29 ms·

The Decline of Investment in San Francisco Startups

255 points by kawera 9y ago

parandeh 9y ago
Another explanation could be that real estate costs is driving founders and startups out of the city. If most of the founders don't live in SF, they're more likely to open offices in the valley. Heavy traffic to/from SF doesn't help with the situation.
- flyingprogram 9y ago
  But that hypothesis doesn't let the author post a click-bait title/article!
- ben_jones 9y ago
  Or the hour+ commute. The opportunity cost of not only that much time 5 days a week, but the tiredness, delays, and other hassles that are involved, are just something you avoid if you have the leverage.
- deleted 9y ago
  [deleted]
- ThrustVectoring 9y ago
  Or the costs are driving potential founders out of founding. If you double your monthly costs, you double the amount you need to save in order to have enough runway to "two guys in a basement" your way into enough traction for funding. Plus you need more funding for getting enough roadway for employees and an actual business. Maybe I'm far more mobile than others, but I'm really surprised that there isn't a wave of people trying to poach childless engineers into moving 1-4 hours out of SF to set up shop. Reno, in particular - it's 4 hours out, has actually reasonable real estate prices, and no state income tax. Maybe getting funding requires the VCs to make the trip to your office, and you're not able to just have your leadership make the trip out to SF?
  - dmode 9y ago
    If that was viable, people would move to Tracy or Stockton or Davis which are nearer to SF than Reno and cheaper. That's not how things work though.
    - epicureanideal 9y ago
      But why isn't it viable? I don't understand.
      - goseeastarwar 9y ago
        VC's like their investments nearby and very few people would choose to live in those cities, in particular childless engineers. It's the same reason Twitter, even though they threatened to move their office from SF to Brisbane several years ago, absolutely would never have followed through with it. Too many of their employees would have quit immediately, and we're talking about a town that's 20 minutes away, let alone 2 hours.
        dmode 9y ago
        Too add to that, repeat founders often live in the area where they start their companies. Also, if you want to poach away a top talent in a niche area, chances are they are unlikely to move far from where they are currently leaving. Example, easier for Tesla to poach from Apple vs. GM to poach from Apple
  - didibus 9y ago
    I find normally its the childless engineers who don't want to move out the city, because that's where the fun is at. I think that's why this isn't happening.
  - vedanta 9y ago
    Nevada is too different, the combination of non-enforceable non-competes and the nice weather can be duplicated elsewhere in CA easiest, and this is happening. If your state has big corporate HQs forget about getting non-enforceable non-competes.
- dmode 9y ago
  The article already addressed this. Real estate has no impact, since Palo Alto, which is equally expensive, has seen dramatic increase in funding. The trend is really random. Tomorrow Uber will raise $5bn and will all come up with a different explanation
  - skrebbel 9y ago
    I'm no local, but isn't it much easier to get to Palo Alto from places with lower rent than to SF?
    - pinot 9y ago
      Not really- you have to drive or live along a single train line (with no places with rent significantly lower than SF, really)
ultimoo 9y ago
TL;DR: The investments are moving from the city proper to South Bay over the last 2-3 years. Mostly a good writeup backed by sufficient data points. If I may anecdotally share my observations, of the handful of people that I personally know who have founded Startups in 2016 and 2017 -- all of them are in their late 30s, and have dependents (spouse, children, pets). All of them currently live on the peninsula or in the south bay, even if at some point in the past most of them lived in the city. It is increasingly getting harder and harder to justify the costs of living in the city in view of the small livable space that your apartment gets you. Add to that a lousy school system, a never-ending homeless problem, and an incompetent MTA. Living in Palo Alto, Menlo Park, or Mtv. mitigates most of these flaws while retaining all the upside of being in the bay area.
- deleted 9y ago
  [deleted]
- santaclaus 9y ago
  > It is increasingly getting harder and harder to justify the costs of living in the city Palo Alto, Menlo Park, or Mtv are hella expensive too, and you need a car.
- colbyh 9y ago
  Those places are all just as, if not more, expensive than SF and come with their own challenges as well. The school systems in the peninsula are fantastic though, and for most families that trade-off alone is probably worth it.
  - NotQuantum 9y ago
    Menlo Park and Palo Alto, sure. But MTV, Sunnyvale and San Jose are still pretty cheap. (relatively)
    - bitcrusher 9y ago
      Excuse me, but I believe you are very much mistaken. Those places are as much or MORE expensive than most places on the peninsula... In fact, the reality is that prices have almost normalized across all of the cities from SF to Los Gatos. It is becoming increasingly hostile to any new arrivals as the barrier of entry is skyrocketing to the point of being out of reach even for "rich" people.
kevinburke 9y ago
Both top-level comments have mentioned housing prices. I grew up in the Bay Area and want to stay here and I am trying to work to change policy to help build more housing. Unfortunately due to law, bad policy and NIMBY's the market is not going to solve this problem on its own, without political change rents and housing prices will keep increasing. Here are some political actions you can take to help: - call your State Assemblymember about SB 35, which would streamline (read: Force cities to approve) the production of housing near transit. Up for a vote very soon - call your State Assemblymember and ask them to vote Yes on AB 71, which would end the state tax deduction on second/third homes and use the money to build affordable housing. - contact the Brisbane City Council and ask them to build housing on the Baylands, near Bayshore Caltrain. The developer wants to build 4,400 units and the city wants to build 0. Baylands@ci.brisbane.ca.us - Ask for more housing in the Central SOMA plan. BART and Caltrain are packed every commute hour and they want to add 50,000 new jobs and only 7,500 new housing units. Best is to show up for the hearings, failing that, email the plan director, steve.wertheim@sfgov.org. http://sf-planning.org/central-soma-plan#contacts http://sf-planning.org/central-soma-plan#contacts
