Transcription:
Good afternoon. Welcome to business as usual. This is Audrey Russo, President, CEO of the Pittsburgh Technology Council. thrilled to be here particularly thrilled today, as we have one of our board members and a dear friend of the tech community for a long time, Jay Katarincic and I'm joined here today with Jonathan Kersting, Vice President of all things media at the tech Council. So just to set get all the housekeeping out of the way. I'm just going to say that I want to thank our sponsors, which include Huntington bank, they've been with us right from the beginning. And beginning this week. We're also especially proud of sheetz. The partnership that we've had with Sheetz has been a couple of years old, but you might not know that they actually have an innovation center in Pittsburgh and working on the new iteration of Sheetz. So we're really excited about them. And they have a very important mission and their family business that's quite large and has a lot of impact. So pay attention to sheets, right, they are definitely going to make some interesting appearances over the next couple of years. Also Deloitte, longtime partner with the tech Council, they have been a force in the region. And if you don't know anything about them, they actually serve, you know, in the US serve more than 85% of the US fortune 500 companies. So they've been a partner, they have participated and they actually have representation on our board. So I also want to give a shout out to at&t who has joined us over much of this journey as well and helping us with the digital divide and making sure that there's access so lots of issues in this COVID period of time. So I wanted to make sure that we thank them and all of you should use them as well. So as a programming note, we have tomorrow we have the president and CEO, the Pittsburgh Penguins David Morehouse, and Thursday, we have State Representative Valerie gatos. And we wrap up the week with Ryan Scott, who's built a fascinating program over at Carlow. And it's their, their social justice Institute's. And they're really doing some interesting things particularly relevant in this day and age. So stay tuned. And we're always trying to provide relevancy. We've muted your microphones, so not to hear any noise in the background. And we also have a chat the chat is intended than it's interactive. And hopefully we'll have time to ask Jay some questions. So I'm going to jump right in. I'm very excited on a personal and professional level to, you know, be have Jay as our guest, Jay Katarincic, has been around in the venture community for quite a while it's been at least two plus decades, in terms of the existence of Draper and Draper triangle, and he'll talk about that in a minute. But what you might not know is he's actually very involved civically. He's been on the board of the tech Council for a long time, has been very instrumental in many things before Behind the scenes for us, as well as in the forefront and his passion about Pittsburgh, cannot be underestimated if you don't know him pay attention today because he is someone who has deep, deep, um, not only roots, but also caring about moving this region forward. And he is involved in right now he's the Board Chair of the children's Institute. And if you don't know anything about them, they're in squirrel Hill and they do pretty amazing things for people who have an array of different abilities, and both and their needs are quite profound. And it really takes a lot to try to serve this population. So giving you a wide range right so he's been on the board's attack council helped us on our on our financial team also was involved in public policy. And all in all, he's really just a good I have a lot I have a lot of fun with him. And he's been a good friend, as I said earlier, to me and the tech Council. So thank you for I wanted to set that up. So that you can you know, just understand that A little bit about who Jay Katarincic is. So, Jay, I'm going to jump in and, you know, give us an overview about Draper sort of the history, the mission, you know, set the table for us.
Sure. Thanks, Audrey. Before I start, thanks for for doing this series. I mean, you and I have talked a lot about it. And it's been a real service to Pittsburgh. I mean, I think this is number 83 or 84, in the tank. daily briefings and I can only imagine what your team's had to do to put these on. But thank you, for all of us in the tech community, because I think it's been not only enlightening, but it's been a fun way to break up the day. And so thank you. Um, so Draper Comm. You know, we started the firm in 1999. And it was a little bit of an A typical way that you start a venture fund. We were talking with Jerry Cohen, who is one of the the true heroes in the city of Pittsburgh, when he was the president of Carnegie Mellon, and he wanted to set up a venture fund in Pittsburgh and he came to Michigan Often in some of my partners and said, Hey, guys, you seem to kind of understand this tech stuff. Why don't you set up a venture fund? And we said, well, thanks a lot, Dr. Khan, but we don't know anything about running a venture fund. And, you know, I think some of my investors will tell you to two decades later, we still don't know. We, we decided that in order to start a venture fund that could be successful, we needed to, at that time, get some connectivity to the coast. So we partnered with the firm Draper Fisher jurvetson. And off we went, and, you know, I think it's now 57 or 58 investments later, you know, we're still doing it, we're still having fun. We, we invest only in early stage technology companies, so primarily series A and on rare occasions, Series B. And probably 60% of our investments are based in in western Pennsylvania. Though we we also invest a significant amount of dollars in Ann Arbor and in a Ohio, particularly in Cleveland and Columbus regions. So the, you know, if you think about the boundaries, the boundaries are kind of Carnegie Mellon's campus and University of Michigan's campus and everything in between and all technology focused with a, with a minor in medical device, we do do a little bit of medical device investing. And we have been, you know, over the years in a couple specific sectors,
what would you say is your sweet spot? I mean, how would you sort of describe that?
