Pittsburgh forges a new future, remaking iconic steel town into a modern innovation factory

The Pittsburgh skyline at night. (BigStock photo)

Decades before the NBA and Shark Tank, years before making his fortune in tech, Mark Cuban was a kid growing up in Pittsburgh, selling garbage bags to scrounge together enough money for basketball shoes in the working-class industrial city.

Cuban has made it big — and so, too, has his hometown, which is almost unrecognizable to the billionaire entrepreneur.

“It’s a different world. UPMC, CMU, and University of Pittsburgh changed everything,” Cuban tells GeekWire, referring to Pittsburgh’s marquee institutions like a native. “It went from Rust Belt to AI and Med Belt. I’m so proud of what has happened. Now it’s a young vibrant city that has an amazing workforce.”

A renaissance is occurring in the Steel City.

Once an American manufacturing epicenter that nearly imploded in the 1980s as the mighty steel mills closed, Pittsburgh is poised to become a global tech hub in one of the country’s most livable metropolitan areas. The big challenges now: continuing to rebound without pushing out longtime Pittsburgh residents, attracting more investment capital to fuel the region’s big startup ideas, and replenishing a city that continues to see population declines.

It’s more common now to see software engineers than steel workers crowd into Pittsburgh’s famous Primanti Brothers sandwich shop in the Strip District. The mining industry in this town is now about data, not coal.

“The new export commodity is eds, meds, and tech,” noted Rasu Shrestha, chief innovation officer at University of Pittsburgh Medical Center, a nod to the education, medical, and technology innovation in the city.

One of Uber’s self-driving cars roams the streets of Pittsburgh, just off Heinz Road. (Photo via Uber)

Amazon last week put Pittsburgh on its list of 20 cities vying for its second headquarters — a high-profile, $5 billion economic development bonanza that would completely reshape the Western Pennsylvania economy with as many as 50,000 high-paying technology jobs.

“It wouldn’t shock me if Pittsburgh won the Amazon HQ2 battle,” Cuban said.

Mark Cuban, Pittsburgh native. (JD Lasica Photo, via Flickr.)

Amazon HQ2 would be a boon for Pittsburgh’s economic growth — although, as longtime Seattle residents may say, be careful what you wish for.

The reality is, the foundation is in place to continue Pittsburgh’s momentum with or without the Seattle tech giant’s HQ2. The city’s transformation from industrial leader to technology powerhouse didn’t happen overnight. It has been underway for decades. And now it is an innovative leader in self-driving cars, robotics, health innovation, artificial intelligence, education, and more. The change is most evident in the type of people calling Pittsburgh home — most notably the talent spinning out of the University of Pittsburgh and Carnegie Mellon University.

One of the top educational institutions globally, CMU has long attracted some of world’s biggest brains. But after finishing their work at CMU, studying topics like advanced robotics, programming languages, and artificial intelligence — in fact, CMU lays claim to inventing AI in the 1950s — many graduates simply took off.

“Everyone left Pittsburgh,” said Panopto co-founder Eric Burns, who graduated from CMU in 2000. “They felt like they had to go to Silicon Valley, Seattle, Boston, or one of the tech corridors.”

Not anymore.

Andrew Moore, the dean of CMU’s computer science school, who first arrived on campus as a professor in 1993, said some people affiliated with the university “got addicted to being in Pittsburgh.”

Moore temporarily left CMU in 2006 to help Google open an office in Pittsburgh; many say that the company’s arrival was a seminal moment for the city’s tech scene. While there, the native of Bournemouth, England, helped convince 30 engineers to relocate from Orlando to Pittsburgh as a result of an acquisition. They took their families north for a visit and a massive ice storm greeted them as they toured Pittsburgh. It didn’t matter, as all but one employee ended up making the move.

“I got to say, we really charmed them with our nerdiness,” Moore recalls.

A graphic from Pittsburgh’s Amazon HQ2 website, HQPittsburgh.com.

Microsoft, SAP, HP, Yahoo, and others followed Google, opening up their own satellite offices to tap into the top engineering talent coming out of both CMU and nearby University of Pittsburgh.

