TBC: Is Silicon Valley Still the Place to Be for Startups?

By Jason Yeh
June 6, 2024
9
min
Listen on Apple Podcasts

Welcome back to the Back Channel! Today, we're mixing things up. My producer Paige read an article from the Bay Area Council Economic Institute and wanted my take. They claim tech workers are flocking back to SF, with major companies still headquartered there, and a big chunk of AI investment dollars staying local. Although there's truth to that, I think the pandemic has opened doors for other cities. San Francisco is still important due to it's history and other specific reasons, but there are other places on the rise. Listen to the full episode to hear my take on the article!

TBC: Is Silicon Valley Still the Place to Be for Startups?

In this episode of The Backchannel, the host Jason dives into an article from the Bay Area Council Economic Institute, which talks about Silicon Valley's current state, investment trends, and workforce changes.

Episode Transcript

​[00:00:00]

Hey guys, welcome to the back channel and today's episode. I want to do something a little bit different. My producer page was reading an article about a month ago and wanting to get my reactions on it. It was an announcement essentially, uh, from the senior director of the bay area council economic Institute. Which talked a little bit about updates around Silicon valley, the ecosystem, their investment dollars. And Paige wanted to know what my gut reaction to that was.

Maybe some insights around what that might mean for founders and investors in the future. And so, uh, she sent me a bunch of comments. Uh, and quotes from the article for me to react to. So my, my first comment is there is a strong [00:01:00] incentive for the bay area council. economic Institute to be very positive around what's happening in San Francisco.

Of course they want to attract more companies, more revenue or investors in order to support the ecosystem and the city of San Francisco. Um, so I always take some of these things with a grain of salt. How do they look at data? Uh, but they said tech workers who left the region during the pandemic are starting to return.

They said of the 50 largest us companies by market cap. 18 are bay area headquartered In six bay area, companies are in the top 10. I underlined headquartered as an operative term in terms of what these companies actually look like today. Uh, and then it said some things about venture capital dollars being down everywhere in 2023, but still 40% of all us VC dollars being invested in San Francisco in the Silicon valley bay. Area. and then a talked a little bit about the Russia of AI dollars and where those dollars are being invested.

It sounds [00:02:00] like over 60% of the 31 billion invested in AI in the U S was invested in San Francisco and Silicon valley. So. What am I thoughts? Um, do I think that the world is returning to San Francisco where that's going to be the core nexus of all things? High growth tech, and that's, you know, everything was reverting to pre pandemic times. Here's my opinion. I don't think so. let me tell you a story about where I came from.

Uh, In the tech world and what I experienced. Uh, I got to California, got to venture capital in 2012. Uh, but I didn't go to San Francisco actually went to Los Angeles. And when I landed in Los Angeles for my first job in venture capital. At a firm called gray Croft. LA was maybe the number three city. Uh, in terms of venture capital and startups, uh, eight distant third from San Francisco, San Francisco being the big behemoths, the number one place everyone had to be there.

Uh, and then I would say New [00:03:00] York and LA being the up-and-comers. As the years went by. San Francisco started getting bloated. It started getting extremely expensive and it started getting somewhat dangerous. So talented people were starting to look at different hubs. Uh, Los Angeles was actually growing. Getting steam in terms of people wanting to spend more time, they're wanting to spend their money there and wanting to move their companies there. I think a lot of that had to do with still being in California and close to San Francisco, but not being California and also having a much more diverse culture and a much. better quality of life in terms of weather and activities. And I think that sort of points to this idea that people want to live. Where they want to live. And they're companies are important, but to the extent that they can. Fit, both what they need professionally and personally. It's going to be a bounce.

And now what I think has happened with the pandemic. Is it as opened it it's opened the doors. To allowing people [00:04:00] to consider other cities. And there are other reasons that you say is besides where your company is, there's family, there's outside interests. Do you like the mountains? Do you like the beach? do you need a lower cost of living so you can support a bigger family, other hobbies? These are all really important things that startup founders and employees had not been able to incorporate into their decision matrix, pre pandemic.

[00:05:00] All the biggest companies got started in Silicon valley.

If you, and if you, if you look at where that trickle down effect came from, it was. The biggest institutions, research institutions and universities were in. The bay area. Um, so that's where the investors. Set up shop and when the talent and the capital were on the barrier will then that's where the companies we're going to start. So, what do I think is going to happen in the future and what do I see playing out? I do see that same gravitational pull around. Where the talent is and where the capital is, and where customers are as being a big reason [00:06:00] that people go to any location. And we've only been at. There's only been four ish years since I started the pandemic. Um, there hasn't been enough time to really impact where the smartest technical people live.

It hasn't had enough time to really impact where the biggest, at least B2B customers are. And. It hasn't really impacted where the largest investors are. It matters less today. San Francisco matters less today, but there still is a core group of investors and talented people that exist in San Francisco, which is why you still see a large number of people in San Francisco.

And why people who were. Testing out the waters in Miami and testing out the extremely hot summers in Austin. At potentially decided to go back.

I'll also point out that the big wave around AI investing has put a big premium premium on technical talent. And when technical talent [00:07:00] still gravitates towards institutions like Stanford, bigger companies like Google and Meta Well, A lot of that talent is going to be in the bay area which is why a lot of people are. starting companies in the bay area because they want to be close to that technical talent. and that technical talent just happens already live in San Francisco, which makes sense.

And that's why. people will be there now. I do believe even though it's important to be around talent customers and capital, it's less important today. Right. You can be close to them, but also get a lot done virtually. I think we're going to see a world where San Francisco is still a really important part of the ecosystem. There's too much. historical weight, put behind that geography to let a few things completely crumble. It's dominance. but areas like low, tax havens, like Florida and Texas. So Miami and Austin. I think will have little hubs.

I think Los Angeles will continue to [00:08:00] be a great city to start a company because. Just like prior to the pandemic. It was better weather. Had better amenities, better quality of life, but still close to San Francisco and easy flight to the talent. that might be building AI to a lot of the capital. And that might be investing in those companies. but we'll just see a greater dispersion of where these companies get started. In terms of what you want to do. I think you should go where your existing customers are.

I think you should go where you and your co-founders are and then make decisions around if it makes sense to move your quote-unquote headquarters and where you go based on how the team builds up and how your customer base builds up

All right. Hopefully, this was interesting to you. A little thought exercise around where the world is going.

As people return to work, decide where to work. Decide where to invest their dollars. All right. Let us know what you think about this type of [00:09:00] episode. And I'll see you on the next episode of the back channel.

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