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2 0 1 0 C O M M U N I T Y R E P O R T O P P O R T U N I T I E S R E A L I Z E D

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2010 IMPACT HIGHLIGHTS

177

81

452

4,684

$4.6 mil

$775 mil

27

$193 mil

2573%

$52,000

74%

companies assisted with IW business assistance and/or fnancial resources

companies received IW funding

jobs attributed to IW assistance

total employment at IW-supported companies

invested by IW in technology companies

revenues at IW-assisted companies

companies received IW seed investment

follow-on funding raised by IW seed fundcompanies

IW seed fund companies raised more than $1 million

in additional investment

of all venture deals in the Pittsburgh region went

to IW portfolio companies

average annual salary at an IW‑supported company

IW companies that offered or planned to offertheir intern a job

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2010 COMMUNITY REPORT

REALIZING OPPORTUNITIES

Entrepreneurs are optimists by nature. At Innovation Works, so are we. We believe our startup

technology companies have the power to change the economic landscape o Southwestern PA.

Last year, despite incredible odds caused by global economic pressures, our companies grew at

an amazing rate. By just about every metric, IW-supported companies saw gains in 2010 in jobs

created and retained, unding, revenue and other areas we track. In this year’s Community Report,

we present the ar-reaching impact o the entrepreneurs we are privileged to support.

In 2010, Innovation Works provided unding to 81 companies and supplied business assistance to

a total o 177 regional, innovative companies. Though a challenging climate or our state budget

has meant a 42% decrease in IW’s core unding over the past three years, we were able to maintain

our high levels o resource support or entrepreneurs thanks to additional unds rom oundations,

the ederal government and other sources. Given the decrease in base level unding, Pennsylvania’s

dedicated fnancial support or startups in energy and clean technologies has been especially

important and allowed Innovation Works to invest $1.2 million in 11 energy-related companies in 2010.

As you read about the milestones our companies reached last year and the examples o our companies’

growth, you’ll see that 2010 was a year o opportunities realized. For example, our companies’

cumulative revenue was $775 million. Total ollow-on capital raised in 2010 was a record

$193 million — a level that outpaced the nation’s year-over-year increase o both angel

and venture capital. And total employment at IW partner companies reached more than

4,600 employees with an average annual salary of $52,000.

What’s in store? Look or even greater investment and activity within our energy

portolio in 2011. As part o the Energy Alliance o Greater Pittsburgh, we are working

to make more linkages occur between researchers, corporate partners, fnancing

opportunities and entrepreneurs. Also, we expect greater impact on university

technology commercialization as a result o our work with Carnegie Mellon as

part o the i6 Challenge (read more about it on page 6). And fnally, our companies

are tackling some o the world’s greatest challenges: clean water, energy efciency

and curing Alzheimer’s and other diseases. These companies and those creating

products or businesses and consumers are changing the way the world views our

region. Look or the outpouring o publicity generated by our companies as they

innovate, grow and realize their potential. We’re very proud to be part o their success.

Rich Lunak, CEO Ron Bianchini, Chairman

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2010 COMMUNITY REPORTENTREPRENEURIAL SERVICES

Propel IT

Commercial truck manufacturers spend hundreds of millions

of dollars annually wringing an extra half a percent of fuel

efciency from their engines. But once a driver gets behind

the wheel, driving behavior can inuence fuel efciency

by 35 percent or more. Propel IT is addressing this with

technology that tracks driver habits and provides incentivesfor those that promote fuel efciency.

Propel IT has received investment and EIR mentorship from IW.

They also took advantage of IW’s Human Resources capabilities

through which they found their Chief Technology Ofcer, a critical

team member with a background in diesel engine optimization.

According to CEO Anthony Lacenere, one of the company’s pilot

customers saved $500,000 in fuel costs in a single quarter thanks to

Propel IT’s innovative technology. And with results like that, the company

is roaring into high gear.

Business Mentoring From Concept to High Growth

When Innovation Works frst engages with a company,

the entity is typically at the prototype stage and hasroughly our people working on the team. It’s a rare

entrepreneur or startup team that has or can aord the

range o expertise needed or success.