Sure, um, you know, we used to describe it as six folks in a bag of cheese curls in, in the case of you who, but I think it's changed a little bit. In that, you know, we're now a firm where we're investing just as a company is turning its first dollar of revenue. You know, a company, it's significantly cheaper today to build a product than it used to be. You can get the minimum minimally viable product faster, and so a time where they're first they're getting their first customer, but they haven't figured out really how to sell to a customer, or how to scale their sales force. And so that's really the sweet spot to invest in our IT companies and our medic device companies different story that where it's really it's really a concept in those companies. Okay.
So in you know, let's just reel it back just like a few months ago, right? Even though it seems like a lifetime ago what, you know, what were you seeing what were you doing? And pre COVID pre March?
Yeah, I try to remember back that far. I mean, it's, you know, the, the new normal is, it seems like it's been here for so long and is, you know, obviously not been a fun time. Um, you know, we were seeing a ton of deals. We were seeing all of our companies, you know, with a few minor exceptions doing very, very well. I mean, I think, you know, I don't think anybody on this call could disagree. The economy was humming In, you know, late January, early February, mid February, we started to see, oh, cases are really spiking in China cases are spiking in Italy, you're starting to see the first cases in the United States. And so we it right at that point in time, we, we, we kind of started to raise the yellow caution flag. And we pulled that one down pretty fast and put up the double reds, you know, pretty quickly, but I'd be ready on the January timeframe. It was, business was great. business plans were flying in the door. And our companies were doing great. And so you know, we were all you know, living, you know, living happy and, and all of a sudden, you know, curveball, hit us right between the eyes.
And so now, well, that curveball What does that mean? Does that mean stop investing? What do you what do you see now it's these four months because we're gonna we've had some investments in the region, we've had an exit in the region, we had a big investment in the region. We've seen, you know, we've seen some activity that hasn't stopped.
Yeah, I mean, it's so weird to me. I mean, I'll speak from our experience, we, we kind of starting mid February said, Hold on guys, we got a we got to pull everything in and retrench and make sure that all of our companies are ready to deal with whatever be we went through a bunch of scenario planning and, and you know, I won't give you the infomercial and kind of what we did, because I think everybody on this call who, who runs a company in a company did the same thing. But so we you know, that was the first part of it. And then we sat back and said, Okay, what are the impacts of COVID? And then what are going to be the long term implications of COVID and went through a probably a month long process of developing our thesis around that, and then kind of came out the other side. We have not made a new investment. Since March, we there's really nothing in the hopper. That's it's down the path, but that's not unusual for us and we You know, we make three or four investments here. And suddenly there could be, you know, two of them could show up this afternoon and, and we could get really excited and go fast on them. But, um, you know, we're obviously more cautious. You know, we're not seeing as many deals not okay. You know, I think that's part of for two reasons. One, I'm not sure there's many companies being started. And to, you know, we're a feet where feet on the street investor, we're always out of Carnegie Mellon, or in Oakland or any celebrity or wherever, meeting people and because we can't go out the world's changed a little bit in ethics a little bit harder to to connect over things like this, then it isn't in person. But you know, doors are open for business and, and we're still rolling. I mean, it's, you know, obviously harder and more difficult and you don't have the casual, you know, all your conversations now are scheduled, rather than, you know, sticking your head into somebody's office. Has.
