Few shape Pittsburgh’s high-tech future like the heirs to its industrial past.
Since its new strategic plan kicked off in 2021, the Richard King Mellon Foundation — Pittsburgh’s wealthiest foundation, with an endowment over $3 billion — has invested more than $3.3 million in for-profit startups aligned with their philanthropic vision, with another $1 million at least coming in early 2023 for the next round of social impact investments (SIIs).
It’s part of a larger, 10-year plan to invest $50 million in startups aligned with the foundation’s top priorities: economic development, economic mobility, health and well-being, and conservation.
“We are able to take risks that the traditional capital markets cannot,” RK Mellon Director Sam Reiman told Technical.ly. “When our principal investment is returned, that money then goes out again, funding new PRIs,” or program-related investments in line with the foundation’s charitable giving.
“It is a virtuous circle indeed.”
These types of foundational investments are new to Pittsburgh, and while they’re a small percentage of the foundation’s overall charitable giving, they represent a valuable source of homegrown funding for founders looking to scale the industries of the future.
A focus on impact, not just profit
In most cases, RK Mellon offers a convertible note — a type of loan that converts into equity — to mission-driven startups traditional VC funders might otherwise pass over. It’s a boost for local and regional entrepreneurs, and a marked shift for the city’s largest foundation, said Nadyli Nuñez, executive director of startup incubator Ascender.
Like any funding, Nuñez said, the devil is in the details, and there’s room for negotiation based on the startup. RK Mellon, she believes, is providing opportunities for companies rooted in impact, rather than profit.
“When you have an expectation of a seven- to 10-time return on the investment, the type of company you build is different than one that doesn’t,” she said.
Courtney Bragg, cofounder of Fabric Health, saw her Philadelphia-based startup, which provides healthcare consultations in local laundromats, take home first prize at last year’s SII pitch competition along with a $500,000 award.
The funding helped fuel Fabric’s expansion into southwestern Pennsylvania. Positive impact “in Allegheny and/or Westmoreland counties” is a stipulation of RK Mellon’s grantmaking (except for conservation efforts), and a way to ensure the social benefit stays local.
Bragg said that a PRI, like what’s offered by RK Mellon, isn’t something most investors use, but she echoes Nuñez’s point that any funding offer starts as a conversation between individuals.
“We had a partnership with [official Pennsylvania healthcare marketplace] Pennie to expand [statewide],” Bragg said. “We wanted to use the first year to understand enrollment across Philadelphia. We had been keeping an eye on things in Pittsburgh, and we’re excited to expand. RK Mellon catalyzed our ability to do so and make it feasible.”
Audrey Russo, president of Pittsburgh Tech Council, estimates that approximately 70% of venture capital funding in Pittsburgh’s tech and life sciences comes from outside the region. And those outside investors are concerned with ROI, not creating public good.
“I meet with venture capitalists everyday,” Russo said. “They’re not saying, ‘How can I help your ecosystem?”
Past to present
FortyX80, the Pittsburgh Tech Council’s nonprofit arm, received $100,000 last year from RK Mellon to launch the ApprentiPGH tech training program. Nuñez’s Ascender has been a major recipient of RK Mellon funding, including $3.1 million in operational support over the past six years, and another $100,000 in 2021 to facilitate RK Mellon’s Social Impact Investment Pitch Event.
Groups as diverse as universities, economic development agencies, and workforce development nonprofits have all benefited from the foundation’s largesse. In 2022, the Andy Warhol Museum announced that they had received funding, including $15 million over the next three-and-a-half years from RK Mellon, to fund the “Pop District,” a six-block redevelopment adjacent to the museum’s Northside location.
Even if, historically, it was the city’s larger institutions that benefited from the foundation’s charitable giving, a growing percentage goes directly to startups. Case in point: Applications for the second round of RK Mellon’s social impact pitch competition closed last fall, and the next batch of startup winners will be announced in early 2023.
The new startup investments are part of a larger vision to distinguish the region’s economy in a tangible way, not dissimilar to the vision Richard King had in the ‘40s, when he convened business leaders in the creation of the Allegheny Conference on Community Development and worked with government toward the creation of the city’s Urban Redevelopment Authority.
These efforts and entities led to Pittsburgh’s first Pittsburgh “renaissance” Downtown, and the full sail redevelopment of neighborhoods like the Lower Hill, though today, the devastation of the thriving Black neighborhood and cultural center is considered a cautionary tale in how not to “revitalize” an area without considering those who live there.
Investing in tech jobs
Today, the foundation’s vision and spending is just as grand, though focused primarily on a former industrial site. Centered a few miles from Downtown, the 178-acre Hazelwood Green development site is where LTV Steel’s coke plant once stood. RK Mellon, along with the Heinz Endowments, Claude Worthington Benedum Foundation and McCune Foundation, purchased the Hazelwood Green property for $10 million in 2002 under the name Almono LP. (The McCune Foundation sold its shares to RK Mellon in 2016.)
The vision is for research teams and spinoff companies from nearby University of Pittsburgh and Carnegie Mellon, not unlike the ones pitching in the social impact pitch competition, to create and manufacture the industries of the future, while creating and providing jobs for university graduates and nearby residents of Hazelwood. In 2021, RK Mellon announced $2.6 million in grants to 16 organizations to encourage job creation in “new-economy” jobs.
“RK Mellon is essentially investing in the academic and tech transfer ecosystem from soup to nuts,” said Sean Luther, executive director of InnovatePGH, the public-private partnership which has taken funding from RK Mellon to support its Pittsburgh Innovation District initiative. “You see them investing in the new Mellon College of Sciences here in Oakland, and that’s creating a [talent] pipeline down to the new robotics assets at Hazelwood Green. And that’s what Pittsburgh’s unique brand value statement is going to be in a really competitive global race to be a leader in the 21st century economy.”
In 2021, RK Mellon gave $150 million to Carnegie Mellon to fund the advanced robotics manufacturing center at Hazelwood Green. And in November, the University of Pittsburgh received $100 million to kickstart the creation of the Pitt BioForge facility at Hazelwood Green, which will develop cell and gene therapies.
“The steelmaking practice here was conceived by visionaries who discovered new ways to harness technology to make Pittsburgh a global leader in manufacturing, and that steel was made by people working jobs and sustaining families to create new opportunities for the people of Hazelwood and throughout the region,” RK Mellon’s Reiman said at the time. “And that is exactly what is starting here again today.”
Reiman and others at the foundation are quick to point to parallels between these long-term investments and those given by the foundation in the past, such as early seed money in the 1960s to Carnegie Mellon’s computer science program.
“You look at the investments we’re making in Hazelwood: AI, computer science, robotics, biotechnology, advanced and additive manufacturing, we view that as the kind of future industries Pittsburgh has some real shot at owning or being a leader in,” Reiman said.
“We feel like there’s a limited window here for us to actually position the city and the region to be able to participate in some of these new industries.”