Innovation Works flls in these gaps with internal

experts and outside advisors who help entrepreneurs

commercialize their technology, enter the market

successully and grow. The IW Entrepreneurial Services

team is made up o experts who have walked in the

shoes o our entrepreneurs and is comprised o ormer

entrepreneurs, investors and executives responsible

or product and business development, marketing,operations and human resources. They augment their

own expertise with trusted mentors rom the community

and elsewhere who oer additional insight, contacts

and guidance to our startups.

Talent is a Company’s Greatest Asset

Attracting and retaining the best technologists,

executives and team members is essential to moving

a startup orward. Companies need a stafng structure

and human resources plan that ft their immediate

needs and lay the oundation or anticipated growth.IW’s Strategic Human Resources program helps fnd

the right talent or our companies at the right time.

Our in-house HR strategist also provides coaching anda broad array o strategic services to help companies

drive higher perormance rom their employees.

The program has placed more than 100 key hires in

more than 40 technology companies in critical positions

such as VP o sales, Chie Financial Ofcer, specialized

technical positions and more.

IW also provides grant unding to employ interns

at early-stage technology companies and small

manuacturers in the region. Interns provide business

assistance, engineering talent or other technical

support. In 2010, IW placed 62 interns rom 22 collegesat 47 regional startups and small manuacturers.

The match is benefcial or both the companies and

the interns; 74 percent o companies in 2010 had

already hired or planned to oer their intern ull-time

employment.

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FUNDING FOR STARTUPS

Attracting Capital to the Region

National trends in venture investment in 2010 point

sharply to the need or Innovation Works’ seed

capital. Though there was a general rise nationally

in venture investments, the only stage o

development to show a decline was in seed-stage

investing. Less than eight percent o the nation’s

venture dollars went to this earliest stage o

enterprise in 2010.

The low level o private investment in startups

nationwide is the reason why Innovation Works’

seed und is so critical. Where private sector

investment is scarce at the seed-stage, Innovation

Works made 27 investments in 2010. On average,

these portolio companies are still two years away

rom receiving venture capital.

Once Innovation Works makes an investment in a new

portolio company and works with the company’s

leadership as an active mentor and advocate, IW

companies beat the odds at gaining ollow-on

unding rom private unding sources. Even

in the tough economic conditions o 2010, 25 o

our portolio companies raised more than $1 million

in additional unding. Overall, the IW portolio

companies raised $193 million in ollow-on fnancing

in 2010, a signifcant increase over the previous year.

The IW portolio is a magnet or outside capital.

Since the IW seed und began in 1999, the portolio

companies have attracted more than $1 billion in

ollow-on unding. In act, IW’s portolio companies

are so attractive to venture capitalists that 73% o all

venture capital investment in Southwestern PA tech

companies over the past three years went to

companies initially seeded by Innovation Works.

IW SEED FUND INVESTMENTS BY TECH SECTOR

53%

25%

11%

04%

07%

Information

Technology

Life Sciences

Advanced

Electronics

Advanced

Materials

Robotics

The Innovation Works portfolio mirrors the technology sector

strengths of the region’s universities, corporate community and

overall talent pool.

2010 FOLLOW-ON FUNDING FOR IW SEED

FUND COMPANIES

Venture Capital $ 42,172,000

Angel $ 64,672,485

Corporate $ 98,210,000

Federal $ 10,668,211

Commercial Lender $ 4,175,000

State and Other Economic Development $ 2,639,542

Total $ 222,537,238

2010 was a banner year for follow-on funding for the IW portfolio.

Our seed fund companies raised more follow-on capital from

private investors than ever before.

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Knopp Biosciences

Knopp Biosciences licensed a molecule discovered at the University of Virginia

in the hopes of nding a new treatment for ALS, also known as Lou Gehrig’sdisease, a universally fatal neurodegenerative disease that affects more than

25,000 people in the U.S. Innovation Works provided crucial early stage

development funding to help Knopp get its work to a point that would interest

other investors. IW also assisted Knopp in developing its investor pitch and

operational plan, which helped them raise approximately $20 million in venture

capital to develop manufacturing methods and, later, another $20 million to

fund the drug’s Phase 1 and Phase 2 trials.