This does this time remind you of any time over the last two decades, all
You know, I mean, when you're old like me, you've been through a few of these. So it's, uh, you know, it's, it's definitely it. So there's really kind of we've got been through three cycles 2001 2008 2014 2008 2014 not at all it has, you know, I don't think it has any relevance because we've bounced back so quickly. And in both of those cases, it reminds you a little bit of 2001, where you just had an absolute meltdown in the, in the capital markets. I don't think it was economic meltdown as much as this one, but it was an absolute meltdown in the capital markets, and he didn't see the light at the end of the tunnel. And I think we're still in that phase with this. I mean, I think we maybe saw a little, a little light three weeks ago, and then suddenly, that light got extinguished pretty quickly. And I think we'll see whether or not I didn't look, I didn't see this morning's numbers, but, you know, given the thumbs up means not good. Now, you know, given what's happened in California, the Florida numbers Pittsburg numbers. I think we're in for a little bit longer. I mean, Fitz talked about it yesterday. And he knows a lot more than I do. And he wasn't super optimist.
Well, we have we have a couple of questions that I want to start asking it. So Jonathan, I don't know if you want to read some of them. But like Matt, Jeff, and I need to have some questions. Start with Anita.
I let her question I think is really interesting. So would would, would Draper invest in manufacturing startups to bring this back to Pittsburgh?
Yeah, indeed. It's a great question. And it's funny, Audrey and I were just talking about this. Okay. So it's a very timely question. We wouldn't it we do a lot of robotics investing. So you know, which obviously has a great deal of Nexus to manufacturing. So I think the answer need is I know the answer is it depends. I mean, I think if it's a manufacturing business has an awful lot of technology, an awful lot of automation involved in it. I think it's something that we would be very interested in? If it's if it's something that's maybe a little bit less automated than then we probably would not. But there's there's other investors that we would we would refer you to that may have some interest in this business.
And before you exempt Jeff, Jonathan, really, I think everyone needs to just be reminded that when Jay and Draper start to talk about who they invest in who they don't, they're also a wealth of resource. So connecting to other investors, and other opportunities. So even if I have a conversation with Jay about, you know, Fred, or Susie's company, very often, he'll say, you know, what, I know where there might be a better fit than in terms of what we're doing. So you really need to understand that this part of the conversation is is, you know, multifaceted in terms of resources. So, Jonathan, I think Jeff has a question and Matt Definitely, yeah,
I just I love Jeff's question here. I can't wait for your response on this one, Jay. So um, is their perception of Among VCs, that education is too hard of a nut to crack. It's such an immense need for for education technology in the country. Why do you think VC Vc gasm is particularly low in that
sector?
Yeah, I mean, it's a great question. And it is a
you know, I've, I've made three edtech investments in my life and we you know, we have one of the best edtech institutions in the country, we actually have a pretty good little edtech community here. Three months ago, I never would have done another edtech deal. I'd gotten burned too many times in tech. And I love that tech. I mean, you know, I should say, I had one we had one great success in a company called Carnegie learning in the edtech space, and then we've had a couple might not be quite as successful. But I do think that the COVID and the way that not only that, you get With distance learning, but but the fundamental disintermediation that's coming in higher ed is going to make edtech a much more lucrative space for people in the best. And I think you're going to see people build very meaningful companies going forward in the edtech space. I mean, they've already seen a little bit of consolidation happen over the last four months in the edtech space. You know, I wish one of our edtech investments that we sold for, for, you know, a bag of peanuts I wish we still had because it will be incredibly valuable today. So but yes, I, I would still now, I think given the last three months, I think we would go back and look at ad tech investments. And I think that VCs in general are going to put it back on their their focus map. Very cool. Brock Bergman's got a really good question here. I'm going to flip this one up here. So given the current change in the world and things accelerating towards more of a digital first world, in almost every industry, what are areas of interest Do you find most interesting Over the next two to five years.
That's a big question. Yeah.
