
Investing Outside the Bay Area - andygcook
http://haystack.vc/2018/07/21/investing-outside-the-bay-area/
======
joefranklinsrs
Ignoring all the risk-tolerant VCs and angels, with billions (trillion?) of
capital in the silicon valley ecosystem for a sec. If one simply looks at the
big non-US tech companies development offices and hiring activities

Rakuten: San Mateo having most job openings outside Japan, next closest is
Toronto

samsung: US having 1100 opening, next is india with 26. in US, there's 114
jobs in california, next is texas with 81

Tencent: only offices outside China is Palo Alto and Seattle

It's clear that most tech companies are aware that all the talents are in
Silicon Valley - and because of chicken and egg effects, all the talents come
to and stay in Silicon Valley. And when one forms a network in silicon valley,
she would be bombarded with job requests with silicon valley companies every
day, and if she chooses a better job, it would be still in silicon valley.

~~~
closeparen
Maybe true if you’re targeting the senior talent who got in early enough to
buy houses and have kids, but all the 20-somethings I know (myself included)
plan to get out within 5 years, barring a drastic increase in compensation. I
suspect there is a large, untapped market of disaffected young engineers who
moved here to start their careers but would move to a second-tier city for the
right job.

~~~
joefranklinsrs
There are still alot of cheap real estates along the BART and caltrain stops

[https://www.estately.com/bay-area-home-affordability-
transit...](https://www.estately.com/bay-area-home-affordability-transit-stop)

Pittsburg/Bay Point $430,000

Blossom Hill $657,000

San Jose $680,000

And the largest job growth recently has been East Bay, around Pleasanton.

If you are young and starting out, making $110-140k, try living in east bay or
san jose and rent a room for $1k - 1.5k, you should be able to save enough
money for a down payment for a house soon enough. The stories I've heard for
people that couldn't afford their rent, are people living in $3k apartments in
SF.

~~~
WillEngler
Let me try and complicate this :)

First, I submit that $430,000 is still expensive. Instead of buying the median
home in Pittsburg and commuting 60+ minutes on BART to downtown SF, I could
add an h and buy a huge home in my favorite neighborhood in Pittsburgh PA for
about the same price and have a chill bicycle commute:
[https://www.zillow.com/homes/for_sale/Pittsburgh-
PA/pmf,pf_p...](https://www.zillow.com/homes/for_sale/Pittsburgh-
PA/pmf,pf_pt/house,condo_type/11288076_zpid/26529_rid/) (Obvious and
legitimate objections: fewer job options, snow.) This is just me trying to
say, $430k for that arrangement does not strike me as "cheap" given
alternatives in other metros.

I agree that with a tech salary it's possible to save up for a down payment
and buy in the Bay Area. But the risk seems unacceptable to me. Paying ~$1M
for a house is a big bet that the Bay Area housing market stays hot. I don't
want my wealth to be so tied up in a hyperlocal bet like that. I see things
going one of two ways (and this is probably over-simplistic).

Option 1: A $1M starter home is the new normal. Prices stay flat or keep
rising over the long haul. In that case my investment is sound. But I don't
want to live in that kind of place. Where will my kids' teachers live? How
will I cope with the moral ickiness of living in a place where housing costs
create extreme spatial segregation of the professional class from the service
class?

Option 2: The vision painted above is unsustainable. Something has to give
(maybe a big financial crash; maybe just state-mandated upzoning that quickly
increases housing supply) and the value of my investment drops by a lot.

Either way, I'm planning to save up on the West Coast and use my nest egg back
in the Rust Belt.

~~~
eldavido
Your view on this broadly aligns with mine (33-year old, live in Oakland).

