PITTSBURGH – After nearly a year of speculation, the long-rumored venture fund aimed at capitalizing on Western Pennsylvania’s seed-stage technology companies might be approaching a launch.
Sources estimated the proposed vehicle will target $50 million for seed-stage deals, particularly those spun out of Carnegie Mellon University and the University of Pittsburgh. The two universities and the Pennsylvania State Employees’ Retirement System (SERS) are expected to provide substantial financial support, in addition to other area institutions.
The fund was first mentioned by Carnegie Mellon President Jared Cohon last spring, when he suggested the creation of a $50 million VC fund at a meeting hosted by the Pittsburgh High Technology Council (VCJ, June 1998, page 6).
Carnegie Mellon and the University of Pittsburgh in January backed Caduceus Health Ventures, a Boston-based fund that expects to tap early-stage deal flow coming out of the universities (VCJ, March, page 16). While Dr. Cohon lauded the arrival of Caduceus at the time, he also confirmed ongoing efforts to bring a seed-stage technology fund to the area.
Dr. Cohon said that the fund was in its formative stages and that the relevant parties were looking at possible fund managers.
SERS Director of Venture Capital & Alternative Investments Diane Sterthous did not return phone calls by press time.
Triangle Capital and Birchmere Investments, two Pittsburgh-based, technology-oriented venture funds, are the leading candidates to manage the proposed vehicle.
Sean Sebastian, a Birchmere managing director, said the technology transfer offices of the local universities were “really starting to crank out companies” ranging from medical devices, Internet-related, medical systems, robotics to e-commerce.
Birchmere, a $20 million fund founded in 1996 and backed by Allegheny Teledyne Inc. Chief Executive Richard Simmons, has invested $10.7 million in 12 companies, including FreeMarkets OnLine, a Pittsburgh company that conducts real-time business-to-business auctions.
Jay Katarincic, the head of Triangle Capital, did not return phone calls by press time.
The fund is expected to resemble the Wayne, Pa.-based $50 million Pennsylvania Early Stage Partners, the technology-focused vehicle established in early 1998 in response to Governor Tom Ridge’s Technology 21 initiative (VCJ, March, page 49). The fund, managed by Safeguard Scientifics and backed by Pennsylvania Public School Employes’ Retirement System, was slated for statewide early-stage technology deals but only has backed one company in Western Pennsylvania, Pittsburgh-based STORM Systems.
Pennsylvania Early Stage Partners has not had to look too far from home for deals, Mr. Sebastian explained, because of the abundance of opportunities in the greater Philadelphia area. Therefore, logistically, a separate fund in Western Pennsylvania is necessary. “A pool of money based [in Pittsburgh] would make sense,” he said.