
San Francisco's VC Boom Is Over - smaili
https://www.bloomberg.com/view/articles/2017-07-16/san-francisco-s-vc-boom-is-over?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&trackingId=yhoo.headline&yptr=yahoo
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rdl
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.

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JumpCrisscross
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.

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rdl
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.

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jwilliams
"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.

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a13n
Yeah, bubbles don't deflate, they pop.

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dmode
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

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trevyn
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.

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anigbrowl
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.

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JumpCrisscross
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.

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Kinnard
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-
st...](https://techcrunch.com/2017/07/15/the-decentralization-of-startup-
building/)

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theoracle101
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.

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gumby
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

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Animats
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
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.

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

~~~
shafyy
Haha I love this statement. So true.

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CalChris
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.

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kondro
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?

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5thaccount
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/i...](http://money.cnn.com/2017/04/14/technology/uber-
financials/index.html). 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.

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Southworth
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.

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jmcgough
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.

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cpsempek
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
That or auto-spacing for aesthetic considerations at the expense of semantic
clarity, an all-too-common behavior.

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

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gumby
Seattle is part of an aggregated "Northwest" sector which last time I looked
was a distant #6 or #7 in the rankings

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Hydraulix989
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.

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pault
Was that 10+ years ago? Seattle is still dwarfed by the Bay Area but the
startup community has been growing rapidly.

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Hydraulix989
No, 2013. Entrepreneurship does seem to be gaining a foothold in many other
cities now though. Pittsburgh has had a particularly impressive showing.

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

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coldcode
I'll believe it when the rents go down.

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rco8786
Oh cool, _THIS_ article again.

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sytelus
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.

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acchow
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.