Two years ago, Uber put its self-driving research center in Pittsburgh, poaching 40 people from CMU’s highly-regarded National Robotics Engineering Center. Amazon, Facebook, Ford, and Yelp have opened their own satellite offices in the past two years. Google’s workforce in Pittsburgh has grown to more than 500 people and the company has a 24-hour shuttle service between CMU and its office. The arrival of out-of-town tech companies is changing Pittsburgh much like it has in Seattle, where more than 100 engineering centers have sprouted in the past decade.

Meanwhile, the city is also a hub for medical research, largely driven by UPMC, a $17 billion integrated health system.

UPMC Presbyterian, a hub for medical research and education, is the one of 30 hospitals in UPMC’s network. (Photo via UPMC)

Silicon Valley and Seattle, take note: What makes Pittsburgh special is that it’s also an affordable place to live. The Economist ranked Pittsburgh as the most livable city in the U.S. in 2005, 2009, and 2011. Median home prices — $130,400, according to Zillow — tend to be lower than the national average, while housing inventory has gone up. The average apartment rent in 2017 was $1,075 per month, down 3 percent from 2011. And this past September, Apartment List ranked Pittsburgh as the top U.S. city for millennials based on jobs, affordability, and livability.

Many outsiders envision Pittsburgh as a cloudy, gray place full of rusted mills falling into a dirty river, harkening back to the city’s industrial boom, but that couldn’t be further from the truth today.

Pittsburgh is lush with trees and connected by more than 400 bridges that help residents get across three rivers — the Monongahela, Allegheny, and Ohio — which are lined with miles of bike and walking trails. The city is defined by more than 90 unique neighborhoods. Geographically, it sits in a peculiar spot — not quite Midwest, not quite East Coast, and bordering Appalachia.

Kelauni Cook, founder of Pittsburgh-based Black Tech Nation, imagined smoke billowing out of steel factories in an old-school blue-collar industry city when she moved to Pittsburgh in 2016 from North Dakota to attend a coding bootcamp. That all changed shortly after she settled into her new home.

“Within two weeks, I knew I was going to stay,” Cook said. “It was so beautiful, so clean, and everyone was so nice.”

A view of Station Square and the Fort Pitt Bridge in Pittsburgh. (BigStock photo)

Pittsburgh is also now a foodie capital. It has a historic sports scene. (Sporting News ranked it as the best sports city in 2009, although the Steelers recent playoff loss and Pirates restructuring have rocked sports fans to the core). And it’s rich in arts and culture, including a world-class symphony, a top ballet company and several major museums.

The city has retained its blue-collar vibe from the early 1900s, and added a layer of sophistication brought about by the new homegrown industries. It has a combination of big city amenities with a small town feel, where networking is made easy with one or two degrees of separation. There’s enough weirdness and charm that some have even dubbed Pittsburgh the “Portland of the East.”

Former Steelers cornerback Ryan Mundy is a native of Pittsburgh. Photo via Ryan Mundy.

Even Pittsburgh natives who grew up during the rougher times have come back, as the New York Times explained last year. Locals have “incredible civic pride,” said Burns, whose startup company has offices in Pittsburgh and Seattle. “There is a certain civic solidarity,” said Raul Valdez-Perez, who earned his PhD from CMU in 1991.

Ryan Mundy, a Pittsburgh native and former NFL cornerback who won a Super Bowl with the Steelers in 2008, said the commitment and passion from “Steeler Nation” is second to none.

“Loyalty is an understatement,” added Mundy, who now runs his own venture firm.

The tech-driven growth is not without challenges. Pittsburgh saw a 24 percent spike in tech-related employment from 2011-2016, with an average salary of $80,432, double that of the median household income. These economic forces can push out long-time residents, from their homes and even from Pittsburgh itself. On a recent Parts Unknown episode spotlighting Pittsburgh, Anthony Bourdain asks: “Are the new arrivals — new money, new ideas — saving the city or cannibalizing it?”

Pittsburgh ultimately has a long way to go to become a tech epicenter along the lines of Seattle or Boston or the Bay Area. In CBRE’s Scoring Tech Talent report, Pittsburgh ranked 30th among tech talent markets, behind cities such as Tampa, Columbus and Kansas City. In other words, even as Steel City is making the transition to the innovation economy, it is not quite a global tech hub yet.

