13 ms·

San Francisco's VC Boom Is Over

197 points by smaili 9y ago

trevyn 9y ago
This is a spectacularly bad headline. SF VC investment had a down quarter, but continues to completely dominate nationwide, and SF is separated out from Silicon Valley, which is in a very dominant second place.
- yuhong 9y ago
  But thinking about it, the US economy is based on credit and VC is another form of credit, right?
  - JumpCrisscross 9y ago
    No, VC is equity. It may be structured as a note for tax reasons, but the conversion potential dominates the rate or credit terms. Credit is the other side of debt, which is separate from equity. (Bonus round: when the U.S. Treasury coins money, it records a claim against the Treasury's equity [1]. This is separate from the Federal Reserve's banknotes, which are a debt-like claim on the Fed. In practice, the Fed buys equity in the Treasury and then issues banknotes.) [1] https://books.google.com/books?id=HIuxDQAAQBAJ&pg=PA169&lpg=PA169&dq=treasury+coin+equity+accounting&source=bl&ots=GwD0eQtsrI&sig=Ld6-FmhVxxNiycjiYRwD-p_AM6w&hl=en&sa=X&ved=0ahUKEwiq5ITJxY7VAhWLOj4KHXUcBo4Q6AEIUDAI https://books.google.com/books?id=HIuxDQAAQBAJ&pg=PA169&lpg=...
- anigbrowl 9y ago
  The peak was in 2015 Q3. I was here for the 90s boom too, and this reversion to the mean doesn't surprise me at all. It'll be possible to ride the slope down for another year or two but thinking it's just 'a down quarter' is self-deception. Also, we're into a period of big political uncertainty, both domestically and internationally, so the next big growth area is going to be hardware with defense applications.
  - JumpCrisscross 9y ago
    Is total venture funding stalling? Or is San Francisco's relative position just shifting? I'd guess a rebalancing, away from San Francisco's toxic real estate market and political environment, is a better-substantiated narrative than that of impending doom.
rdl 9y ago
Hard not to LOL at SF and Silicon Valley being treated as separate markets for funding. For extremely local services, sure (like dry cleaning or a coffeeshop), they're different markets. Maybe even for a daily-commute job (although that's debatable). For fund raising, I don't think there's anyone unwilling to Uber/drive/BART/caltrain an extra 20 miles for $1mm to $1b in funding. You meet investors monthly at most, and more likely quarterly or annually.
- JumpCrisscross 9y ago
  They work like separate markets. I'm in the Bay Area (from New York) with 5 to 6x the frequency with which I'm in San Francisco. I believe this boundary also applies to fund flows--Pitchbook had a study (having trouble finding it right now) tracking correlations between California VC firm HQs and companies invested within the HQ zip code or a tangential zip code. San Francisco seems to have found its niche with B2C while the South Bay focussed on heavier stuff, e.g. satellites, ML, et cetera. Highly-correlated markets, but similarly distinct as New York and Long Island.
  - rdl 9y ago
    I'm just going based on seed/demo days and a smaller number of A/B rounds I've observed -- location of the investor leads between SF/SV never came up, and meetings with SV investors in SF, SF investors in SV both happened quite frequently. That's a subset (YC and other companies I know), and probably weighted on number-of-investments vs. total fund flows. This is for first/second meetings; perhaps they're more likely to actually close if local, but given that most financings happen in a small number of meetings now, that also seems unlikely. (Seed = 2-5; A = something like 5-10 total?) Maybe outside of demo days ("organic" vc or whatever you'd call it), it becomes a factor due to people walking into offices or other lead generation efforts. It's also hard to believe that late stage financings (which are larger but less frequent) care at all about location, given that so many of them are from outside the geography entirely, including international. If you have stats from something more quantified that would be interesting.
    - deleted 9y ago
jmcgough 9y ago
What's up with their graphs? The scale on the x-axis is a tick for every 5 quarters, I feel like it'd be easier to read if they'd drawn it out differently.
- cpsempek 9y ago
  That's funny, but also sloppy as you note. I would bet the default tick labeling is every 5 in whatever plotting library they use.
  - anigbrowl 9y ago
    That or auto-spacing for aesthetic considerations at the expense of semantic clarity, an all-too-common behavior.
Kinnard 9y ago
Maybe SF entrepreneurs have moved on to crowdsales/ICOs those that have been in SF in the recent spree would certainly give that graph a pop . . . "In the first half of 2017, ICOs have outstripped traditional blockchain venture capital funding, raising $327m of funding."[1] [1] https://techcrunch.com/2017/07/15/the-decentralization-of-startup-building/ https://techcrunch.com/2017/07/15/the-decentralization-of-st...
jwilliams 9y ago
"The charts tell us that San Francisco's dominance of VC investment over the past five years was unprecedented (or at least, not seen since 1995) -- and also that it is fading, fast." I think that's drawing a lot from one quarter? SF has a significant drop in %, but it's still an outsided leader (Almost 2x the next category) and has been for half a decade. "But the San Francisco VC boom is also increasingly looking like it might be something else: a bubble that has begun to deflate" Not sure invoking "bubble" is that useful in this context. That said, living in SF and working in SoMa, I do feel the pressure of infrastructure needing to catch up. I often wonder if we've just hit a physical limit with the city as it is today.
