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Now everything’s changed. In 2016, the San Francisco metro area was the top location for venture capital investment in the country, hauling in $23.4 billion—mor

Now everything’s changed. In 2016, the San Francisco metro area was the top location for venture capital investment in the country, hauling in $23.4 billion—more than triple the VC investment in Silicon Valley proper. Interesting numbers, what seems to be evidence of inflation chasing inflation. There's no logical justification for such a concentrated purse of investment dollars benefiting so few people. Furthermore, it would seem that it's benefiting the same people over and over ... the most obvious driver here is turnover. Probably there are a lot of PMCs in SF who absolutely bet on (hope for) the failure of most of the companies getting these investment dollars, the second they've signed their leases. Because who doesn't lose out when a startup fails and has to shutdown? The rent takers, the leaseholders prepared with aggressive litigation... everybody else loses. (As a side note, I'm pretty sure this is how the current US president's family empire was built: http://www.citypaper.com/blogs/the-news-hole/bcpnews-trump-s-son-in-law-is-a-baltimore-slumlord-and-that-s-not-even-the-worst-of-it-20170523-story.html http://www.citypaper.com/blogs/the-news-hole/bcpnews-trump-s...) In the 1980s, I was part of a team doing research into the geography of the high-tech industry. We couldn’t find a single significant high-tech company in an urban neighborhood. Instead, they were all out in the suburbs—not just Intel and Apple in Silicon Valley, or Microsoft in the Seattle suburbs, but the Route 128 beltway outside Boston, and the corporate campuses of North Carolina’s Research Triangle. Because companies in the 80's were smarter. They knew that if you wanted to build a company that can build equity, you cannot be beholden to the lease holders and the rent takers. They built in the burbs because that is where they could establish equity. Today the "barriers to entry" for owning in SF are just too high for most; the continual delusion of people who think they can build a sustainable business model while being based in SF is mind-boggling to me.

api 9y ago
"Inflation chasing inflation." Thanks for that concise summary.
ams6110 9y ago
Renting has been the standard model for suburban office parks too. Most companies do not own their own office buildings. It's more common for specialized space, e.g. manufacturing facilities but not usually done for offices.
- maxsilver 9y ago
  > Renting has been the standard model for suburban office parks too. Most companies do not own their own office buildings For small business, sure. But is that really true in SF for mid-size to major companies? I know this is a midwest-skewed perspective, but most mid-sized and large companies really do own their suburban office buildings / HQ buildings here. The only office space I know of that they rent, is the expensive monopolized spaces downtown. Which would seem to reinforce parent posters point.
  - kasey_junk 9y ago
    > most mid-sized and large companies really do own their suburban office buildings / HQ buildings here I'd love to see some statistics on that because it doesn't jive with my experience in large companies in the midwest. Ownership of land was considered a major negative when I was working in large companies but its definitely been a while and the sample size is small.
    - bluedino 9y ago
      A lot of companies (or at least the owners of the company) do own the building they are in, through a holding company of sorts that the company then rents from.
      - kasey_junk 9y ago
        Thats clearly true of smaller companies. And there are larger companies that have significant real estate holdings as that is a major component of their business (McDonalds for instance). But office/operations space being owned was generally viewed as inefficient for large companies that didn't have real estate ownership as a core function because its a pretty bad asset for a company both as a store of value and as an investment in innovation.
- shawnee_ 9y ago
  That is not how it was in the 80's, as the author of this article mentioned. High-tech companies had more intelligent strategies then; they knew that people are the real value of high-tech companies, so it doesn't matter where you put them when you put them all together and give them the tools they need to be creative and build. Why not let them build something in areas with cleaner air, less crime, and more physical room to grow? All of the companies he mentioned own the land and buildings in these 'burbs where they grew their companies. That is why Apple is building their space ship HQ today... they established equity and are now sitting on more piles of cash than they know what to do with. Their employees own their homes in the areas surrounding them, thus building affluence. In fact, it could probably be further proven that when a company does own its land and buildings, it's inherently stronger and more likely to be able to withstand upturns and downturns in economic timelines (thus giving employees even more incentive to work a fledgling company out of hard times). There's probably a neat little equation to be written to pithily show the relation. Maybe I will write something up later and post it on ecosteader... Something about the summation of rents (Sigma) paid by all team members (T[x]) in a startup as a function of runway building. To lengthen the runway, the Sigma cannot grow faster than a company's ability to acquire the top talent needed to build out that runway. There's an inflection point somewhere where you can neither grow, nor afford to attract and hire the top talent because of the wasted and sunk costs in rents and achieving "brand recognition" by being in a place like San Francisco. You can't pay the best people enough to relocate there when the probability of overall success is hinged upon getting more and more VC to sustain there.
ghaff 9y ago
Yes, in the 80s, companies built out in the suburbs/exurbs in part because it was cheaper. But they also built out there because relatively few of their potential employees had much interest in living in the city. I worked for one of those suburban computer companies in the 80s/90s and almost no one I knew commuted out from the city even though many people I worked with had equally long commutes (45 minutes to an hour) in other directions.
bluedino 9y ago
>> They built in the burbs because that is where they could establish equity. I thought they wanted to build sprawling campuses because they didn't want to feel like an old stodgy company in a tall office building downtown? Not to mention hardware companies like Intel/Apple probably couldn't get the warehousing and manufacturing footprint they need in a big city.