- m-j-fox 9y ago
  The one that confuses me is AB 71. Aren't 2nd and 3rd homes basically rental stock? Owned by individuals and not the Irving Company if you care about that.
  - kevinburke 9y ago
    A house in Tahoe you use 3 weeks a year is not really rental stock, and it's not clear what benefit the public gets from your 2nd home that would justify a tax subsidy
    - epistasis 9y ago
      With VRBO and other sharing apps, yes that house in Tahoe is rental stock.
      - 9y ago
tanilama 9y ago
I say this is a good thing. Bubble benefits no one.
deleted 9y ago
[deleted]
fblp 9y ago
I wonder if Tunguz looked at B2B vs B2C trends. It seems that there's lots of B2C apps in SF that are crashing, yet many of the startups in outside SF in the valley are B2B.
- hkmurakami 9y ago
  Yes it's in the article.
tshiran 9y ago
We considered starting a company in SF a couple years ago. I'm glad that we decided to instead start it in Mountain View (http://www.dremio.com http://www.dremio.com). We're able to attract very talented people from San Jose, Milpitas, Redwood City, etc. where rents are a bit more reasonable.
rl3 9y ago
What are the best alternatives to the Bay Area? Off the top of my head I'm thinking Portland, Seattle, Boston, Austin and Chicago in no particular order. The annoying part is that there's so much talent concentrated in the Bay Area that it makes going elsewhere very difficult, especially if you have specific senior talent in mind that have already established their lives there. Hopefully telepresence tech gets so good that one day it won't matter.
- timothycrosley 9y ago
  Depends on what viewpoint your coming from, but from that of a software developer there are many alternatives that have been much better than San Francisco for years, especially Seattle https://www.codementor.io/blog/best-cities-software-engineer-earnings-271vpf599k https://www.codementor.io/blog/best-cities-software-engineer..., which is also set up for future success as it keeps building http://www.spur.org/news/2017-06-15/keep-building-oakland http://www.spur.org/news/2017-06-15/keep-building-oakland. Honestly, I think what we are seeing, is a shift from technology companies, to technology simply being in everything, reducing the usage of such an odd concept as "Silicon Valley". For example: the biggest "Technology" company recently in Seattle is Amazon, a store first - that leverages technoloy. Even the recent things coming out of Silicon Valley have been similar (uber - taxi company that uses technology for efficient trip planning with customers, all the food delivery startups, etc). As we move more and more in this direction, where the startups are X (with technology!) it makes sense for the product to be developed where X is best instead of where technology is best.
  - sulam 9y ago
    There simply aren't enough engineers in Seattle, especially what I will call "startup" engineers. You're competing against Amazon, Google, and Microsoft (Facebook to a lesser degree) and the engineers in Seattle tend to prefer these established companies over startups. A large chunk of the Bay Area engineering community won't work at Amazon (Facebook and Google are another story) and came there to do startups. It's a bit of a self-fulfilling prophecy of course. I worked at Twitter when we opened our Seattle office and we were trying to hire maybe 50 engineers the first year. This was before the IPO, trying to hire the ideal skillset for the area (backend) and it was still hard. Meanwhile we had more than 50 offers a week in SF. The employee base is just so much bigger, it's no wonder companies feel like they have to have offices here.
timothycrosley 9y ago
For people looking for an escape from San Francisco: come join us in Seattle! https://www.codementor.io/blog/best-cities-software-engineer-earnings-271vpf599k https://www.codementor.io/blog/best-cities-software-engineer... it's great here. And we have been building several times the housing to keep up with demand: http://www.spur.org/news/2017-06-15/keep-building-oakland http://www.spur.org/news/2017-06-15/keep-building-oakland.
- nojvek 9y ago
  Seattle housing market is still crazy. Not a lot for sale. Plus it rains for 6 months and miserable. If you like that then it's great. I love it in Seattle. You don't get as many startups here though. It's just the big companies doing business as usual.
  - timothycrosley 9y ago
    Not as many as San Francisco, but there's a ton of startups here and the city has a solid startup culture: https://www.geekwire.com/startup-list/ https://www.geekwire.com/startup-list/. Some notible ones include Zillow, Redfin, Rover, and OfferUp. I agree houses are getting to be too expensive for most, but for those in the rental market things are increasing, but the Outlook looks good as soon many units are getting built.
  - philipodonnell 9y ago
    9 months more like it! I moved back to Florida for that sweet, sweet vitamin D.
jpao79 9y ago
A few questions for HN: 1.) Do you think San Jose will ever become "a thing" for tech startups? Is there enough to do there? There is a WeWork and San Pedro Square in downtown San Jose. Or is a waterfront view what make San Francisco, Seattle and Portland what they are? Also, if you did want to live in San Jose there where are the up and coming places for HNers to live? 2.) Cupertino used to be cherry orchards and suburbs. Will Morgan Hill (strawberries) or Brentwood (cherries) ever become "a thing"? 3.) Is it bad if housing prices are high on the West and East Coasts? If housing was unconstrained in the Bay Area and at cost parity with the MidWest, wouldn't that remove any reason to live in the MidWest?
- cbcoutinho 9y ago
  I grew up in SJ. I don't think it will ever be a 'thing' if you're young and want things to do in a vibrant city, even if it does have Pedro square, Santana Row, close access to Santa Cruz and SF, etc. That being said, if you're looking for a quiet place to live with your family then it's a great city. IBM Research has a couple campuses in between SJ and Morgan Hill - probably interesting places to work.