- Hydraulix989 9y ago
  The VC firms that parked in South Park in 2014 sure aren't packing up their bags.
- a13n 9y ago
  Yeah, bubbles don't deflate, they pop.
rco8786 9y ago
Oh cool, THIS article again.
Animats 9y ago
I'd like to see that graph with Uber removed. Regardless of what you think of Uber, they're the biggest consumer of venture capital of all time. That has to distort the SF numbers.
- _delirium 9y ago
  From some back-of-the-envelope subtraction, it'd make a dent in SF's boom but the overall story would be similar. The visible Q2 2016 mini-spike is all Uber: they raised $3.5b that quarter, and without that, SF would be at $20b rather than $23.5b for the quarter. But that wouldn't really change the overall shape of the graph (apart from smoothing out the spike). And Uber's impact in other quarters would be less, around $1b in the next largest.
dmode 9y ago
Wow, such a click bait headline. The chart shows San Francisco still continues the lead the country in VC investment by a mile (remarkable for a city with only 900k residents) The down quarter is simply due to lack of mega rounds like Didi's 5bn raise in China
- deleted 9y ago
  [deleted]
CalChris 9y ago
I always thought the dividing line wasn't 92 but rather the Ampex sign (which BTW could use some work). Anyways, I agree that today, this is just an artificial boundary. There's no difference vis a vis funding. Between SF and LA, yes. Between SF and PA, no.
theoracle101 9y ago
This makes sense, SF benefited a lot from the social/mobile/on demand boom. Silicon Valley is set to benefit more from the AI/ML hype as this as stronger ties to academia, and also older, more academic type engineers who don't get as much value from living in the denser city of SF (that the mobile/social/on demand startups did). Long term both cities will dominate and I don't see this as a structural change, this just seems like a shift based off of what is popular in VC funding right now.
- gumby 9y ago
  Yes, in themrealm of grand generalizations: the valley has been more tech oriented and "historically" (Las 20 years) SF more market oriented. When I moved to the Bay Area in '84 there was no tech in SF at all, and around 1999 when Hummer Winblad opened their office at South Park people would write articles about them asking why you would open an office way up there. I have to say I was shocked by these figures
- deleted 9y ago
  [deleted]
kondro 9y ago
Too much money soaked up by Uber, AirBNB, Lyft, Blue Apron, etc. Slightly off-topic… is Uber now "too big to fail" for the VCs invested in it?
- 5thaccount 9y ago
  No, it is destined to succeed (IMHO). The massive-growth-model of startups dictates "YOY, double revenue on a 50% cost increase. Rinse and repeat until profitable". As long as the funding holds out, this model is mathematically sound. Uber is well on track for this from the (admitted dodgy) numbers I have seen - those being summarized here http://money.cnn.com/2017/04/14/technology/uber-financials/index.html http://money.cnn.com/2017/04/14/technology/uber-financials/i.... Uber is (again, rumoured) to have doubled revenue in 2016, with a reported $6.5B net revenue, and a loss of $2.8B for ~$9.3B in costs. Double and 50% those numbers, and you get $13B, and about $12.2B, or ~$1B in profit.
  - Southworth 9y ago
    Agree, but it's also not purely linear predicted growth. There are sunk costs to assist greater than linear growth. Uber without drivers surely has to be a killer business. Radio controlled by GPS "ai" "driverless" taxi with near zero customer service. Throw in electric vehicles, again cost is rapidly approaching near zero. Throw in bulk purchasing, 247 service, almost zero fuel costs and you've upended logistics. It's worth a punt to see if it can happen. One mans opinion, your mileage may vary, objects in the mirror may be closer than they appear.
thedogeye 9y ago
Anyone calling a bubble in tech who isn't actively shorting SVB's stock is full of crap.
- shafyy 9y ago
  Haha I love this statement. So true.
corybrown 9y ago
Somewhat off-topic: How is Seattle not in the VC investment list?
- gumby 9y ago
  Seattle is part of an aggregated "Northwest" sector which last time I looked was a distant #6 or #7 in the rankings
  - Hydraulix989 9y ago
    I can confirm anecdotally that this ranking makes sense. When I first started my career, I lived in Seattle and really struggled meeting fellow entrepreneurs and VCs. People just seemed to live there to work for the two massive tech companies that are there, but not to start their own. When I moved to Silicon Valley a year later (having lived there ever since), the culture and affinity towards entrepreneurship was a night and day difference.
    - pault 9y ago
      Was that 10+ years ago? Seattle is still dwarfed by the Bay Area but the startup community has been growing rapidly.
      - Hydraulix989 9y ago
        No, 2013. Entrepreneurship does seem to be gaining a foothold in many other cities now though. Pittsburgh has had a particularly impressive showing.
sytelus 9y ago
So Seattle is completely missing in the first graph. Is this accurate? I would think Seattle area is definitely at #3 behind SF and SV.
- acchow 9y ago
  You would be wrong. Seattle is grouped in with "Northwest" in a distant 9th. I'm not sure what would lead you to believe that Seattle would be ahead of New York.
neelkadia 9y ago
May be because people have started investing in Digital Currencies and ICOs?
coldcode 9y ago
I'll believe it when the rents go down.