And 30 minutes
full disclosure brockie is to work with us until he gets his own business. So, um, you know, Brock, I think there's
a bunch of things that are that are really exciting to us right now. security companies are obviously super, super, super, super valuable. Anything that deals with collaboration, really interesting. Any advanced material that the deals that can help with antibacterial antimicrobial antivirus are really interesting and, and we're looking at a lot of those, obviously automation and automation to keep people further apart, etc. Because, you know, you know, knock on wood, we're going to have a vaccine and we're going to get get COVID behind us. But I think a lot of the lessons that we've learned, and a lot of the fears that have been planted in people aren't going to go away for a long time. And so, you know, that's a big part of the investment thesis that we're, that we're looking at, you know, the other space that we're in, you know, this is a really focused area. But we're spending a ton of time looking at the ventilator space, is, you know, there's, if you think about if anybody's ever had a loved one or friend on a ventilator, it's the worst experience that they could ever have. And there's been no advancements in ventilators in 40 years. I mean, an advancement in the ventilator space today is to change it from gray to blue. So we've been spending a ton of time looking at things in the ventilator space and other medical devices, that will, they can get people out of the ICU faster, so that we can flex the ICU better than we have today.
Okay, I didn't even realize that. You still have a bunch more questions. So Jonathan, you want to keep going and maybe go to the top? We missed a few.
Yeah, let me see. I gotta get some scrolling going on here. So um, let me see here. Did you did you do? So here's one from Anita, basically, Pittsburgh workforce will need retraining to be able to be employed in companies. What about partnerships between universities and VCs and industry to retrain our workforce?
Yeah, I mean, you know, it's fun I need a must need a must somehow be in my very small brain because this morning I was thinking about, about how hard training is going to be going forward, at least over the next six or nine months as we stay remote because it's really hard to train people asynchronously. And so I think it's a really important point, I think there's a bunch of things that are going to happen. It's the university's job to help. It's the private sectors job to help. You know, we've got a great Workforce Investment Board in the training things that come out to tech out let me not do not to give a commercial for you. But the tech Council is a wonderful, not only resource but as a source of training materials. So I think it's vital. Important, Anita, you know, I'm gonna have to think about it because we've got to come up with a solution. But I don't think it's going to be a simple solution. I think it's going to be a community effort that it's going to take to continue to retrain the workforce.
Okay. And then, so do you see any m&a activity increasing right now? Do you see some of that? Do you see some mergers and acquisitions? I mean, I know we've seen that on the learning management side, but that was pre COVID. Yeah.
You know, we're seeing a lot of people kicking tires right now. I think a lot of it's because people are home, they got enough. You know, there's a bunch of big company corporate development guys sitting around, because they're not doing deals. And so they're out looking at a bunch of different things. So, you know, we've spent a lot of time on the phone with him. I haven't seen a lot move forward. I mean, if you look at m&a activity, dollar volumes, still pretty good because there have been a couple significant significant transactions, but if you look at number of transactions, right? In the mean, value of transactions that's way down, and I don't think that's changing. I think I think the numbers for the third quarter, so July, August, September are going to be awful in that, in that space, and unfortunately, I think it's also going to be that in the VC world, in terms of
certainly seen seeing that in the big retail world. So, you know, we've seen a lot of bankruptcies and actually non what, what about valuations? Are you seeing any changes in valuations?
You know, we're seeing changes in valuation. Audrey is in the later stage companies in the early stage companies. If you're having valuation fights, you know, you've got, you've got the wrong investor or the wrong company. You know, the valuation issues are coming up and the bigger the bigger slash later stage companies where it's either in a super hot space, so you know, somebody that's providing security tools and collaboration software in a remote workforce, I mean, they can put every buzzword in a PowerPoint deck, you can imagine And their valuations are sore. On the flip side, you know, companies that are more enter, you know, enterprise on prem focus not quite as not quite as attractive. So I think overall valuations are down. But I think there are a significant number of industry, you know, sectors where you are seeing valuation increases.
So what about capital raising for, you know, in our region in terms of GPS?