The encouraging results of these trials caught the attention of Biogen Idec,

a top-ve global biotech company. In August 2010, Knopp and Biogen signed

an exclusive, worldwide license agreement worth $345 million that includes

funding of Phase 3 development, regulatory approval and commercialization,

and equity. The licensing agreement was one of the largest pharmaceutical

deals in the country in 2010.

Knopp now has a staff of 16 and is increasing its investment in research for

other treatments for ALS as well as for other neurodegenerative diseases.

This continued growth is creating more jobs in the Pittsburgh region, drawing

attention to Pittsburgh as a biopharmaceutical center and afrming the value

of state-supported biotech investments through

organizations like Innovation Works.

“In the early phases o

our development, we

had compelling science

but very little data

demonstrating that our

compound might be

eective in treating

ALS. A well-timed and

thoroughly reviewed

investment by Innovation

Works played a vital

role in providing the

resources we needed to

reduce risk and advance

our technology.”

Tom Petzinger,

Executive Vice President,

Business Development & Public Affairs

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CONCEPT-STAGE SUPPORT

Turning Ideas into Viable Companies

It takes capital and a lot o specialized resources to move an innovation

out o a university or other research setting and into a viable startup.

For concept-stage technologies and entrepreneurial startups coming out

o universities, IW’s University Innovation Grant (UIG) program helps turn

these technologies into viable companies. The UIG Fund provides grants

o up to $25,000 to universities to answer undamental questions regarding

the commercial potential o promising research, including market research,

business case validation, intellectual property reedom-to-operate analyses

and validation o technical easibility through prototype development and

applied research activities. Innovation Works also provides similar grant

support to concept-stage companies so a determination about market

potential can be made.

For concept-stage and startup companies in sotware, web, mobile and

entertainment technologies, IW oers unding and services through its

AlphaLab accelerator. AlphaLab holds two 20-week sessions per year, with

up to six companies participating in each session. During the 20 weeks,

companies receive $25,000 in seed investment and are provided with ofce

space, education sessions, hands-on business guidance and connections

to the entrepreneurial and investor community. The cycles culminate with

a Demo Day where companies launch their products to a standing-room

audience o investors and other stakeholders.

In 2010, a partnership between IW and Carnegie Mellon University was

one o six winners o the inaugural i6 Challenge held by the U.S. Economic

Development Administration. The i6 Challenge awarded unding to six

teams around the country with the most innovative ideas to drive technology

commercialization and entrepreneurship. IW’s winning submission ocuses

on creating an Agile Innovation System to accelerate the commercialization

o technologies being developed within the region’s universities and small

businesses. The Agile Innovation System integrates the technological

strengths o CMU with the company-creation expertise o IW. By combining

these strengths into a regional company development system, IW and

CMU are creating best-practices or deriving regional economic beneft

rom ederally-unded research.

ALPHALAB: ONE OF THE

NATION’S TOP ACCELERATORS

Over three years of operation, AlphaLab

has attracted more than 500 applications

from entrepreneurs in 35 states and

seven countries interested in starting

their businesses in Pittsburgh.

The program has helped mostly rst-

time entrepreneurs launch 33 new

companies, trained more than 100

entrepreneurs, hosted scores of events

that have attracted more than 1,000

participants and helped more than half

of its graduates raise follow-on funding.

A diverse group, half of AlphaLab

companies are founded by women and/

or minorities.

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Shoefitr

Matt Wilkinson, Breck Fresen and Nick End were college athletes who all knew

the pain of poor-tting footwear. While they often found better prices for shoes

online than in local stores, they were always suspect of ordering them because

of the lack of standardization of sizes and ts. And they weren’t the only ones: in

2008, one in three pairs of shoes purchased online were returned, costing retailers

over $600 million in lost sales. From this nancial pain came the idea for Shoetr,

an application that shows how a shoe will t using 3D scanning technology to

compare the internal dimensions of shoes.