197 points by smaili 9y ago

This is a spectacularly bad headline. SF VC investment had a down quarter, but continues to completely dominate nationwide, and SF is separated out from Silicon Valley, which is in a very dominant second place.

yuhong 9y ago
But thinking about it, the US economy is based on credit and VC is another form of credit, right?
- JumpCrisscross 9y ago
  No, VC is equity. It may be structured as a note for tax reasons, but the conversion potential dominates the rate or credit terms. Credit is the other side of debt, which is separate from equity. (Bonus round: when the U.S. Treasury coins money, it records a claim against the Treasury's equity [1]. This is separate from the Federal Reserve's banknotes, which are a debt-like claim on the Fed. In practice, the Fed buys equity in the Treasury and then issues banknotes.) [1] https://books.google.com/books?id=HIuxDQAAQBAJ&pg=PA169&lpg=PA169&dq=treasury+coin+equity+accounting&source=bl&ots=GwD0eQtsrI&sig=Ld6-FmhVxxNiycjiYRwD-p_AM6w&hl=en&sa=X&ved=0ahUKEwiq5ITJxY7VAhWLOj4KHXUcBo4Q6AEIUDAI https://books.google.com/books?id=HIuxDQAAQBAJ&pg=PA169&lpg=...
anigbrowl 9y ago
The peak was in 2015 Q3. I was here for the 90s boom too, and this reversion to the mean doesn't surprise me at all. It'll be possible to ride the slope down for another year or two but thinking it's just 'a down quarter' is self-deception. Also, we're into a period of big political uncertainty, both domestically and internationally, so the next big growth area is going to be hardware with defense applications.
- JumpCrisscross 9y ago
  Is total venture funding stalling? Or is San Francisco's relative position just shifting? I'd guess a rebalancing, away from San Francisco's toxic real estate market and political environment, is a better-substantiated narrative than that of impending doom.

rdl 9y ago

Hard not to LOL at SF and Silicon Valley being treated as separate markets for funding. For extremely local services, sure (like dry cleaning or a coffeeshop), they're different markets. Maybe even for a daily-commute job (although that's debatable). For fund raising, I don't think there's anyone unwilling to Uber/drive/BART/caltrain an extra 20 miles for $1mm to $1b in funding. You meet investors monthly at most, and more likely quarterly or annually.