Yeah, I mean, it's, it's always been hard. I mean, it's, I mean, you know, as I always look back on my last 20 years, my biggest failure is, has been that we haven't been able to seed a diverse set of, of general partners and venture funds. You know, we're in this point, there's the number of venture funds in Pittsburgh, you know, I can host around a very small table in a restaurant. And you know, that's a really scary thing for for Pittsburgh. So it's always been a hard time. And, you know, frankly, I do blame myself for not getting more more venture funds stood up in Pittsburgh, but it's, you know, it's not getting. It's not going to be, you know, it's not going to get any easier for the next six months, given the way that the large institutional ventures, investors have retrenched based on on.
So, so what are you hopeful about? And what are you concerned about? So, you know, you represent the region. I mean, in a lot of ways, you're out in Ann Arbor, you're out in Ohio, even though I think what 60% of your investments are Pittsburgh, Pittsburgh based. What? So what are you hopeful for? What are you concerned about?
Yeah, I mean, you know, I'm a there's no bigger fan of Pittsburgh and no bigger optimist about Pittsburgh future than, than me. You know. We have so many what i mean i I shake my head all the time about, you know, three months ago, we were on such a roll. I know such a fantastic president Carnegie Mellon, who everything's about entrepreneurship and everything's about changing the region, pit, all the things that pit is done to, to stand up their Innovation Institute and to work hard. And, you know, the big companies starting to get behind helping the little companies. It's something that you know, if I want to talk about my other failure is a is a venture capitalist. It's we've had a really hard time connecting the small companies to the big companies. Audrey, you've done some of that there have been some other efforts by other folks. You know, the companies are starting to the big companies are starting to be willing to be alpha and beta customers on so there's so much to be excited about. I'm just worried that we, you know, it's all come crashing down. I mean, you know, I I walked this morning from the gym to my office in downtown Pittsburgh is depressing. I mean, it's, you know, it's unfortunate that you there's the vibrancy is gone, and we've got to get that back. And hopefully we were able to So, I mean, my biggest concern is just that we've lost the momentum, and that people aren't going to be as willing to start businesses going.
Are you seeing that in Ohio and Ann Arbor as well?
Um, yes. Yeah. I mean, we're seeing it definitely in Ohio in orders a little bit different of a of an animal because it's so self contained. I mean, the thing you know, Detroit which is you know, I called Detroit a suburb of an arbor I'm sure that but um, you know, Detroit, nothing going on and Arbor still okay, because the university is is still is still moving. I mean, like Carnegie Mellon is still using, but the in Arbor economy is all based around the university and the spin offs in the university here were much more diverse. And so that's, it's a little bit different.
But it'll be interesting for them. I imagine that's the fall approaches, in terms of what happens in Ann Arbor. So what is the future for Draper?
Yeah, I mean, well, I'm saving money. My keys still locked, still walked in the door this morning. So that's, that's a good sign. You know, Andre, we're, uh, we're actually, I've got to be a little bit careful. So I don't break any any fundraising laws. But we're working on something, I think that's going to be really significant for Pittsburgh. And it's a fundamental shift in our organization to become much more focused on Pittsburgh, number one, so we're going to be much more pitcher Pittsburgh centric than we have. Um, it's really going to be in partnership with the universities and with several large corporations who want to who want to really go and solve the problem. And three, it's probably going to meet a little bit more capital for the region than we've been able to deploy in the past. And for probably most importantly, we're going to have some fairly significant additions to our team. Yeah, that, I mean, it's the most excited I've been in my 20 years to kind of talk about The new team and the new mission etc, that, you know, I apologize. I can't roll much of it out today, but it's fine. I don't need my lawyers, you
know, so, so that, you know, that's a big investment. So you feel just as positive about it now, because I imagine you've probably been working on this free COVID
Yeah, I mean, obviously, just as as positive. I mean, it's, you know, in order for that to be successful, I've got, you know, we've got to go convince investors to believe in what we're in what we believe in. And I obviously they're focused on a lot of different things right now. And so it's slowed down a little bit. But, you know,
that's just a delay. It's not a no
need to have Jay back on when he can make a full announcement for this. I think this sounds not that exciting. Plus,
what is there any lessons that you having a regional approach? Are there any lessons learned from just the region? You know, the Ohio the the Michigan's Any lessons in terms of ecosystems or the kind of investments we've made of partners?