CBRE’s Scoring Tech Talent report ranked cities based on “each market’s depth, vitality and attractiveness to companies seeking tech talent and to tech workers seeking employment.” Pittsburgh ranked 30th. (Graphic via CBRE)

But Pittsburgh’s immense potential is why we’re excited to make the Steel City our temporary home in February, in our own GeekWire HQ2 initiative. Look for on-the-ground reporting as we visit companies big and small; meet the city’s talented innovators; experience what it’s like to live in Pittsburgh; explore the challenges facing the city; and assess its chances of landing Amazon’s second headquarters.

We’ve got our long undies packed, and will arrive on Jan. 27; you can track all of our coverage here. In preparation for the project, GeekWire reporters have been doing our homework, talking with everyone we can in Pittsburgh, and picking up new insights into the city. Continue reading for more.

The anchor

Carnegie Mellon University PhD student Lerrel Pinto adjusts Baxter, a dual arm manipulator robot, inside Smith Hall at CMU last year. (Photo via CMU)

You can’t discuss Pittsburgh tech without first talking about CMU.

Founded in 1900 by steel magnate Andrew Carnegie, CMU has long been recognized as a world-leading institution, in particular for its technology-related research.

Cutting-edge work has been going on for decades at places like The Robotics Institute, where CMU faculty and students build everything from Mars rovers to drones. Through programs like The National Robotics Engineering Center, which former president Barack Obama visited in 2011, CMU works closely with government and industry companies to apply its innovations in the real world.

The university is also a pioneer for self-driving vehicle technology, dating back more than 30 years.  In 2007, well before the autonomous vehicle buzz, it won the “DARPA Urban Challenge” with a self-driving Chevy Tahoe that traveled a 55-mile course autonomously. CMU researchers have also helped launch up-and-coming self-driving startups like Argo AI and Ottomatika, while many now work at Uber’s Advanced Technology Group Center. Pittsburgh could be one of the first cities where robot drivers routinely outperform us humans on the streets.

The School of Computer Science in Gates Center and Hillman Center at Carnegie Mellon University. (Photo via CMU)

In 2014, U.S. News ranked CMU first for graduate studies in computer science. Its undergraduate program is also growing — there were a record 8,500 applications submitted for fall 2018, which is up 25 percent compared to 2017. Of the 13,961 students at CMU, 2,244 are studying computer science.

Notable alumni from the university include five Turing Award recipients and the founders of tech companies like Adobe Systems; Lycos; Red Hat; Activision; Sun Microsystems; and others.

CMU is a big reason why tech giants and government organizations have planted a flag in Pittsburgh, hoping to recruit students and faculty who are at the top of their respective fields.

“CMU is the anchor for Pittsburgh’s tech scene,” said Luis von Ahn, CEO of Duolingo, one of Pittsburgh’s hottest startups. “There wouldn’t be a Pittsburgh tech industry without CMU. Companies like Google, Amazon, Uber and Duolingo are all here in part because of CMU.”

Duolingo CEO Luis von Ahn. (Photo via Duolingo)

Born and raised in Guatemala, von Ahn earned his PhD from CMU in 2005 at just 26 years old and went on to sell two startups to Google that were built from his research at the university, including reCAPTCHA, a bot-blocking technology you’ve likely used online.

Von Ahn’s story symbolizes the bridge being built between CMU and Pittsburgh’s larger tech ecosystem. After working for Google in both Pittsburgh and Silicon Valley, in 2012 he prepared to launch Duolingo, a language learning startup that has raised $108 million. He established the headquarters in Pittsburgh for the low cost of living — “paychecks go much further here than in large cities like New York City and San Francisco,” von Ahn said — and because early employees who had recently graduated from CMU wanted to continue living in the city.

He also noted that most of Duolingo’s 100 employees are from outside of Pittsburgh, demonstrating how the city is now attracting top tech talent from across the country.

“In my view, Pittsburgh is a great place to start and grow a tech company,” he said.