JumpCrisscross 9y ago
They work like separate markets. I'm in the Bay Area (from New York) with 5 to 6x the frequency with which I'm in San Francisco. I believe this boundary also applies to fund flows--Pitchbook had a study (having trouble finding it right now) tracking correlations between California VC firm HQs and companies invested within the HQ zip code or a tangential zip code. San Francisco seems to have found its niche with B2C while the South Bay focussed on heavier stuff, e.g. satellites, ML, et cetera. Highly-correlated markets, but similarly distinct as New York and Long Island.
- rdl 9y ago
  I'm just going based on seed/demo days and a smaller number of A/B rounds I've observed -- location of the investor leads between SF/SV never came up, and meetings with SV investors in SF, SF investors in SV both happened quite frequently. That's a subset (YC and other companies I know), and probably weighted on number-of-investments vs. total fund flows. This is for first/second meetings; perhaps they're more likely to actually close if local, but given that most financings happen in a small number of meetings now, that also seems unlikely. (Seed = 2-5; A = something like 5-10 total?) Maybe outside of demo days ("organic" vc or whatever you'd call it), it becomes a factor due to people walking into offices or other lead generation efforts. It's also hard to believe that late stage financings (which are larger but less frequent) care at all about location, given that so many of them are from outside the geography entirely, including international. If you have stats from something more quantified that would be interesting.
  - deleted 9y ago

jmcgough 9y ago

What's up with their graphs? The scale on the x-axis is a tick for every 5 quarters, I feel like it'd be easier to read if they'd drawn it out differently.

cpsempek 9y ago
That's funny, but also sloppy as you note. I would bet the default tick labeling is every 5 in whatever plotting library they use.
- anigbrowl 9y ago
  That or auto-spacing for aesthetic considerations at the expense of semantic clarity, an all-too-common behavior.

Kinnard 9y ago

Maybe SF entrepreneurs have moved on to crowdsales/ICOs those that have been in SF in the recent spree would certainly give that graph a pop . . . "In the first half of 2017, ICOs have outstripped traditional blockchain venture capital funding, raising $327m of funding."[1] [1] https://techcrunch.com/2017/07/15/the-decentralization-of-startup-building/ https://techcrunch.com/2017/07/15/the-decentralization-of-st...

jwilliams 9y ago

"The charts tell us that San Francisco's dominance of VC investment over the past five years was unprecedented (or at least, not seen since 1995) -- and also that it is fading, fast." I think that's drawing a lot from one quarter? SF has a significant drop in %, but it's still an outsided leader (Almost 2x the next category) and has been for half a decade. "But the San Francisco VC boom is also increasingly looking like it might be something else: a bubble that has begun to deflate" Not sure invoking "bubble" is that useful in this context. That said, living in SF and working in SoMa, I do feel the pressure of infrastructure needing to catch up. I often wonder if we've just hit a physical limit with the city as it is today.

Hydraulix989 9y ago
The VC firms that parked in South Park in 2014 sure aren't packing up their bags.
a13n 9y ago
Yeah, bubbles don't deflate, they pop.

rco8786 9y ago

Oh cool, THIS article again.

Animats 9y ago

I'd like to see that graph with Uber removed. Regardless of what you think of Uber, they're the biggest consumer of venture capital of all time. That has to distort the SF numbers.