- nemonemo 9y ago
  1) I believe so. Once Google goes into Diridon, enough young people would gather around the station, businesses would also gather, higher-density buildings will go up, start ups will start to gather as well. 2) Cupertino is close enough to Stanford and Moffett, which were the two centers of initial Silicon Valley. Morgan Hill and Brentwood are quite far. Still, its population and real estate markets will grow. 3) High price sometimes attracts people by itself.
  - thatfrenchguy 9y ago
    Cupertino is so ridiculously boring that no one wants to live there though.
    - stevenwoo 9y ago
      Boring is of course personal opinion ( the prominent Taco Bell behind the welcome to Cupertino sign on Stevens Creek ...) but the latter part of your statement is not supported by local housing/rental price/availability.
readhn 9y ago
It's a self correcting cycle. Money pours in - salaries and living expenses go up - real estate goes up. Money flows out - everything shrinks. What goes up must come down. Everything is cyclical. SF economy is no exception.
- nck4222 9y ago
  Uhh, ever hear about the depression, dot com bubble, great recession/housing market crash? You're basically advocating "Let's do nothing, the market always corrects itself." Which is true to an extent, but in the extreme it also ruins lives, the country, and itself left unchecked during this process. This is why a completely unregulated market is a horrible idea. Government needs to step in at certain times. This might not be as expansive as those (localized to the SF area), but it's pretty clear government intervention can be helpful when a market doesn't correct itself fast enough and the majority are screwed in favor of the few (or none).
  - wu-ikkyu 9y ago
    Isn't government intervention the reason why real estate prices are so high there in the first place?
    - astrange 9y ago
      You’d need government intervention to keep prices low, too. What if there‘s no zoning, but also no support to build sewer systems and transit? What if the NIMBYs start practicing arson? Libertarianism won’t get you anywhere with social problems. (This is besides the basic issue where loans mean prices don’t matter, so they’re free to go up…)
  - readhn 9y ago
    >> Uhh, ever hear about the depression, dot com bubble, great recession/housing market crash? All of these are cyclical repeating events. Look at the historical data. This is how humans function. Trying to control cycles is pointless and i would say impossible. You just have to be mindful of them and may be "pad" yourself when you reach the extremes. Markets are pretty efficient at deciding what things are worth at the current point in time, trying to regulate that is again pointless. The issue we often have is collusion of interests (and government is full of that). SF will resolve itself. Just let the market do its thing and this too shall pass..
hjorthjort 9y ago
I'm surprised no-one is calling "regression towards the mean" on this.
peter303 9y ago
Too many infantile products. Basically apps telling you what earlier generation knew through common sense.
richardknop 9y ago
I think remote working really is a part of solution to this. Perhaps augmented/virtual reality could be a good solution for some sort of application to have remote meetings with colleagues with headset in a virtual room/scenery and collaborate like that. It could be used for daily standups and other meetings and it would remove the social isolation problem of remote working and make it much more feasible. Is any AR/VR company working on anything like that?
- _pmf_ 9y ago
  > Is any AR/VR company working on anything like that? Probably every AR/VR company not working on games.
  - TrickyRick 9y ago
    Which ones would that be? Of the top of my head I only know of the Hololens being developed mostly for professional use, any other AR/VR tech is all gaming, gaming, gaming.
    - _pmf_ 9y ago
      > Which ones would that be? Oh, I did not imply that there are any, just that the only largish applications besides games and "experiences" are probably fancy vanity applications for businesses.
      - thearn4 9y ago
        It seems like a smart space to try to develop something for. On the business side though, most of what I've seen are flashy and would probably get used less than a dozen times before being ditched for being to cumbersome.
        ghaff 9y ago
        Actually just had a meeting with a company that develops VR experiences for events/product demos/etc. I'm still on the fence whether it's useful or a gimmick though.
sulam 9y ago
The smart bet IMO is out of the US altogether. Eastern Europe (and Moscow/St Petersburg), China, Brazil, Argentina.
- aaron-lebo 9y ago
  There are massive swaths of the US with much cheaper living than SF and better infrastructure, markets, and basic rights than Russia, China, or Brazil.
  - fooker 9y ago
    And very few people. So, this works only if you develop apps or a cloud service.
    - sulam 9y ago
      Even then you need to be able to hire engineers. It's no accident that the companies located in that vast swathe hire a lot of remote employees.
      - amyjess 9y ago
        Alternately, you can do what TI did and grow your own. When Texas Instruments decided to establish their headquarters in Richardson, TX, they faced a shortage of talent as Richardson hadn't really been built out yet. So the founders of TI (Cecil H. Green, Eugene McDermott, and J. Erik Jonsson) started their own university with an explicit focus on STEM subjects. Eventually, they gave control of the university to the state, and it became the University of Texas at Dallas. It's now the most prominent STEM university in the southwest, and TI is still closely affiliated with it (disclaimer: it's also my alma mater).
        sulam 9y ago
        That would be awesome! There's so much of middle America that would probably retrain in a red hot second if they knew there was a job at the end of the path.
_pmf_ 9y ago
I don't see how more vetted, responsible investing hurts anybody.
mathattack 9y ago
People complaining about real estate prices miss the point, or didn't read the article. Non-SF Silicon Valley firms got more funding, ruling out cost of living as the reason.