Inside Duolingo’s HQ in Pittsburgh. (Photo via Duolingo)

That’s a new sentiment for the city. Perez, the CEO of Pittsburgh startup OnlyData who previously co-founded Vivisimo, said that back when he was on campus as a student in the 90s, “no student thought about starting a company.”

Over the years, CMU’s Center for Technology Transfer and Enterprise Creation has turned its focus from maximizing its financial return to helping professors and students disseminate their discoveries. CMU has spun out 62 startups and issued 282 patents since 2012; it has equity in about 100 companies.

The University of Pittsburgh has nearly 30,000 students and is one of the top research institutions in the U.S. (Photo via The University of Pittsburgh).

CMU isn’t the only Pittsburgh-area university pumping out top talent. The University of Pittsburgh was ranked as the best public university in the Northeastern United States this year by The Wall Street Journal/Times Higher Education college rankings, and is among the top U.S. schools in terms of federal research funding with $760 million provided annually.

Duquesne, Carlow, Chatham, Point Park, Community College of Allegheny County, the Art Institute, and other schools in the region complement CMU and Pitt, creating a robust educational ecosystem that’s often overlooked by those on the East and West coasts.

These educational institutions have been in Pittsburgh for a while, but now graduates and researchers are sticking around after their studies, helping lay the groundwork for a strong local economy and tech ecosystem.

The meds

The Pittsburgh skyline, with UPMC’s headquarters above it all. (Photo via Bigstock)

From a distance, Pittsburgh’s skyline is dominated by a 64-story steel edifice that bears the initials: UPMC. This tower, the tallest in Pittsburgh, is known to locals as U.S. Steel Tower.

Dr. Rasu Shrestha, chief innovation officer at UPMC. (Photo via UPMC)

But today the forming of steel isn’t the main discussion going on inside the walls of this iconic structure. It’s medical research.

The University of Pittsburgh Medical Center — UPMC — is the state’s largest employer with more than 80,000 employees working across 30 hospitals; 600 doctors’ offices and outpatient sites; an international division; and UPMC Enterprises, its healthcare innovation arm for new ventures and incubated ideas. It consistently ranks as one of America’s best hospitals and has a bevy of internationally-recognized programs.

Shrestha, chief innovation officer at UPMC and executive vice president of UPMC Enterprises, told GeekWire that he and his colleagues are trying to pioneer the future of healthcare by combining research and academic training with real-life clinical treatment and forward-thinking business models.

“We know all the complexities of healthcare, but we also have this entrepreneurial mentality that is really inherent to Pittsburgh and also is what defines UPMC and the growth we’ve enjoyed over the last couple of decades,” he said.

There are more than 200 employees at UPMC Enterprises, 70 percent of which are tech-focused — data scientists, machine learning experts, programmers, etc. Enterprises partners with and invests in healthcare startups, including Xealth, a Seattle startup building digital prescription technology.

Being in Pittsburgh is important for UPMC given the work that can be done with nearby collaborators. For example, it teamed up with the University of Pittsburgh and CMU for the Pittsburgh Health Data Alliance, an initiative to use machine learning and other technologies to make better use of health data.

Proximity to tech giants in Pittsburgh is also beneficial for UPMC; its Enterprises group works in the same building as Google at Bakery Square. Microsoft, which has an office in Pittsburgh, is partnering with UPMC to integrate its technology in three new “digital hospitals” built on UPMC campuses.

UPMC surgeons use robotic technology during an operation. (Photo via UPMC)

In addition to UPMC, there is other healthcare-related innovation going on in Pittsburgh, in particular at nearby Allegheny Health Network. The Pittsburgh Post-Gazette noted in November that “the region is, for better or worse, betting its economic fortunes on an industry roiled by head-spinning change and uncertainty.”

Many of the existing problems with America’s healthcare system can be solved with technology, said Shrestha, who came to Pittsburgh a decade ago from the University of Southern California. “If there’s one industry that really has a lot of potential to have maximal impact if technology is leveraged well, then it’s the $3.5 trillion industry that is healthcare,” he said. “And there’s no better place than Pittsburgh to look at how that transformation is happening.”

The money

Birchmere Ventures Founding Partner Sean Sebastian. (Photo via Birchmere)

There’s clearly enough talent in Pittsburgh to launch a company, with top scientists, engineers and health-care researchers emerging from universities, tech offices, and hospital networks. But can entrepreneurs find enough investment dollars locally to help fund the next great startup?

