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Investors who are pouring money into Bay Area startups might as well be investing in Bay Area real estate, because real estate is ultimately where a lot of thei

Investors who are pouring money into Bay Area startups might as well be investing in Bay Area real estate, because real estate is ultimately where a lot of their money is going. As San Francisco startups like this one[1], which has an all-in cost of $146,000/year per employee and an insane rent to revenue ratio of 15%, demonstrate, investors are largely footing the bill for the explosion in residential and commercial real estate costs that the boom they're funding has helped create. [1] https://news.ycombinator.com/item?id=10049808 https://news.ycombinator.com/item?id=10049808

Dwolb 11y ago
Do you know who the money is going to? Is the market heavily fragmented or consolidated? It'd be interesting to know the economics for the owners and then the city as well (with taxes).
Balgair 11y ago
Bingo! This is the real reason rents are bananas. The question is: when will investors stop this? Anyone with some brains can figure out Oakland, or heck, American Canyon is just as good a place to start-up. At these rents, even Portland is looking good. The 'community' of other entrepreneurs that SF expounds as the reason to start-up there has it's price and its possible all the smart money is leaving it behind. Let the other investors pay the landlords while you sell the next big widget.
- meritt 11y ago
  Portland already has a massive tech scene and is experiencing the same (percentage-wise) rapidly-rising rents.
  - Balgair 11y ago
    Nashville then? Know of any under the radar haunts that are good?
    - meritt 11y ago
      Personally I'd suggest the cities getting Google Fiber. Having lived in Kansas City, I think it's in a ripe position to foster a solid startup community, while still having a pretty solid nightlife, great restaurants, walkable neighborhoods, a many-nonstop-destinations airport, and an incredibly low cost-of-living. Existing startup community can be found mostly via http://siliconprairienews.com/ http://siliconprairienews.com/ or incubators like http://betablox.com/ http://betablox.com/
      - Balgair 11y ago
        Duh! Man, sometimes I think I know anything ....
- rco8786 11y ago
  > when will investors stop this? when they stop making $$ from it.
  - 7Figures2Commas 11y ago
    VCs are playing with OPM, so as long as they can continue to raise new funds, they always make money. But one shouldn't assume that the angels that have flooded the market are all making real money. Even many of the minority who have seemingly enviable portfolios are primarily sitting on unrealized gains, and many of those have a very sizable portion of those unrealized gains concentrated in a very small portion of their portfolios. Additionally, there are a lot of barriers to success as an angel even if you are good at picking winners. From position sizes (small) to pro rata rights (ignored or too expensive to exercise), a lot of things can conspire against optimal returns even when you invest in good companies. My sense is that a good deal of angel capital in the Bay Area, particularly that which is frequently invested in party rounds for the most attractive early-stage startups, is recycled from folks who have done well at a previous company (or two or three) and are having fun with their monopoly money.
    - Balgair 11y ago
      This is a great comment, thank you. I would have naively just thought of IPO and other stock mechanics as the 'big idea' many investors are running towards. That there is a churn of the money was unknown to me. However, these rents are siphoning off that churn at a much higher than normal rate. Additionally, it is changing the culture of the Bay, making future start-ups less attractive there.
    - rco8786 11y ago
      Yep, very familiar with how VCs essentially move money around from place to place waiting for opportunities to turn unrealized gains into realized. But my original point stands. Investors are out to do one thing: make money. As soon as whatever they're doing stops making them money(on paper or otherwise) then they'll stop doing it.
  - Balgair 11y ago

Dwolb 11y ago

Do you know who the money is going to? Is the market heavily fragmented or consolidated? It'd be interesting to know the economics for the owners and then the city as well (with taxes).

Balgair 11y ago

Bingo! This is the real reason rents are bananas. The question is: when will investors stop this? Anyone with some brains can figure out Oakland, or heck, American Canyon is just as good a place to start-up. At these rents, even Portland is looking good. The 'community' of other entrepreneurs that SF expounds as the reason to start-up there has it's price and its possible all the smart money is leaving it behind. Let the other investors pay the landlords while you sell the next big widget.

meritt 11y ago
Portland already has a massive tech scene and is experiencing the same (percentage-wise) rapidly-rising rents.
- Balgair 11y ago
  Nashville then? Know of any under the radar haunts that are good?
  - meritt 11y ago
    Personally I'd suggest the cities getting Google Fiber. Having lived in Kansas City, I think it's in a ripe position to foster a solid startup community, while still having a pretty solid nightlife, great restaurants, walkable neighborhoods, a many-nonstop-destinations airport, and an incredibly low cost-of-living. Existing startup community can be found mostly via http://siliconprairienews.com/ http://siliconprairienews.com/ or incubators like http://betablox.com/ http://betablox.com/
    - Balgair 11y ago
      Duh! Man, sometimes I think I know anything ....
rco8786 11y ago
> when will investors stop this? when they stop making $$ from it.
- 7Figures2Commas 11y ago
  VCs are playing with OPM, so as long as they can continue to raise new funds, they always make money. But one shouldn't assume that the angels that have flooded the market are all making real money. Even many of the minority who have seemingly enviable portfolios are primarily sitting on unrealized gains, and many of those have a very sizable portion of those unrealized gains concentrated in a very small portion of their portfolios. Additionally, there are a lot of barriers to success as an angel even if you are good at picking winners. From position sizes (small) to pro rata rights (ignored or too expensive to exercise), a lot of things can conspire against optimal returns even when you invest in good companies. My sense is that a good deal of angel capital in the Bay Area, particularly that which is frequently invested in party rounds for the most attractive early-stage startups, is recycled from folks who have done well at a previous company (or two or three) and are having fun with their monopoly money.
  - Balgair 11y ago
    This is a great comment, thank you. I would have naively just thought of IPO and other stock mechanics as the 'big idea' many investors are running towards. That there is a churn of the money was unknown to me. However, these rents are siphoning off that churn at a much higher than normal rate. Additionally, it is changing the culture of the Bay, making future start-ups less attractive there.
  - rco8786 11y ago
    Yep, very familiar with how VCs essentially move money around from place to place waiting for opportunities to turn unrealized gains into realized. But my original point stands. Investors are out to do one thing: make money. As soon as whatever they're doing stops making them money(on paper or otherwise) then they'll stop doing it.
- Balgair 11y ago