Interview With Matt Harbaugh

Transitioning from investment banking to private investing, he prioritizes experienced teams, emphasizing technical capabilities. Focused on AI and autonomy, he supports high-growth start-ups in his region, providing strategic value.

How and why did you get started in private investing?

‍In the late-1990s, I was working as an investment banking analyst during the run-up to the internet bubble, when the tech entrepreneurs seemed to be having all the fun. So, in early 2000, I jumped ship to help start an e-commerce company about a year before the internet bubble burst (ouch). Fortunately, “investment-banking-plus-failed-tech-startup” proved to be useful experience, and in the midst of the post-bubble carnage I was recruited to join a seed fund that was getting started in my hometown of Pittsburgh. I worked there for about 10 years, eventually becoming the Chief Investment Officer and investing in more than 100 startups that raised more than $2 billion in follow-on funding and were acquired by some of the largest companies in tech.

After that, I did another stint on the operational side, serving as the CEO of a machine learning startup that was acquired by Facebook, and then spent several years helping a large research university transform their innovation and startup activities. By 2018, I was ready to get back into investing, so my business partner Mike Green and I raised $20 million and launched Mountain State Capital to invest in the opportunities that we were seeing here in our region. We made our first investment in early 2019 and have been investing at a healthy pace, assembling a portfolio of 22 companies in the past 2 ½ years.

What is the single most important thing you value in an investment opportunity?

The stock answer here is, “the team.” But what we mean is that we’re looking for a team that has the capabilities (technical and business), industry experience and relationships to succeed within their sector. Of course, the product also needs to be solving an important problem for their customers in a unique and defensible way, and the addressable market needs to be large and fast-growing. But the right team will already know all of that, and will have a clear strategy for rapid growth that can ultimately provide an attractive return to investors.

What are the best innovation themes that you see in the market today?

Ten years ago, the saying was that “software is eating the world,” and a few years ago the saying changed to “AI is eating software.” We definitely see that trend applied to nearly every market segment that we look at – from healthcare to mobility, enterprise software, fintech, industrial automation and others. Plus, there’s a whole world of sensors and other supporting technologies that are enabling increased levels of autonomy within these sectors.

Beyond economic return, what kind of impact do you hope to make with your portfolio?

Because we are a regionally-focused fund, we seek to support the best high-growth startups within our geography, and we believe that in doing so, we will prove that you don’t need to invest in Silicon Valley to get superior returns.

What’s the most pressing challenge or pain point in managing your day-to-day private investment activity?

Time. Like most active investors, I think we could provide more strategic value to our companies if we could streamline some of our time-consuming back-office activities and reporting (hello, Clockwork!).

What is the hardest investment lesson you’ve learned and/or the biggest investment mistake you’ve made?

As Goethe said, “dream no small dreams for they have no power to move the hearts of men.” This holds true in tech investing – don’t invest in solutions that offer incremental improvement over the status quo. They won’t be able to attract customers, partners, top talent or follow-on investment.

What are your favorite industry information sources and/or services?

Pitchbook and Crunchbase, and leveraging the professional networks of my partners and co-investors.

Please leave us a book recommendation.

Ken Follett’s historical fiction and David McCullough’s historical facts.

What’s your favorite non-business interest or hobby?

Embarrassing my teenage kids.

What’s your take on the private market overall?

Scored: 10

As long as you have a long-term horizon, it’s a 10.