nailer 9y ago
This is excellent opportunity for anyone who wants investment from west coast VCs but doesn't want to deal with San Francisco, Oakland or the bay area. San Francisco frequently has human feces on the sidewalk in many areas right near the city center, high housing prices and a combination of startup bros and angry hard left outrage culture folk. The bay area is a cultureless void and Oakland is still dangerous. Better Portland, LA or (from what I hear) Boulder.
- javiramos 9y ago
  "San Francisco frequently has human feces on the sidewalk" This did it for me. I stepped on a big mound of human feces when walking along Market Street on my way to a job interview. The dichotomy of SF was perfectly portrayed in that 15 minute walk: expensive cars driving on Market street (most likely driven by a tech person) while homeless people were openly shooting up and defecating on the street.
  - mahyarm 9y ago
    Other cities just arrest / export those people, in SF they do not.
- golemotron 9y ago
  SF culture has descended into purity spirals [1]. The last time I was there I was shocked by the amount of signaling that was happening. [1] - http://www.redgulls.com/2016/08/17/the-purity-spiral/ http://www.redgulls.com/2016/08/17/the-purity-spiral/
  - amyjess 9y ago
    This is one of the reasons I'm considering a move to SoCal, but I will never, ever consider moving to NorCal. One thing I've heard is that SoCal is full of superficial, shallow, materialistic people, and that people in NorCal are expected to have a cause. It doesn't have to be a left-wing cause, either; look at Curtis Yarvin, for example. I'm somewhat SJW myself, but really I'm a consumerist at heart. I just want to live in a cookie-cutter suburb, eat tasty food, watch TV shows I enjoy, hack on code as a hobby, etc. I would be very uncomfortable in NorCal being surrounded by militant vegans and Bernie Bros on the left and dark enlightenment people and physical-removal ancaps on the right. On the other hand, SoCal sounds pretty close to paradise to me (it's actually between SoCal and Vegas for me... I can't decide which one I'd rather move to).
fragmede 9y ago
Complaining about housing prices and city living are easy targets; there's a secondary question - what are SF founder pitching VC's? and how does that compare to what founders are pitching down in the valley? Is everyone in SF pitching yet another subscription box food delivery services? Drones? VR? Also keep in mind this is VC investment money - it comes with a price, and in the graph of rounds, by region, series A rounds are down from a peak in 2014, but SF and SV are fairly close - it's the other rounds where SF has really fallen. An alternate explanation (based on the very limited data presented here) could be that SF companies are to keep going without accepting VC funding; either with large cash infusions from the blue chips, or by having enough customers give them enough money.
babesh 9y ago
Different sectors are hot now and different sectors are concentrated in different areas. It’s not consumer social that is hot. Nor is it enterprise. It appears to be silicon. That is South Bay.
lisa_henderson 9y ago
This article misses what seems like the most obvious explanation, which is that the USA economy has recovered from the Great Recession. We had a stretch from 2009 to 2014 when it was difficult to find any normal investment that paid better than 1% or 2% a year. Seeking yield, money poured into startups, because they seemed like the only thing that might be able to offer better than 20% returns (assuming a basket of startups, most of which fail and some of which return 100x). Since 2015, the economy has returned to almost normal, so the need to invest in software startups is reduced. And this would most likely effect San Francisco the most, since it had received the most investment during the era 2009-2014. Now that the economy is almost back to normal, there are a lot of areas in the economy that offer possible returns. The need to focus on software startups is diminished.
dsfyu404ed 9y ago
History repeats itself. The coal industry extracted resources from the land in West Virginia until it was forced by resource depletion and regulation to scale back. The tech industry is just extracting wealth from society instead of the land and what's left is scarred, poisoned and will go on to cause problems downriver. The SF is starting to look less attractive and operations are slowly spinning up as needed at adjacent mining sites. Eventually there will be noting left to mine and the mining towns will be destitute and states downstream (Like Colorado and Oregon for example) will have polluted water to deal with. Internalize the profits. Externalize everything else. It never changes.
- ghostbrainalpha 9y ago
  Dude... you might have a good point in there somewhere. But that analogy is making me hate you.
mmagin 9y ago
IMHO, you only get lots of startups in the city at the rising part of the cycle. When everyone's so desperate for talent they'll do anything to woo young engineers. There are plenty of very good experienced engineers that have no tolerance for commuting up to SF every day in this traffic. And also, most of the VC firms are in the suburbs too :)
dwg 9y ago
Perhaps ICO investments are not yet large enough to matter, but one would wonder if that is drawing away some of the money that would have otherwise been invested in the more traditional way measured by the article.
kilroy123 9y ago
Why doesn't a developer build a mile high building there? Maybe it could even be built in the ocean like this: http://www.businessinsider.com/tokyo-mile-high-skyscraper-would-be-worlds-first-2016-2/ http://www.businessinsider.com/tokyo-mile-high-skyscraper-wo...
- csomar 9y ago
  For what purpose? If you convert these brownstone houses in San Fransisco that hosts only 3-4 families to small condominiums that have 10-12 levels, you almost solved the problem.* * The condominiums should have 2 underground floor of parking and preferably there should be 1 or 2 metro lines to handle the new population.
MarkSanghee 9y ago
http://tomtunguz.com/cost-challenges-facing-the-valley/ http://tomtunguz.com/cost-challenges-facing-the-valley/ New article uploaded and it seems we are not only a startup benefit from 'Labor Arbitrage' by having our development team back in South Korea