You know, it's really simple that great people and you'll be successful, you know, doesn't matter really what the ideas are, how good the ideas, that great people that are willing to bring in a team around them, or even smarter people, and they'll be successful. And that's, you know, if there's one lesson that, you know, I wake up every morning and, and think about is make sure that the person you're investing in is way smarter than you, that's pretty easy in my case, but be make sure that they're willing to listen and collaborate. And, you know, be very true in their beliefs, but not be so inflexible that they can't change their their views on things. So, you know, it's that simple. I mean, my biggest goal for the next you know, decade let's put it that way. I mean, I don't usually think in decades, but I'm thinking decades for today is we've got to get Pittsburgh better capitalized from a venture perspective because if we can at Pittsburg better capitalized, we will be able to get companies better capitalized. One of Pittsburgh's biggest problems is we've always undercapitalized our companies, and so they can't get the tempo into them that they need to. And if we can get more venture dollars to work, we'll be able to properly capitalize the country to companies. And I think you'll really see that the region exploding past minutes.
What about the last question? What about diagnostics? Have you ever invested in diagnostics?
Um, yes, we have invested in diagnostics, you know, as in everything, some very, very successfully in some not as successfully. I mean, you've just, it's got to be capital efficient, and the FDA process, you know, can get very, very expensive if you've got to go do a 300 or 400 person trial. And so we've got to understand the regulatory path. It's, it's out there, but yes, we've done diagnostics. I mean, you know, we used to have this cute little saying that if you inhale it, injected or implant it, we don't invest in it. We're changing a little bit of that right now. Not a ton, but we're, you know, we're looking at that. I mean, huge advancements in imaging have led us to look at it more diagnostic tools. So, you know, yeah, somebody has a diagnostic company, you know, my email address is on the website or or, you know, send Rhodri a note or whatever. Absolutely.
We'll make the connections. Absolutely. So one of the things that we do at the tech Council is trying to connect the big companies and small companies. And just to do a plug is that tomorrow night, we have our CIO of the Year awards. It's the first time we've done anything like this virtually, but those Chief Information Officers and chief security officers, it's a great way for people to get connected to get connected in terms of what kinds of things they're wrestling with, and the kind of innovations that they might be thinking about or didn't even know so I made a plug in you can still register this where where, you know, it's our way of trying to keep the entire community time to be threaded. Together, it's not just the awards. So that's my pitch there. But, Jay, what's your final like words to us? We've had, you know, great conversation you have. And this whole thing about not being the smartest guy in the room is a little too self deprecating. I know you have a JD I know you've done a lot in finance. And you know, you have a good eye for detail on lots of things all Pittsburgh, but what what do you want to wrap up and tell our guests and our listeners
I'm the last person anybody should ever be taking advice from but you know, I think the you know, to me, the biggest thing is a we're going to get through this. And be we've just got to make sure we come out of it strong and fast, because there's going to be huge opportunities as these large cities really struggle to recover and Pittsburgh's in a unique spot because, you know, the health care sector of the universities, we'll get back to things relatively quickly. We've got a great chance to capitalize it. But it's gonna take everybody on this call and everybody in the community to do it. And so hopefully we really come together and put a little silos aside. And in really working is one is one city to, to make things happen.
All right, Mr. You have given us more time then I thought, and we had lots of questions. So if you need to get ahold of Jay, you can just go out to their website and it's easy to get connected to him. There it is Jay it's at the bottom of the screen. Thank you, Lexi. She's that good. First of all, thank you for your leadership in the community. Thank you for caring, thank you for really trying to push the needle all the time when it comes to all things investment and public policy as well as your work at Children's Institute and other places where people don't have as many advantages. So, I Herald your leadership and your friendship. And, you know, hopefully people got a little chance to see a little bit more about JK.
I hope hope I didn't put anybody to sleep. And Audrey. Thank you and Brian and Jonathan and Taylor and your entire team for, for what you've done. I mean, I think you've really done a fantastic job of keeping the community together with these with these half an hour sessions. So thank you very much. Thank you. Thank you for your support.
Okay, everyone. Until tomorrow, we have the head of the penguins. David Morehouse. And he's got lots of stuff to talk about as well. So stay tuned and reach out to Jay. He will respond to you take care everyone. Thank you.