The IW AlphaLab program saw the promise of the application and Shoetr received

a work space, $25,000 in investment capital and a host of educational and advisory

sessions with seasoned entrepreneurs. Since AlphaLab, Shoetr has garnered

additional IW investment and is gaining traction with customers. Online retailers

using Shoetr’s technology have reduced returns by 20 percent. The startup world

has taken notice. Shoetr won the This Week in Startups international pitch

competition, has been featured on Time.com and has been called “the company

Amazon must buy immediately” by the Startup Foundry.

“It seemed like the

timing o educational

presentations at

AlphaLab correlated

exactly to the process

we were going through.These sessions really

helped our company.”

Nick End, Co-Founder

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OPPORTUNITIES REALIZEDRichardson CoolingPackages

Dave Richardson’s employees

affectionately call him “YesterDave” —

he needs everything done yesterday.

His company is growing, and he’s doing

everything he can to keep up. Started in

2002 with two employees, Richardson

Cooling supplies radiator solutions

to an ever-growing list of off-highway

diesel applications.

A recent growing pain for the company

has been the length of time it takes to

run performance testing at specialized

laboratories in Germany. A $50,000

Innovation Works Innovation Adoption

Grant helped Richardson work with

experts at Penn State University. With

the help of IW and a wind tunnel expert

at Penn State, Richardson was able to

design and install a custom wind tunnel

with which they could test on-site the

improved efciency of new systems.

The funding support, introduction

to world-class experts and project

management assistance have helped

the company save time and money.

Richardson also beneted from IW’s

program to place and fund summerinterns. Intern Jon O’Bloc so impressed

the company that he’s now a full-time

employee.

“We can now do things

in-house that we couldn’t

do beore, do them quicklyand at a raction o the

cost. We’re developing a

world-class testing lab that

wouldn’t have happened

without IW’s support.”

Brian Meier, Engineering Manager

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9

OPPORTUNITIES REALIZED 2010 COMMUNITY REPORTPARTNERSHIPS

Partners Amplify Support for Entrepreneurs

Innovation Works’ unding and business services are

critical additions to the toolbox or startups, but it

takes more resources to nurture companies’ early

growth than any one organization can provide alone.

Fortunately, there are many partners in Southwestern

PA that assist companies’ development. The research

universities have redoubled their eorts to create more

spin-outs. The National Energy Technology Laboratory

is more assertive than ever at commercializing

breakthrough innovations. Economic development

leaders throughout the region are collaborating todevelop a skilled workorce and connect existing

businesses with startups. Angel investors have stepped

up their activity signifcantly. And grassroots

organizations are creating new opportunities or

networking and skill building.

Our region is benefting rom this high level o activity

and a maturing entrepreneurial ecosystem. More serial

entrepreneurs are starting a second or third company

and bringing their previous investors and advisors along

with them. And requently, these veterans are mentoring

new entrepreneurs in AlphaLab and portolio companies

as well as sharing best practices with one another at

IW’s CEO Summit events.

“We bootstrapped by

working out o a garage

We wouldn’t have made

it without unding rom

IW to do the initial prod

development work.”

Jeff Swoveland, President & CEO

ReGear Life Sciences

Jeff Swoveland and Maria Fattore Gill founded ReGear Life Sciences in 2006 after

purchasing some U.S. Navy technology they knew had the makings of a medical-grade

therapeutic heating device. Unfortunately, they didn’t have the capital to commercialize

it. An initial investment from Innovation Works, as well as IW’s entrepreneurial services,

helped ReGear get its product and the company off the ground.

Today, ReGear offers a full line of thermotherapy devices that can be used to

combat a variety of ailments, and the company has many large, national accounts

that are using ReGear products throughout their entire health systems. They expect

a 10-fold growth in revenues this year.

A growing startup, ReGear has a positive ripple effect on other small companies in

Southwestern Pennsylvania. ReGear collaborates with 35 to 40 people in more than

a dozen companies to help design, engineer, market, produce and distribute their

products. These partnerships help ReGear remain exible. And these small, regional

businesses, including regulatory compliance advisors, industrial engineers and user

interface designers, help maintain a robust entrepreneurial and manufacturing

environment for other innovative companies in our region to create and produce

new technologies. This collaborative approach has been working. ReGear is

ramping up production and is expecting to hire more people by the end of the year.