255 points by kawera 9y ago

Another explanation could be that real estate costs is driving founders and startups out of the city. If most of the founders don't live in SF, they're more likely to open offices in the valley. Heavy traffic to/from SF doesn't help with the situation.

flyingprogram 9y ago
But that hypothesis doesn't let the author post a click-bait title/article!
ben_jones 9y ago
Or the hour+ commute. The opportunity cost of not only that much time 5 days a week, but the tiredness, delays, and other hassles that are involved, are just something you avoid if you have the leverage.
deleted 9y ago
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ThrustVectoring 9y ago
Or the costs are driving potential founders out of founding. If you double your monthly costs, you double the amount you need to save in order to have enough runway to "two guys in a basement" your way into enough traction for funding. Plus you need more funding for getting enough roadway for employees and an actual business. Maybe I'm far more mobile than others, but I'm really surprised that there isn't a wave of people trying to poach childless engineers into moving 1-4 hours out of SF to set up shop. Reno, in particular - it's 4 hours out, has actually reasonable real estate prices, and no state income tax. Maybe getting funding requires the VCs to make the trip to your office, and you're not able to just have your leadership make the trip out to SF?
- dmode 9y ago
  If that was viable, people would move to Tracy or Stockton or Davis which are nearer to SF than Reno and cheaper. That's not how things work though.
  - epicureanideal 9y ago
    But why isn't it viable? I don't understand.
    - goseeastarwar 9y ago
      VC's like their investments nearby and very few people would choose to live in those cities, in particular childless engineers. It's the same reason Twitter, even though they threatened to move their office from SF to Brisbane several years ago, absolutely would never have followed through with it. Too many of their employees would have quit immediately, and we're talking about a town that's 20 minutes away, let alone 2 hours.
      - dmode 9y ago
        Too add to that, repeat founders often live in the area where they start their companies. Also, if you want to poach away a top talent in a niche area, chances are they are unlikely to move far from where they are currently leaving. Example, easier for Tesla to poach from Apple vs. GM to poach from Apple
- didibus 9y ago
  I find normally its the childless engineers who don't want to move out the city, because that's where the fun is at. I think that's why this isn't happening.
- vedanta 9y ago
  Nevada is too different, the combination of non-enforceable non-competes and the nice weather can be duplicated elsewhere in CA easiest, and this is happening. If your state has big corporate HQs forget about getting non-enforceable non-competes.
dmode 9y ago
The article already addressed this. Real estate has no impact, since Palo Alto, which is equally expensive, has seen dramatic increase in funding. The trend is really random. Tomorrow Uber will raise $5bn and will all come up with a different explanation
- skrebbel 9y ago
  I'm no local, but isn't it much easier to get to Palo Alto from places with lower rent than to SF?
  - pinot 9y ago
    Not really- you have to drive or live along a single train line (with no places with rent significantly lower than SF, really)

ultimoo 9y ago

TL;DR: The investments are moving from the city proper to South Bay over the last 2-3 years. Mostly a good writeup backed by sufficient data points. If I may anecdotally share my observations, of the handful of people that I personally know who have founded Startups in 2016 and 2017 -- all of them are in their late 30s, and have dependents (spouse, children, pets). All of them currently live on the peninsula or in the south bay, even if at some point in the past most of them lived in the city. It is increasingly getting harder and harder to justify the costs of living in the city in view of the small livable space that your apartment gets you. Add to that a lousy school system, a never-ending homeless problem, and an incompetent MTA. Living in Palo Alto, Menlo Park, or Mtv. mitigates most of these flaws while retaining all the upside of being in the bay area.

deleted 9y ago
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santaclaus 9y ago
> It is increasingly getting harder and harder to justify the costs of living in the city Palo Alto, Menlo Park, or Mtv are hella expensive too, and you need a car.
colbyh 9y ago
Those places are all just as, if not more, expensive than SF and come with their own challenges as well. The school systems in the peninsula are fantastic though, and for most families that trade-off alone is probably worth it.
- NotQuantum 9y ago
  Menlo Park and Palo Alto, sure. But MTV, Sunnyvale and San Jose are still pretty cheap. (relatively)
  - bitcrusher 9y ago
    Excuse me, but I believe you are very much mistaken. Those places are as much or MORE expensive than most places on the peninsula... In fact, the reality is that prices have almost normalized across all of the cities from SF to Los Gatos. It is becoming increasingly hostile to any new arrivals as the barrier of entry is skyrocketing to the point of being out of reach even for "rich" people.

kevinburke 9y ago

Both top-level comments have mentioned housing prices. I grew up in the Bay Area and want to stay here and I am trying to work to change policy to help build more housing. Unfortunately due to law, bad policy and NIMBY's the market is not going to solve this problem on its own, without political change rents and housing prices will keep increasing. Here are some political actions you can take to help: - call your State Assemblymember about SB 35, which would streamline (read: Force cities to approve) the production of housing near transit. Up for a vote very soon - call your State Assemblymember and ask them to vote Yes on AB 71, which would end the state tax deduction on second/third homes and use the money to build affordable housing. - contact the Brisbane City Council and ask them to build housing on the Baylands, near Bayshore Caltrain. The developer wants to build 4,400 units and the city wants to build 0. Baylands@ci.brisbane.ca.us - Ask for more housing in the Central SOMA plan. BART and Caltrain are packed every commute hour and they want to add 50,000 new jobs and only 7,500 new housing units. Best is to show up for the hearings, failing that, email the plan director, steve.wertheim@sfgov.org. http://sf-planning.org/central-soma-plan#contacts http://sf-planning.org/central-soma-plan#contacts