api 9y ago

"Inflation chasing inflation." Thanks for that concise summary.

ams6110 9y ago

Renting has been the standard model for suburban office parks too. Most companies do not own their own office buildings. It's more common for specialized space, e.g. manufacturing facilities but not usually done for offices.

maxsilver 9y ago
> Renting has been the standard model for suburban office parks too. Most companies do not own their own office buildings For small business, sure. But is that really true in SF for mid-size to major companies? I know this is a midwest-skewed perspective, but most mid-sized and large companies really do own their suburban office buildings / HQ buildings here. The only office space I know of that they rent, is the expensive monopolized spaces downtown. Which would seem to reinforce parent posters point.
- kasey_junk 9y ago
  > most mid-sized and large companies really do own their suburban office buildings / HQ buildings here I'd love to see some statistics on that because it doesn't jive with my experience in large companies in the midwest. Ownership of land was considered a major negative when I was working in large companies but its definitely been a while and the sample size is small.
  - bluedino 9y ago
    A lot of companies (or at least the owners of the company) do own the building they are in, through a holding company of sorts that the company then rents from.
    - kasey_junk 9y ago
      Thats clearly true of smaller companies. And there are larger companies that have significant real estate holdings as that is a major component of their business (McDonalds for instance). But office/operations space being owned was generally viewed as inefficient for large companies that didn't have real estate ownership as a core function because its a pretty bad asset for a company both as a store of value and as an investment in innovation.
shawnee_ 9y ago
That is not how it was in the 80's, as the author of this article mentioned. High-tech companies had more intelligent strategies then; they knew that people are the real value of high-tech companies, so it doesn't matter where you put them when you put them all together and give them the tools they need to be creative and build. Why not let them build something in areas with cleaner air, less crime, and more physical room to grow? All of the companies he mentioned own the land and buildings in these 'burbs where they grew their companies. That is why Apple is building their space ship HQ today... they established equity and are now sitting on more piles of cash than they know what to do with. Their employees own their homes in the areas surrounding them, thus building affluence. In fact, it could probably be further proven that when a company does own its land and buildings, it's inherently stronger and more likely to be able to withstand upturns and downturns in economic timelines (thus giving employees even more incentive to work a fledgling company out of hard times). There's probably a neat little equation to be written to pithily show the relation. Maybe I will write something up later and post it on ecosteader... Something about the summation of rents (Sigma) paid by all team members (T[x]) in a startup as a function of runway building. To lengthen the runway, the Sigma cannot grow faster than a company's ability to acquire the top talent needed to build out that runway. There's an inflection point somewhere where you can neither grow, nor afford to attract and hire the top talent because of the wasted and sunk costs in rents and achieving "brand recognition" by being in a place like San Francisco. You can't pay the best people enough to relocate there when the probability of overall success is hinged upon getting more and more VC to sustain there.

ghaff 9y ago

Yes, in the 80s, companies built out in the suburbs/exurbs in part because it was cheaper. But they also built out there because relatively few of their potential employees had much interest in living in the city. I worked for one of those suburban computer companies in the 80s/90s and almost no one I knew commuted out from the city even though many people I worked with had equally long commutes (45 minutes to an hour) in other directions.

bluedino 9y ago

>> They built in the burbs because that is where they could establish equity. I thought they wanted to build sprawling campuses because they didn't want to feel like an old stodgy company in a tall office building downtown? Not to mention hardware companies like Intel/Apple probably couldn't get the warehousing and manufacturing footprint they need in a big city.