partnership that started in the 80s. That seems like a model that states she said that states have tried to do it. And the third frontier program that we talked about in the episode of Todd Fetterman. And we talked about in other episodes of upside that’s in Ohio is similar in that there are state funds going towards innovation. Eric, I know you have some questions about how that type of model plays out. And startup ecosystems you will refresh us on that.

Eric Hornung 55:39
Yeah, I think my my questions and they are in issue one of the update if you guys want to check it out. That’s at upside.fm slash update the first article on there, it’s just this trade off between top down and bottom up. And when you get state funds you what you’re inherently setting up likely you can get creative around this. But what you’re inherently setting up is something that is more top down driven. So when something is top down driven, that tends to mean the ecosystems are more centralized, which is probably why innovation works is as big as it is, and there’s not eat of these little kind of startups that came up and sprung up grassroots, and there’s nothing wrong with being top down. It just is a usually faster way to spur growth. And there’s a competing philosophy that is bottom up, which kind of stems from Brad Feld startup communities, which is let the entrepreneurs entrepreneur

Jay Clouse 56:32
and we think that’s the capital factory model. She mentioned that innovation works has 26 full time staff. They seem to be a very similar organization to rebel and ventures here in Columbus, who has a staff of I think, over 40. And so some of these centralized powers because they have money coming into the state are able to staff up bigger than I think a lot of bottom up organizations ago, I mentioned in my editorial, the update as well, that often this top down set centralized Innovation Hub model entrepreneurs can sometimes be a little bit wary of that if if that ecosystem is really driven by those individuals. Because a lot of times, you know, they have job postings they want people to come in. And they come in from backgrounds that are not entrepreneurial directly entrepreneurial backgrounds. So what I’d love to explore and the rest of Pennsylvania and this is not at all any type of condemnation on innovation works, or alpha lab, like I think everything they do is a huge value add to the ecosystem. I want to learn about the other aspects of the ecosystem and how they play together. And I want to learn what organizations are also represented by this Benjamin Franklin technology Partnership, which organizations are not getting that and what that means for the Pennsylvania ecosystem.

Eric Hornung 57:44
I agree. And I think what that means is we need to have some entrepreneurs on from Pittsburgh and from Philadelphia, and maybe even some places in rural Pennsylvania.

Jay Clouse 57:54
What do you think? I agree, we’ll talk to them companies in Pittsburgh and in Pennsylvania, Pittsburgh, Philadelphia, Bryce Harper, new to Philadelphia for the Phillies. Huge contract. I don’t really want to talk to him. But that’s, you know, something else that’s happening in Pennsylvania.

Eric Hornung 58:07
You wouldn’t talk to Bryce Harper, if he just wanted to say, hey,

Jay Clouse 58:10
always seem like kind of a jerk

Eric Hornung 58:11
because he has a beard. That’s probably what it is.

Jay Clouse 58:13
I mean, same.

Eric Hornung 58:14
I wasn’t hinting at anything there.

Jay Clouse 58:18
Alright, guys, well, let us know what you think about this episode. We’d love to hear your thoughts. If you’re in Pittsburgh, or you’re in Pennsylvania or Philadelphia. We’d love to hear from you as well. If you think you are a good guest candidate for our show. You can tweet at us at upside. FM or email us hello@upside.fm. And if you have any thoughts do the same. tweeted us at upside. FM or email us hello@upside.fm.

That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at hello@upside.fm. or find us on Twitter at upside. FM will be back here next week. At the same time talking to another founder and our quest to find upside outside of Silicon Valley, you or someone you know and make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple things we wanted to share with you at the end of the podcast. And so here we go, Eric Hornung and Jay clouds are the founding partners of the upside podcast. At the time of this recording. We do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of death. And Phelps LLC and its affiliates

on your collective LLC and its affiliates or any entity which employs This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week

Interview begins: 06:32
Debrief begins: 51:53

Terri Glueck is the Director of Communications at Innovation Works. Leah Simoncelli is the Coordinator of the AlphaLab Gear Hardware Cup.

As Director of Community Development & Communications, Terri Glueck leads Innovation Works’ communications efforts. Having joined Innovation Works in its own startup phase, Terri has helped build Innovation Works’ brand as one of the nation’s most active seed-stage investors and a global model for technology-based economic development.

Leah runs the AlphaLab Gear Hardware Cup, an international pitch competition for early-stage hardware startups. She leads the outreach, marketing, and event management efforts for the US regional competitions, connecting entrepreneurs, angels, VCs, and the startup community across the nation. She also provides support to partners holding Hardware Cup events around the world, including partners in Israel, Japan, South Korea, Canada, and India.

Additionally, she manages marketing for the AlphaLab Gear program, which includes everything from traveling to meet startups around the US to creating and implementing a social media strategy to planning collaborative events in the AlphaLab Gear space.

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Innovation Works is the Ben Franklin Technology Partner of Southwestern PA and is supported by the Department of Community and Economic Development.

The Innovation Works mission is to introduce, connect, support and expand the startup & entrepreneurial ecosystem within Southwestern Pennsylvania, making the region a center for innovative startups and tech investors from around the country.

They are the largest seed stage investor in Southwestern PA, having invested $78M over nearly 400 companies.

Founded in 1999, Innovation Works is based in Pittsburgh, Pennsylvania.

Learn more about Innovation Works: https://www.innovationworks.org/
Learn more about the Alpha Lab Hardware Cup: https://alphalabgear.org/hardwarecup/
Follow upside on Twitter: https://twitter.com/upsidefm