ABSTRACT: Technology ventures helped revitalize what once was the site of a declining steel industry. The tech sector now accounts for a third of annual payroll, stemming the outflow of highly educated young people from the Pittsburgh region. This study contributes to the literature by establishing an economic rationale for government intervention to foster business startups in technology industries, documenting the evolution of a network of support services for tech startups outside of Silicon Valley, and compiling indicators of their economic impact in the region. We found that in the early years, the federal and state governments played a critical role by providing grants to research universities and seed funding to entrepreneurs in the technology fields. Universities served as incubators of innovation. State-funded accelerator programs reduced information asymmetry and externality problems that inhibit the birth of new enterprises. Their highly selective application process reduced cost to angel investors and venture capital firms of searching for early-stage startups with high commercial potential. The rigorous and short-term duration of these programs accelerated growth of some startups, but also accelerated failure of others enabling resources to move to higher valued uses. These programs also linked potential tech entrepreneurs to a network of mentors who provide the legal, accounting, marketing, and management skills that they lack. As a critical mass of successful tech ventures were established, new accelerator programs began to obtain funding from private sources and the inflow of capital from angel investors and venture capital firms from various parts of the country increased.
Keywords: Tech startups, public subsidy, accelerators, incubators