We bought a cheap (for the area, about 670k) condo just off of BART. It's a
pure consumption expense in that I expect to get 1-2% appreciation/year while
carrying a manageable debt load. It might go up a bit but that's not the
point. We're right off a train line, not paying too much in interest, and
building equity. Plus it's a great place to live, lots of young people moving
in and we're doing a lot to improve it (lots of deferred maintenance we're
working through). Worst-case scenario, we'll rent it our or sell if we move
somewhere else; there will always be demand as it's a small, convenient unit
in a renter-friendly building, just off of transit.

I share your negative view of the Option 1 dystopia. I have absolutely zero
interest in living somewhere on the peninsula like Belmont, Atherton, or even
most of San Mateo at this point, where you're basically walled off from anyone
of lower socioeconomic class who's your age. Not sure "moral ickiness" is the
world I'd choose (maybe just bland? do you really want all your neighbors to
have the same job as you?) but it does indeed suck.

I think people who are banking on tons of appreciation buying today in the
SFBA really need a reality check. There's just not much higher these prices
can go. The common perception is that everyone in tech makes like $300k, which
is so far from reality to be laughable.

~~~
closeparen
Socioeconomic integration sounded great from afar, but I don't know how how
much more sidewalk urine/feces I can take. I'm learning that I'd much rather
deal with traffic and drab suburbia than in-your-face extreme poverty every
time I try to take advantage of walkability and transit.

~~~
panarky
So it's a binary choice between walling yourself off in an affluent gated
community and slogging through human waste in a dystopian urban slum.

Really no middle ground here, huh?

~~~
closeparen
If you find one in the Bay Area, please let me know.

------
arbuge
> Redfin, the Seattle-based home buying site/app, has been beating this drum
> for years, recently stating that we will see “mass migration” from the Bay
> Area based on housing. The CEO writes “Silicon Valley is going to leave
> Silicon Valley… the technology companies… they’re chasing talent, and talent
> is chasing affordable housing.” Redfin specifically identifies Denver, San
> Antonio, and Houston as the next hubs newer generations will seek out.

Rather odd choice of Texas cities in my opinion. If you're going to go with
Texas, I'd think Dallas and Austin are more obvious choices for technical
people.

~~~
toomuchtodo
San Antonio is a bit more conservative than Austin, but much cheaper and still
very nice.

My financial services firm is slowly moving everyone from NYC to Texas and
Florida, for obvious reasons.

~~~
crack-the-code
I don't think the price differential between San Antonio and Austin housing is
high enough to offset the level of talent and appeal that Austin (or even
Dallas for that matter) currently provides for the tech scene.

~~~
toomuchtodo
Not everyone in tech wants to live in Austin.

~~~
anothergoogler
In software, isn't San Antonio pretty much a company town (Rackspace)?

~~~
ci5er
Depends on your vertical. There are a number of O&G related startups. And
(oddly) San Antonio rates just behind San Diego and Boston for Medical Device
innovation (not software, but still, big tech business)

------
PowerfulWizard
It would be interesting to calculate:

\- cost of living in the SFBA

\- cost of living somewhere other than SFBA but generally "equivalent" in the
sense that living there wouldn't be seen as a negative

\- a average-ish amount of VC funds that must be invested in a company before
capital is returned.

\- average amount of capital raise that goes to salary

\- what amount of salary is due to cost of living.

It is getting a little bit convoluted, but that would allow you to approximate
how much VC money is going to SFBA landlords due to the chokehold on housing
supply.

We're seeing a shade of this in the Amazon HQ2 process, but if you have actual
physical mobility as an organization over different real estate markets and
political jurisdictions it will shift the balance of power in terms of rents
and taxation. I don't think it applies to small companies for various reasons,
but the motive is there.

~~~
mattnewton
As a note, make sure cost of living is determined in real terms, not
percentages. Oftentimes places with a 80% cost of living will also pay 80% the
other wage, which is a bad deal for an engineer because cost of living is not
the total of all expenses- so savings and discretionary income actually goes
down quite a bit.