m-j-fox 9y ago
The one that confuses me is AB 71. Aren't 2nd and 3rd homes basically rental stock? Owned by individuals and not the Irving Company if you care about that.
- kevinburke 9y ago
  A house in Tahoe you use 3 weeks a year is not really rental stock, and it's not clear what benefit the public gets from your 2nd home that would justify a tax subsidy
  - epistasis 9y ago
    With VRBO and other sharing apps, yes that house in Tahoe is rental stock.
    - 9y ago

tanilama 9y ago

I say this is a good thing. Bubble benefits no one.

deleted 9y ago

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fblp 9y ago

I wonder if Tunguz looked at B2B vs B2C trends. It seems that there's lots of B2C apps in SF that are crashing, yet many of the startups in outside SF in the valley are B2B.

hkmurakami 9y ago
Yes it's in the article.

tshiran 9y ago

We considered starting a company in SF a couple years ago. I'm glad that we decided to instead start it in Mountain View (http://www.dremio.com http://www.dremio.com). We're able to attract very talented people from San Jose, Milpitas, Redwood City, etc. where rents are a bit more reasonable.

rl3 9y ago

What are the best alternatives to the Bay Area? Off the top of my head I'm thinking Portland, Seattle, Boston, Austin and Chicago in no particular order. The annoying part is that there's so much talent concentrated in the Bay Area that it makes going elsewhere very difficult, especially if you have specific senior talent in mind that have already established their lives there. Hopefully telepresence tech gets so good that one day it won't matter.

timothycrosley 9y ago
Depends on what viewpoint your coming from, but from that of a software developer there are many alternatives that have been much better than San Francisco for years, especially Seattle https://www.codementor.io/blog/best-cities-software-engineer-earnings-271vpf599k https://www.codementor.io/blog/best-cities-software-engineer..., which is also set up for future success as it keeps building http://www.spur.org/news/2017-06-15/keep-building-oakland http://www.spur.org/news/2017-06-15/keep-building-oakland. Honestly, I think what we are seeing, is a shift from technology companies, to technology simply being in everything, reducing the usage of such an odd concept as "Silicon Valley". For example: the biggest "Technology" company recently in Seattle is Amazon, a store first - that leverages technoloy. Even the recent things coming out of Silicon Valley have been similar (uber - taxi company that uses technology for efficient trip planning with customers, all the food delivery startups, etc). As we move more and more in this direction, where the startups are X (with technology!) it makes sense for the product to be developed where X is best instead of where technology is best.
- sulam 9y ago
  There simply aren't enough engineers in Seattle, especially what I will call "startup" engineers. You're competing against Amazon, Google, and Microsoft (Facebook to a lesser degree) and the engineers in Seattle tend to prefer these established companies over startups. A large chunk of the Bay Area engineering community won't work at Amazon (Facebook and Google are another story) and came there to do startups. It's a bit of a self-fulfilling prophecy of course. I worked at Twitter when we opened our Seattle office and we were trying to hire maybe 50 engineers the first year. This was before the IPO, trying to hire the ideal skillset for the area (backend) and it was still hard. Meanwhile we had more than 50 offers a week in SF. The employee base is just so much bigger, it's no wonder companies feel like they have to have offices here.

timothycrosley 9y ago

For people looking for an escape from San Francisco: come join us in Seattle! https://www.codementor.io/blog/best-cities-software-engineer-earnings-271vpf599k https://www.codementor.io/blog/best-cities-software-engineer... it's great here. And we have been building several times the housing to keep up with demand: http://www.spur.org/news/2017-06-15/keep-building-oakland http://www.spur.org/news/2017-06-15/keep-building-oakland.

nojvek 9y ago
Seattle housing market is still crazy. Not a lot for sale. Plus it rains for 6 months and miserable. If you like that then it's great. I love it in Seattle. You don't get as many startups here though. It's just the big companies doing business as usual.
- timothycrosley 9y ago
  Not as many as San Francisco, but there's a ton of startups here and the city has a solid startup culture: https://www.geekwire.com/startup-list/ https://www.geekwire.com/startup-list/. Some notible ones include Zillow, Redfin, Rover, and OfferUp. I agree houses are getting to be too expensive for most, but for those in the rental market things are increasing, but the Outlook looks good as soon many units are getting built.
- philipodonnell 9y ago
  9 months more like it! I moved back to Florida for that sweet, sweet vitamin D.

jpao79 9y ago

A few questions for HN: 1.) Do you think San Jose will ever become "a thing" for tech startups? Is there enough to do there? There is a WeWork and San Pedro Square in downtown San Jose. Or is a waterfront view what make San Francisco, Seattle and Portland what they are? Also, if you did want to live in San Jose there where are the up and coming places for HNers to live? 2.) Cupertino used to be cherry orchards and suburbs. Will Morgan Hill (strawberries) or Brentwood (cherries) ever become "a thing"? 3.) Is it bad if housing prices are high on the West and East Coasts? If housing was unconstrained in the Bay Area and at cost parity with the MidWest, wouldn't that remove any reason to live in the MidWest?