It’s not easy, at least compared to other global tech hubs like Silicon Valley or Boston.

Pittsburgh-based companies are raising money, pulling in $302 million in venture capital last year — buoyed by a $93 million round for AI startup Petuum — which marked the region’s largest amount of funding in 17 years, according to data from the latest PwC/CB Insights MoneyTree report.

But there still isn’t enough funding from venture capital firms and angels to match the innovation that’s coming from the universities and entrepreneurs. That’s particularly true for later-stage startups looking for large growth rounds, or medical and biotech-related startups that require more early funding to get off the ground.

“Without question, we are still lacking locally-sourced investment capital,” said Sean Sebastian, founding partner at Birchmere Ventures.

Birchmere launched in 1996 and is the most active local seed investor. About a third of its investments go toward Pittsburgh-area software companies; it made 30 investments over the past two years. Other firms include Draper Triangle Ventures; BlueTree Venture Fund; Adams Capital; and Riverfront Ventures, the venture arm of InnovationWorks, a non-profit funded by the state that also invests in startups and operates the AlphaLab accelerator.

Out-of-town investors are starting to notice more activity out of Pittsburgh, but Burns, the co-founder of Panopto, noted that “the investment community has not caught on to how undervalued things are there.”

“Pittsburgh should probably get more attention,” he said.

Paul Graham, co-founder of Silicon Valley accelerator Y Combinator, spotlighted the problem in an April 2016 talk about Pittsburgh becoming a startup hub. Graham lived in Pittsburgh from 1968 to 1984 and, like many natives, is amazed at the city’s resurgence. He believes Pittsburgh is poised to become a startup hub, but called out the weak investor community.

“There is one more thing you need to be a startup hub, and Pittsburgh hasn’t got it: investors,” he said. “Silicon Valley has a big investor community because it’s had 50 years to grow one. New York has a big investor community because it’s full of people who like money a lot and are quick to notice new ways to get it. But Pittsburgh has neither of these. And the cheap housing that draws other people here has no effect on investors.”

That’s not to say there isn’t money sitting around Pittsburgh. There are large, long-standing law firms and banking companies based in the city. The city also has several big charitable organizations, ranging from the Richard King Mellon Foundation, The Heinz Endowments, the PNC Foundation, the Pittsburgh Foundation, and others.

“I don’t think we do as good of a job as we can of connecting big, old Pittsburgh with small, new Pittsburgh,” Birchmere said.

Birchmere expanded on this idea in an op-ed he wrote for The Pittsburgh Post-Gazette in 2016, proposing something called “10 x 10 x 10” — get the city’s 10 largest entities to invest $10 million per year over 10 years in the local venture economy, creating “a $1 billion bet over a decade on Pittsburgh’s future.”

“Where would all that money go?” Birchmere wrote. “Wherever the investing entity wants it to — directly in startups’ equity, being first customers of startup products, launching seed- and growth-stage funds, investing in commercially oriented R&D, etc. The opportunities to collaborate in building Pittsburgh’s future are limitless, and this commitment to the future would be utterly transformative.”

The quality of life 

Julia Erickson, originally from Seattle, moved to PIttsburgh nearly two decades ago. She’s a principal dancer at Pittsburgh Ballet Theatre, one of many of the city’s renowned performance groups. (Photo via Julia Erickson)

Shrestha, the chief innovation officer at UPMC, knew all about a high quality of life as he was enjoying the sunny beaches and relaxed vibe in Southern California when UPMC came calling in 2008, hoping to recruit him away from the west coast.

“They sent me an article about Pittsburgh being the most livable city in the country — I almost laughed at it,” he said. “But after coming here and living here for a decade, I can tell you, it’s true.”

With a population just over 300,000, Pittsburgh offers a rare combination of big city amenities with a small-town feel. From CMU to UPMC to the local startups, there are movers and shakers everywhere — getting access to the right people is easy.

“When I lived in New York, it was such a big city and networks were so dispersed,” said Jennifer Van Dam, a digital and community engagement strategist at Innovation Works. “In Pittsburgh, you can go have lunch with someone and they’ll intro you to a CEO. That doesn’t happen in other cities.”