~~~
jmspring
This. I split time between the Bay and up in north eastern Ca. Reality is,
aside from housing, day to day costs are really no different - gas, food,
utilities. I’m fortunate to have that flexibility, but percentages mask a
number of things.

I was talking to someone recently - with all the “tech” going into the Reno
area, housing is getting more and more expensive. The average salary is still
in the mid 30k range, however.

~~~
s0rce
California is expensive overall. However, other places are cheaper. I lived in
Central/Eastern WA (Pasco) for a postdoc before moving to the bay and it was
astronomically cheaper across the board even if you ignore housing (1800sqft
house on 1/2 acre was $280k in 2014).

Biggest non-housing difference was no state income tax, so save 7-10%, then
pretty much all car/gas/insurance were about half. Food was a bit cheaper but
not enough to make a big difference. We didn't go out much since restaurants
weren't good but thats not really a far comparison.

Where do you live in NE California? I love it up there (and SE Oregon)

------
dawhizkid
Bay Area startup scene is dying as is. With few exceptions no small startup
can hire talent here anymore. IMO it’s a good thing that other cities will
have a chance.

~~~
codeafin
I'm not from the Bay Area so I'm not aware, how is it dying?

~~~
nostrademons
(Not OP, but I'm currently founding a startup in the Bay Area.)

I don't have the perception that the Bay Area _startup_ scene is dying, but
it's perhaps true that the Bay Area startup _scene_ is dying. Basically, you
can't raise a $3M seed round on "I went to (Stanford|Ivy League|other top
college) and have an idea for a mobile app" anymore, nor can you raise follow-
on rounds off anything but revenue growth. That means that the days where a
couple 20-somethings could found a company, hire 10 people, and code by day
while partying late into the night are gone.

Good riddance, IMHO.

The _startup_ scene is still healthy, but is very different demographically.
Some observations:

Average founders skew older - it's more 30- and 40-somethings that worked for
a big tech company and cashed out a million or so in stock options, or had a
previous startup exit. (The exception is crypto, which is largely financed
through ICO now.)

B2B is ascendant over B2C, and many startups are financing the company with
pre-sales from paying customers.

Team sizes are smaller, and many companies are using outsourced labor where
they either open an office abroad for engineering, or they use Upwork etc. to
find contractors.

Startups in general have gotten cheaper and leaner and are more focused on
doing the work rather than living the dream.

~~~
anothergoogler
That's quite a positive take. When I see "lean" startups offshoring/using
Upwork to build their offerings, I think the magic has left the bay and that
people are trying to squeeze water from rocks. Partying all night might make
investors and parents of 2.5 children wince, but that was part of what made
unexpected, innovative software possible. It's ominous that startups are
forced to outsource because cost of living has priced them out of local
talent.

When I look at the bay now, I see a bunch of FANG drones measuring their RSU
dicks. People caring more about buying a home and whining about NIMBYs than
making cool shit with cool tech. Of course most startups are stodgy B2B and
not moon shot B2C, you can't build B2C when your experience is so separate
from a normal person's. But another JIRA/GitHub/Slack integration? Ooh, that's
the good stuff we can relate to.