Their biggest challenge is to keep up with demand while maintaining their standard

of superb customer service. ReGear’s ve-year goal is for their therapeutic heating

products to be the standard of care in the industry.

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Appalachian Lighting

When James Wassel, founder and Chief Science Ofcer of Appalachian Lighting,

tells visitors not to look directly into their new 1,000 watt equivalent LED lighting

system, he’s not kidding around. But with one look at the technology behind this

lighting system, visitors immediately know the future is bright for this Ellwood

City-based company. The company started with James, a garage tinkerer, who was

sure he could build a better light. His prototype designs were high-powered, ultra

energy-efcient lighting systems and better than anything available on the market.

Using his designs, James, along with partners Dave and Rob McAnally, sought

funding for the initial research and development.

Over the next 10 years the conversion to modern lighting technology in the U.S.

will be a $250 billion industry. Appalachian Lighting has developed the technology

to be a serious force in the industry. Innovation Works’ $300,000 investment

bought them the time they required to perfect their technology, which can offer

users 70 to 90 percent energy savings.

“A bank wouldn’t make

a loan or R & D.

The unding rom IW

has provided a bridge

between developing

our product and

commercializing it.”

Dave McAnally, President & CEO

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11

ENERGY PROGRAMS

Growing Energy & Clean Tech Innovations

In 2009, Innovation Works was awarded an Alternative

Energy Development Program grant by the State o

Pennsylvania’s Department o Community and Economic

Development in order to catalyze the growth o the

energy sector startups in Southwestern Pennsylvania.

As part o this program, IW makes three kinds o

unding available:

• Translational research grants o up to $50,000 to help

commercialize the technology o university and

ederal laboratory research

• Seed unding o up to $600,000 to help fll the gap

in private sector investment at the earliest stages

o enterprise development. Seed investment is

accompanied by intense business mentoring.

• Innovation Adoption Grants o up to $100,000 to

link small manuacturers with centers o excellence

that can help develop new products and/or improved

processes.

With the Allegheny Conerence on Community

Development, IW co-ounded the Energy Alliance o

Greater Pittsburgh to position the Southwestern PA,

Eastern OH and Northern WV regions as a global leader

in energy innovation, production and manuacturing.

The Alliance is a collaborative network o the region’s

world-class research institutions, nonprofts, Fortune 500

energy companies and innovative, high-growth

technology companies.

“IW gave us the runway

we needed to develop

and test models. Now,

we’re creating not just

jobs, but green jobs.”

Stephen Moritz, President

AllFacil it ies Energy Group

State laws are requiring utilities to reduce energy usage among customers, and

Anita Brattina and Stephen Moritz, both veterans of the energy efciency industry,

saw an opportunity to help energy consumers save. The two came together to form

AllFacilities Energy Group, an energy efciency management company that focuses

on helping customers reduce their energy costs by 15 to 35 percent over a three-

year period.

All Facilities Energy Group knew their success lay in being able to create a platform

that could reach the largest number of customers as efciently as possible. In order

to create that platform, however, the company needed the time, capital and

entrepreneurial resources required to get their company off the ground. Through

Innovation Works’ Energy Program, AllFacilities Energy Group received a $300,000

investment and invaluable entrepreneurial services from the IW Executive-in-

Residence program to help pinpoint key strategic issues and implement solutions.

With about a dozen employees, AllFacilities Energy Group is growing quickly,

despite starting in the middle of a recession. Now in two states, the company is

expanding and plans to add two new regional markets each year.

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COMPANY HIGHLIGHTS

2010 Success Stories

The success o Innovation Works is measured by the success

o the companies we support. Below are just a ew o the

many achievements o our companies in 2010. We are

proud o their accomplishments which reect our companies’

growing contributions to their industries, customers and

our region’s economy.