That’s especially valuable for entrepreneurs. Julia Erickson, a principal dancer for the Pittsburgh Ballet Theatre who moved to the city from Seattle nearly two decades ago, launched a nutrition bar company with her husband in 2010.

“It’s one of those cities that has an incredibly strong networking component,” she explained. “People are very loyal and they want to help others. It felt like people were so excited to be resources for us.”

Pittsburgh also attracts tech workers who want to be at the best companies, but would rather not spend a big chunk of their paycheck on rent or mortgage payments.

“You can live like a king here compared to what it costs in San Francisco,” said Sebastian, the Birchmere Ventures co-founder.

Yet people aren’t moving to Pittsburgh in droves. The city population isn’t growing — Pittsburgh has lost more than half its population since the mid-1900s — and job growth is stagnant over the past five years. An updated report released this week by the Allegheny Conference highlighted the challenge, saying that Western Pennsylvania could face a shortage of 80,000 workers by 2025.

Many longtime Pittsburgh residents, though, like the changes.

“Pittsburgh is a much more enjoyable city than when I arrived here 30 years ago in terms of nightlife, restaurants, fun, quality of life — everything,” said Valdes-Perez, the CMU PhD-turned-entrepreneur.

But like any city impacted by tech-related growth, the gentrification of long-standing neighborhoods has some questioning whether all the change is positive for everyone.

“It’s interesting to ride down the street in East Liberty and see all the change that the city has experienced,” said Mundy, the former Steelers player who lives in Chicago. “It’s good. But also, what happens to the people that were there? Where do people go that are no longer able to afford their home or don’t have the skill sets to work at these types of companies? Where do they go?”

The missing piece

Andrew Moore, dean of computer science at Carnegie Mellon University. (CMU Photo)

Pittsburgh leaders have the benefit of studying how places like Silicon Valley or Seattle are dealing with issues caused by the influx of technology companies and their workers. How they will mitigate potential rising housing costs or displacement of existing homes and businesses remains to be seen.

Moore, CMU’s dean of computer science, said there is work to be done at bringing together old and new Pittsburgh — the new out-of-town tech workers with the local residents who stuck it out during the hard times and want to stay in their hometown.

“I would give the Pittsburgh tech community a B-minus or C-plus for how well we are approaching this,” he said. “We can do a lot better.”

Moore said he’s been impressed with how tech companies are working with young students around the city and exposing them to a potential career in the tech industry. It’s a long-term investment in Pittsburgh’s future.

“I like the fact that we’re doing that,” Moore said. “But when it comes to things like really getting to interact with the local neighborhoods of existing folks, I would like to see us do better.”

What else is missing from Pittsburgh’s tech scene?

“We don’t have what I would call an anchor tenant,” Sebastian said. “Something that grew from scratch, employs 1,000-plus people, has $500 million in revenue, and has people leaving to go re-generate new companies.”

Pittsburgh spawned several successful companies over the past decades, but most were acquired or no longer have a big presence in the city.

Amazon could provide the answer. Pittsburgh is a dark-horse candidate to land HQ2. City officials are staying quiet — per Amazon’s request — about any financial details or incentives they’re offering the company. But this website and video give a sense for their pitch.

Apart from its top universities, high quality of life, low housing costs, and top-notch Friday night fish fries, there’s also room for Amazon to build its second headquarters — some have even pointed to a massive former Hazelwood Green steel mill property as a possible spot. Top Amazon executives like Amazon Consumer CEO Jeff Wilke and CFO Brian Olsavsky also have close ties to Pittsburgh. And in an intriguing twist, Seattle-based Alaska Air last year announced plans to launch the first nonstop flight from Pittsburgh to Seattle later this year.

“We were a global leader in the second Industrial Revolution – we built America and we built the middle class,” Pittsburgh Mayor Bill Peduto told GeekWire. “Back then Pittsburgh’s industries were forged by natural resources and goods transported by river and rail. Today the city’s rebirth is fueled by a unique pipeline of talent, ingenuity and authenticity that has the world on notice. And that happens to feature robot cars.”