The Pittsburgh Bubble

Always read all the way to the end:

From "For local tech startups, timing, luck are everything" in this morning's Post-Gazette:
In the risk-averse, post-bubble tech world, ClearSpring and BitArmor are a success story.

They are among the increasingly small number of infant firms that have managed to rope in investment dollars without products, customers or proven track record, tech observers said.
It's a feat that is considered by many in the local industry to be even more difficult, given Pittsburgh's deep-pocketed, yet conservative investing community, steeped in corporate culture and perceived to be wary of new ideas.

Exactly why should it be a good thing that any startup can get funded without products, customers, or a track record? If local investors don't want to put money in that sort of thing, that doesn't sound like irrational risk-aversion; it sounds like good business sense.


5 Responses to "The Pittsburgh Bubble"

Hooman said... 6/09/2006 9:33 AM

I don't think it is a good thing for ANY startup to get funded without products, customers, track record, etc. The problem is that SOME startups do need to get funded before that point, or else they will not be able to start. There are a number of well-known, high-tech companies that fit this criteria at one point in time. I am sure I do not need to bore you with the multitude of university spin-out examples. Something to think about, Mike.

Mike Madison said... 6/09/2006 11:37 AM

I'm not sure I follow you, Hooman. Lots of entrepreneurs say they want money before they have anything to show, and some investors give it to them. (University-based spinouts, on the whole, don't fall into this category, since university tech transfer offices are notoriously conservative about letting faculty-developed technology go to speculators.) My instinct is that the vast majority of those enterprises fail, and the vast majority of that investment would have been directed more wisely to ventures with more going for them in the first place.
How many *successful* technology-based startup companies got venture or other third-party financing to support them as a stand-alone company at a point when they had *no* product, *no* customers, and *no* track record?

Mark Stroup said... 6/09/2006 2:03 PM

I'm kind of guessing, but I think electricity and aluminum might be two good examples of capital being ahead of the market.

Mike Madison said... 6/09/2006 2:18 PM

First, I'm really thinking of contemporary venture-based investing, and company-specific development, not industrial history. And I'm no expert on the latter. Second, capital being ahead of the market isn't necessarily a bad thing. The post doesn't criticize capital being ahead of the market. It criticizes capital being ahead of everything -- the market, and technology, and expertise. In other words, it criticizes the bubble mentality. Finally, FWIW, according to Wikipedia, the predecessor to Alcoa was based on a specific smelting process, and the development of systems for distributing electricity was based on competition between two specific technologies.

Jefferson Provost said... 6/10/2006 4:40 PM

Despite the quoted passage, the article seems to indicate that both ClearSpring and BitArmor do, in fact, have products. In fact they specifically say, 'BitArmor's product has been tested with potential "beta" customers and the technology proven to work.' It sounds as if BitArmor also has customers, or potential customers, at least.

Now, they may not have paying customers, or revenue, but that's an entirely different matter. It's not as if these two companies had an unimplemented idea and nothing else.

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at] Mike also blogs at, on law and technology. Chris Briem of Null Space drops by from time to time.

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