cbcoutinho 9y ago
I grew up in SJ. I don't think it will ever be a 'thing' if you're young and want things to do in a vibrant city, even if it does have Pedro square, Santana Row, close access to Santa Cruz and SF, etc. That being said, if you're looking for a quiet place to live with your family then it's a great city. IBM Research has a couple campuses in between SJ and Morgan Hill - probably interesting places to work.
nemonemo 9y ago
1) I believe so. Once Google goes into Diridon, enough young people would gather around the station, businesses would also gather, higher-density buildings will go up, start ups will start to gather as well. 2) Cupertino is close enough to Stanford and Moffett, which were the two centers of initial Silicon Valley. Morgan Hill and Brentwood are quite far. Still, its population and real estate markets will grow. 3) High price sometimes attracts people by itself.
- thatfrenchguy 9y ago
  Cupertino is so ridiculously boring that no one wants to live there though.
  - stevenwoo 9y ago
    Boring is of course personal opinion ( the prominent Taco Bell behind the welcome to Cupertino sign on Stevens Creek ...) but the latter part of your statement is not supported by local housing/rental price/availability.

readhn 9y ago

It's a self correcting cycle. Money pours in - salaries and living expenses go up - real estate goes up. Money flows out - everything shrinks. What goes up must come down. Everything is cyclical. SF economy is no exception.

nck4222 9y ago
Uhh, ever hear about the depression, dot com bubble, great recession/housing market crash? You're basically advocating "Let's do nothing, the market always corrects itself." Which is true to an extent, but in the extreme it also ruins lives, the country, and itself left unchecked during this process. This is why a completely unregulated market is a horrible idea. Government needs to step in at certain times. This might not be as expansive as those (localized to the SF area), but it's pretty clear government intervention can be helpful when a market doesn't correct itself fast enough and the majority are screwed in favor of the few (or none).
- wu-ikkyu 9y ago
  Isn't government intervention the reason why real estate prices are so high there in the first place?
  - astrange 9y ago
    You’d need government intervention to keep prices low, too. What if there‘s no zoning, but also no support to build sewer systems and transit? What if the NIMBYs start practicing arson? Libertarianism won’t get you anywhere with social problems. (This is besides the basic issue where loans mean prices don’t matter, so they’re free to go up…)
- readhn 9y ago
  >> Uhh, ever hear about the depression, dot com bubble, great recession/housing market crash? All of these are cyclical repeating events. Look at the historical data. This is how humans function. Trying to control cycles is pointless and i would say impossible. You just have to be mindful of them and may be "pad" yourself when you reach the extremes. Markets are pretty efficient at deciding what things are worth at the current point in time, trying to regulate that is again pointless. The issue we often have is collusion of interests (and government is full of that). SF will resolve itself. Just let the market do its thing and this too shall pass..

hjorthjort 9y ago

I'm surprised no-one is calling "regression towards the mean" on this.

peter303 9y ago

Too many infantile products. Basically apps telling you what earlier generation knew through common sense.

richardknop 9y ago

I think remote working really is a part of solution to this. Perhaps augmented/virtual reality could be a good solution for some sort of application to have remote meetings with colleagues with headset in a virtual room/scenery and collaborate like that. It could be used for daily standups and other meetings and it would remove the social isolation problem of remote working and make it much more feasible. Is any AR/VR company working on anything like that?

_pmf_ 9y ago
> Is any AR/VR company working on anything like that? Probably every AR/VR company not working on games.
- TrickyRick 9y ago
  Which ones would that be? Of the top of my head I only know of the Hololens being developed mostly for professional use, any other AR/VR tech is all gaming, gaming, gaming.
  - _pmf_ 9y ago
    > Which ones would that be? Oh, I did not imply that there are any, just that the only largish applications besides games and "experiences" are probably fancy vanity applications for businesses.
    - thearn4 9y ago
      It seems like a smart space to try to develop something for. On the business side though, most of what I've seen are flashy and would probably get used less than a dozen times before being ditched for being to cumbersome.
      - ghaff 9y ago
        Actually just had a meeting with a company that develops VR experiences for events/product demos/etc. I'm still on the fence whether it's useful or a gimmick though.

sulam 9y ago

The smart bet IMO is out of the US altogether. Eastern Europe (and Moscow/St Petersburg), China, Brazil, Argentina.

aaron-lebo 9y ago
There are massive swaths of the US with much cheaper living than SF and better infrastructure, markets, and basic rights than Russia, China, or Brazil.
- fooker 9y ago
  And very few people. So, this works only if you develop apps or a cloud service.
  - sulam 9y ago
    Even then you need to be able to hire engineers. It's no accident that the companies located in that vast swathe hire a lot of remote employees.
    - amyjess 9y ago
      Alternately, you can do what TI did and grow your own. When Texas Instruments decided to establish their headquarters in Richardson, TX, they faced a shortage of talent as Richardson hadn't really been built out yet. So the founders of TI (Cecil H. Green, Eugene McDermott, and J. Erik Jonsson) started their own university with an explicit focus on STEM subjects. Eventually, they gave control of the university to the state, and it became the University of Texas at Dallas. It's now the most prominent STEM university in the southwest, and TI is still closely affiliated with it (disclaimer: it's also my alma mater).
      - sulam 9y ago
        That would be awesome! There's so much of middle America that would probably retrain in a red hot second if they knew there was a job at the end of the path.