> Accipiter — awarded 2010 Deense Appropriations

Act contract or next generation scalable

communication system

> ALung — named one o the “Top 10 new medicaltechnologies o 2010” by MedGadget

> American Road Printing — executed Tour de France

‘Chalkbot’ project or Nike

> Appalachian Lighting Systems — ranked No. 1 overall

by the U.S. Dept. o Energy as an industry leader

in three product categories

> Ciespace — closed on $4 million fnancing round led

by ARCH Ventures

> Civic Science — surpassed 50 million cataloged poll

responses, launched InSight store platorm

> ClearCount — received FDA approval and a 2010 Good

Design Award or SmartWand DTX, closed on $5 million

investment

> Cohera — received Frost & Sullivan’s “2010 North

American New Product Innovation o the Year Award”

or its surgical adhesives TissueGlu

> DeepLocal — won the Grand Prix at the 2010 Cannes Lions

International Festival o Creativity

> Knopp BioSciences — signed $345 million deal with

Biogen Idec, one o the nation’s largest pharmaceutical

deals in 2010

This map shows companies in

Southwestern PA that received IW

funding in 2010. Innovation Works’

programming has a positive impact

on jobs, companies and the economic

climate of the entire IW service area.

The companies we assist range fromtechnology‑based startups to small,

innovative manufacturers.

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13

> ModCloth — named # 2 on Inc. 500 list o astest growing

private companies in the U.S., closed on $19.8 million

round o venture capital

> Penthera — signed a global licence with the world’s leading

handset manuacturer, which could achieve hundreds o

millions o units over the next fve years

> Plextronics — received $1.6 million Deense Appropriations

Act award or exible electronic display technology

> Shoetr — won international web-based pitch contest o

This Week in Startups, voted “Most Likely to Be Acquired”

at Launch Conerence

> ShowClix — CEO Josh Dziabiak named to Inc’s “Top 30

Under 30” entrepreneurs, landed online ticketing

partnership with Groupon, signed contract with GreenTix

o Australia

> SMaSH — became ofcial mobile platorm o the

Pittsburgh Steelers

> Thermal Therapeutics — received FDA clearance, signed

commercial contract with UPMC and other top tier

hospitals

> Thorley — sold more than 1,000 units per week within

20 weeks o launching their mamaRoo product, which

is distributed in eight countries

Deeplocal

According to Nathan Martin, CEO of Deeplocal, Innovation Works’ VP of

Entrepreneurial Services once observed that the most valuable thing

Deeplocal had created was its culture. And what is that? A mix of artistic

engineers and risk-taking do-it-yourselfers who just happened to win the

2010 Cannes Lions International Festival of Creativity. Whether it’s the

Chalkbot that took positive messages from social media users and

robotically wrote them on the Tour de France course or the Write the Future

campaign that lit up Johannesburg’s skyline at the World Cup, Deeplocal’s

innovative technologies bridge the physical and digital worlds to connect

consumers with some of the world’s top brands: Toyota, National

Geographic, Nike and The Gap. “I didn’t know how to run a company,” said

Martin. “I learned a lot from my IW advisors while commercializing our rst

software product.”

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Innovation Works is Southwestern Pennsylvania’s Ben Franklin Technology

Partner, an initiative of the PA Department of Community and EconomicDevelopment (DCED), and is overseen by the Ben Franklin Technology

Development Authority. We thank the Commonwealth for its ongoing

nancial support, as well as the U.S. Department of Commerce Economic

Development Administration, the U.S. Department of Energy, the U.S. Small

Business Administration, the Claude Worthington Benedum Foundation,

the Heinz Endowments, the Hillman Foundation and the Richard King Mellon

Foundation. The success of Innovation Works and our companies also relies

on the contribution of many individuals and organizations who invest their

time, expertise and capital in the region’s startup technology companies.

2000 Technology Drive

Suite 250

Pittsburgh, PA 15219–3109

P: 412.681.1520

F: 412.681.2625

www.innovationworks.orgThis brochure was printed using earth‑friendly soy‑based ink and produced

on recycled paper with 30% post‑consumer waste.

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