_delirium 9y ago
From some back-of-the-envelope subtraction, it'd make a dent in SF's boom but the overall story would be similar. The visible Q2 2016 mini-spike is all Uber: they raised $3.5b that quarter, and without that, SF would be at $20b rather than $23.5b for the quarter. But that wouldn't really change the overall shape of the graph (apart from smoothing out the spike). And Uber's impact in other quarters would be less, around $1b in the next largest.

dmode 9y ago

Wow, such a click bait headline. The chart shows San Francisco still continues the lead the country in VC investment by a mile (remarkable for a city with only 900k residents) The down quarter is simply due to lack of mega rounds like Didi's 5bn raise in China

deleted 9y ago
[deleted]

CalChris 9y ago

I always thought the dividing line wasn't 92 but rather the Ampex sign (which BTW could use some work). Anyways, I agree that today, this is just an artificial boundary. There's no difference vis a vis funding. Between SF and LA, yes. Between SF and PA, no.

theoracle101 9y ago

This makes sense, SF benefited a lot from the social/mobile/on demand boom. Silicon Valley is set to benefit more from the AI/ML hype as this as stronger ties to academia, and also older, more academic type engineers who don't get as much value from living in the denser city of SF (that the mobile/social/on demand startups did). Long term both cities will dominate and I don't see this as a structural change, this just seems like a shift based off of what is popular in VC funding right now.

gumby 9y ago
Yes, in themrealm of grand generalizations: the valley has been more tech oriented and "historically" (Las 20 years) SF more market oriented. When I moved to the Bay Area in '84 there was no tech in SF at all, and around 1999 when Hummer Winblad opened their office at South Park people would write articles about them asking why you would open an office way up there. I have to say I was shocked by these figures
deleted 9y ago
[deleted]

kondro 9y ago

Too much money soaked up by Uber, AirBNB, Lyft, Blue Apron, etc. Slightly off-topic… is Uber now "too big to fail" for the VCs invested in it?

5thaccount 9y ago
No, it is destined to succeed (IMHO). The massive-growth-model of startups dictates "YOY, double revenue on a 50% cost increase. Rinse and repeat until profitable". As long as the funding holds out, this model is mathematically sound. Uber is well on track for this from the (admitted dodgy) numbers I have seen - those being summarized here http://money.cnn.com/2017/04/14/technology/uber-financials/index.html http://money.cnn.com/2017/04/14/technology/uber-financials/i.... Uber is (again, rumoured) to have doubled revenue in 2016, with a reported $6.5B net revenue, and a loss of $2.8B for ~$9.3B in costs. Double and 50% those numbers, and you get $13B, and about $12.2B, or ~$1B in profit.
- Southworth 9y ago
  Agree, but it's also not purely linear predicted growth. There are sunk costs to assist greater than linear growth. Uber without drivers surely has to be a killer business. Radio controlled by GPS "ai" "driverless" taxi with near zero customer service. Throw in electric vehicles, again cost is rapidly approaching near zero. Throw in bulk purchasing, 247 service, almost zero fuel costs and you've upended logistics. It's worth a punt to see if it can happen. One mans opinion, your mileage may vary, objects in the mirror may be closer than they appear.

thedogeye 9y ago

Anyone calling a bubble in tech who isn't actively shorting SVB's stock is full of crap.

shafyy 9y ago
Haha I love this statement. So true.

corybrown 9y ago

Somewhat off-topic: How is Seattle not in the VC investment list?

gumby 9y ago
Seattle is part of an aggregated "Northwest" sector which last time I looked was a distant #6 or #7 in the rankings
- Hydraulix989 9y ago
  I can confirm anecdotally that this ranking makes sense. When I first started my career, I lived in Seattle and really struggled meeting fellow entrepreneurs and VCs. People just seemed to live there to work for the two massive tech companies that are there, but not to start their own. When I moved to Silicon Valley a year later (having lived there ever since), the culture and affinity towards entrepreneurship was a night and day difference.
  - pault 9y ago
    Was that 10+ years ago? Seattle is still dwarfed by the Bay Area but the startup community has been growing rapidly.
    - Hydraulix989 9y ago
      No, 2013. Entrepreneurship does seem to be gaining a foothold in many other cities now though. Pittsburgh has had a particularly impressive showing.

sytelus 9y ago

So Seattle is completely missing in the first graph. Is this accurate? I would think Seattle area is definitely at #3 behind SF and SV.

acchow 9y ago
You would be wrong. Seattle is grouped in with "Northwest" in a distant 9th. I'm not sure what would lead you to believe that Seattle would be ahead of New York.

neelkadia 9y ago

May be because people have started investing in Digital Currencies and ICOs?

coldcode 9y ago

I'll believe it when the rents go down.