_pmf_ 9y ago

I don't see how more vetted, responsible investing hurts anybody.

mathattack 9y ago

People complaining about real estate prices miss the point, or didn't read the article. Non-SF Silicon Valley firms got more funding, ruling out cost of living as the reason.

nailer 9y ago

This is excellent opportunity for anyone who wants investment from west coast VCs but doesn't want to deal with San Francisco, Oakland or the bay area. San Francisco frequently has human feces on the sidewalk in many areas right near the city center, high housing prices and a combination of startup bros and angry hard left outrage culture folk. The bay area is a cultureless void and Oakland is still dangerous. Better Portland, LA or (from what I hear) Boulder.

javiramos 9y ago
"San Francisco frequently has human feces on the sidewalk" This did it for me. I stepped on a big mound of human feces when walking along Market Street on my way to a job interview. The dichotomy of SF was perfectly portrayed in that 15 minute walk: expensive cars driving on Market street (most likely driven by a tech person) while homeless people were openly shooting up and defecating on the street.
- mahyarm 9y ago
  Other cities just arrest / export those people, in SF they do not.
golemotron 9y ago
SF culture has descended into purity spirals [1]. The last time I was there I was shocked by the amount of signaling that was happening. [1] - http://www.redgulls.com/2016/08/17/the-purity-spiral/ http://www.redgulls.com/2016/08/17/the-purity-spiral/
- amyjess 9y ago
  This is one of the reasons I'm considering a move to SoCal, but I will never, ever consider moving to NorCal. One thing I've heard is that SoCal is full of superficial, shallow, materialistic people, and that people in NorCal are expected to have a cause. It doesn't have to be a left-wing cause, either; look at Curtis Yarvin, for example. I'm somewhat SJW myself, but really I'm a consumerist at heart. I just want to live in a cookie-cutter suburb, eat tasty food, watch TV shows I enjoy, hack on code as a hobby, etc. I would be very uncomfortable in NorCal being surrounded by militant vegans and Bernie Bros on the left and dark enlightenment people and physical-removal ancaps on the right. On the other hand, SoCal sounds pretty close to paradise to me (it's actually between SoCal and Vegas for me... I can't decide which one I'd rather move to).

fragmede 9y ago

Complaining about housing prices and city living are easy targets; there's a secondary question - what are SF founder pitching VC's? and how does that compare to what founders are pitching down in the valley? Is everyone in SF pitching yet another subscription box food delivery services? Drones? VR? Also keep in mind this is VC investment money - it comes with a price, and in the graph of rounds, by region, series A rounds are down from a peak in 2014, but SF and SV are fairly close - it's the other rounds where SF has really fallen. An alternate explanation (based on the very limited data presented here) could be that SF companies are to keep going without accepting VC funding; either with large cash infusions from the blue chips, or by having enough customers give them enough money.

babesh 9y ago

Different sectors are hot now and different sectors are concentrated in different areas. It’s not consumer social that is hot. Nor is it enterprise. It appears to be silicon. That is South Bay.

lisa_henderson 9y ago

This article misses what seems like the most obvious explanation, which is that the USA economy has recovered from the Great Recession. We had a stretch from 2009 to 2014 when it was difficult to find any normal investment that paid better than 1% or 2% a year. Seeking yield, money poured into startups, because they seemed like the only thing that might be able to offer better than 20% returns (assuming a basket of startups, most of which fail and some of which return 100x). Since 2015, the economy has returned to almost normal, so the need to invest in software startups is reduced. And this would most likely effect San Francisco the most, since it had received the most investment during the era 2009-2014. Now that the economy is almost back to normal, there are a lot of areas in the economy that offer possible returns. The need to focus on software startups is diminished.

dsfyu404ed 9y ago

History repeats itself. The coal industry extracted resources from the land in West Virginia until it was forced by resource depletion and regulation to scale back. The tech industry is just extracting wealth from society instead of the land and what's left is scarred, poisoned and will go on to cause problems downriver. The SF is starting to look less attractive and operations are slowly spinning up as needed at adjacent mining sites. Eventually there will be noting left to mine and the mining towns will be destitute and states downstream (Like Colorado and Oregon for example) will have polluted water to deal with. Internalize the profits. Externalize everything else. It never changes.

ghostbrainalpha 9y ago
Dude... you might have a good point in there somewhere. But that analogy is making me hate you.

mmagin 9y ago

IMHO, you only get lots of startups in the city at the rising part of the cycle. When everyone's so desperate for talent they'll do anything to woo young engineers. There are plenty of very good experienced engineers that have no tolerance for commuting up to SF every day in this traffic. And also, most of the VC firms are in the suburbs too :)

dwg 9y ago

Perhaps ICO investments are not yet large enough to matter, but one would wonder if that is drawing away some of the money that would have otherwise been invested in the more traditional way measured by the article.

kilroy123 9y ago

Why doesn't a developer build a mile high building there? Maybe it could even be built in the ocean like this: http://www.businessinsider.com/tokyo-mile-high-skyscraper-would-be-worlds-first-2016-2/ http://www.businessinsider.com/tokyo-mile-high-skyscraper-wo...

csomar 9y ago
For what purpose? If you convert these brownstone houses in San Fransisco that hosts only 3-4 families to small condominiums that have 10-12 levels, you almost solved the problem.* * The condominiums should have 2 underground floor of parking and preferably there should be 1 or 2 metro lines to handle the new population.

MarkSanghee 9y ago

http://tomtunguz.com/cost-challenges-facing-the-valley/ http://tomtunguz.com/cost-challenges-facing-the-valley/ New article uploaded and it seems we are not only a startup benefit from 'Labor Arbitrage' by having our development team back in South Korea