Maybe the bay got old, but I don't believe that when I see fresh grads falling
over themselves to work at a FANG. Whatever happened, there's not much
serendipity left. There will be a tipping point where enough cool stuff is
coming out of Detroit/Atlanta/wherever that an investor would be a fool to
fixate on the bay.

~~~
nostrademons
Typically the founders are building the core competencies of their businesses
themselves and using Upwork to outsource programming tasks that have been
commoditized, like mobile/web development or filling in the gaps once the
product architecture has been built. The current funding & salary environment
is not kind to non-technical founders, because the technical end of a new
product now costs more than you can get in funding without a product, and
because the type of ideas you can easily communicate to an outsourced dev team
are the ones that have been well-commoditized over the last 8 years. (I still
see a number of non-technical founders trying, but they've been struggling
hard.)

I do think new startups face significant headwinds now, but they're not the
ones you mention. I'm not worried about FANG drones, for example - the
majority of people in Silicon Valley have _always_ been employees of big
companies, and often quite self-satisfied ones (do you remember how arrogant
Netscape, Sun, and Cisco were when Google was still in the garage?).

Also, significant B2C startups usually come out of nowhere, from small teams
that were toiling away in obscurity for years beforehand. Do you remember
2007-2010? I was part of the Web 2.0 boomlet, folded up my startup in '08, and
proceeded to watch most of my peer companies die over the next 2 years. But
while we were all folding up our social networks, AirBnB (founded '06,
household name '11), DropBox ('07, '10), Uber ('08, '10), Instagram ('08,
'12), WhatsApp ('07, '11), and Thumbtack ('07, '13) were continuing to work on
their startups, many of them breaking _a lot_ of common wisdom about what made
for a successful startup. When the time was right these services exploded, but
we had to go through a huge startup drought from 08-10 in the process.

The factors I'm more worried about are: 1) The average American consumer not
having money, which makes B2C business models other than [advertisement,
pyramid scheme, extortion, selling personal data] impractical 2) Attention
being so focused on politics and tribalism that consumers are too fearful to
try anything new and 3) Moore's Law disappearing. I'm not terribly worried
about this last one because we can still get another factor of 10-100X out of
better programming languages, OSes, and frameworks, and GPUs/TPUs continue to
increase in power.

------
chmaynard
Advice to talented professionals everywhere:

If you have reached the age of 30, you should already own your home. If not,
buy a home immediately. NOW. If you can't afford anything decent close to your
place of employment, quit your job and move somewhere where homes are more
affordable. Your future happiness depends on it.

~~~
eat_veggies
Can you elaborate on this? I'm nowhere near 30 yet, but I'm curious as to why
my future happiness will depend on it.

~~~
toomuchtodo
The longer you wait, the more you’re priced out of the market and reliant on
the whims of a landlord.

Now, one could argue we’re at the peak of the current business cycle and asset
prices are overly inflated. And there might be merit to that. In that case,
look for real estate bargains where you’ll have equity on day one (short
sales, foreclosures, assets priced below their fair market value).

~~~
usaar333
> The longer you wait, the more you’re priced out of the market and reliant on
> the whims of a landlord.

That's only true if the value of your portfolio or salary aren't increasing
faster than the market.

I've personally teared up in housing about every other year. It would have
been much more difficult to do this is I owned rather than rented.

~~~
ci5er
> teared up in housing

What does this mean? Moved? Every two years? Sounds horrible. Don't you have
any hobbies to fill your time?

~~~
usaar333
Autocorrect fail. Tiered.

Yes, moved every two years. Not ideal, but couldn't have afforded the places I
moved into two years earlier and moving produces high quality of life gain.

~~~
ci5er
> Not ideal, but couldn't have afforded the places I moved into two years
> earlier and moving produces high quality of life gain.

Maybe it's years living in substandard student housing, or years in "not-in-
the-US" housing, or even a couple of years being effectively homeless, but
anytime I get more situated than living out of one suitcase and one computer
bag, I find moving to be a burden that (generally) outweighs what you call the
quality-of-life gain. That's me, and I'm probably inertia oriented in
everything except the companies I start/assist/work-for. I love tuning the
business to be better. But I often just go home, maybe to a dump or dive, and
open a can of tuna fish for dinner. (My kids don't seem to understand that
either - so I'm guessing this isn't normal)

EDIT: My (now) ex-wife lives in a nice house, with a fair number of upgrades,
in a nice neighborhood. And my kids get to live there too - nice schools too.
So, that's nice. But I don't think it is anything I would have ever invested
in or developed for myself without her prodding. (Which might be why she
divorced me, but I suspect it was probably slightly more complicated than
that. But, still, it probably should have been enough!)

