
The Decline of Investment in San Francisco Startups - kawera
http://tomtunguz.com/sf-boom-over/
======
kevinburke
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)

~~~
aphextron
It's almost comical how overcrowded BART has gotten at rush hour. Embarcadero
and Powell stations become standing room only. I live _deep_ in the east bay,
and the new apartment building going up across the street has 1 bedroom
layouts starting at $2800. Something has to give, or people will simply give
up.

~~~
fatbird
People _should_ give up. People should leave the area. They should move where
they can find a job and a cost of living that's reasonable. The fact that
people don't give up is why landlords can afford to charge $2,800/month for a
1 bedroom. You can't rent at $2,800/month if no one will sign the lease.

~~~
chrissnell
As someone living in the Midwest and telecommuting to SFBA, that's almost
unbelievable to me. I pay less than that for my brand new and quite nice 5/4
house on almost half an acre of land.

With all of the remote work available, why would you stay here? I manage a
team with two remote-friendly job openings currently. You could work for me
and go live in Telluride, CO for less than that East Bay 1br and still have
money left over.

~~~
Sleeep
What's a 5/4 house?

The Midwest is stereotypical for "affordable living" but I live in New England
and it's fairly affordable here too in comparison. I own a three bedroom in
town, with 20% down my P+I is $750 a month and PITI is $1275 a month. If I
financed the whole thing the PITI would be $1462 a month. I think my housing
cost is about average for the US.

~~~
isotropy
> What's a 5/4 house?

5 bedrooms/4 bathrooms

------
ultimoo
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.

~~~
colbyh
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
Menlo Park and Palo Alto, sure. But MTV, Sunnyvale and San Jose are still
pretty cheap. (relatively)

~~~
bitcrusher
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.

------
lisa_henderson
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.

------
richardknop
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_
> Is any AR/VR company working on anything like that?

Probably every AR/VR company not working on games.

~~~
TrickyRick
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_
> 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
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
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.

------
fragmede
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.

------
tshiran
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
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
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...](https://www.codementor.io/blog/best-cities-
software-engineer-earnings-271vpf599k), 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
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
What your describing is not a lack of engineers, it's a low uneployment rate.
There are enough engineers for 100s of new startups. The only thing that
excarbates more than San Francisco, is that there is much less a culture of
jumping ship here, which is good for companies long term. Also, it's much
easier to convince engineers to move to Seattle than San Francisco, which is
probably why we are growing at over 3x the rate.

------
readhn
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
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
Isn't government intervention _the reason why_ real estate prices are so high
there in the first place?

~~~
astrange
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…)

------
mathattack
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.

------
parandeh
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.

~~~
ThrustVectoring
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?

~~~
vedanta
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.

~~~
ghaff
No one is forcing you as a company to make employees sign a non-compete,
enforceable or otherwise. I've generally lived in states where non-competes
are enforceable and I've signed exactly one.

~~~
s73ver
I think they're speaking from the perspective of founders who, until they
start the company, do have day jobs somewhere. In California, there's no
issue, but in other states with enforceable non-competes, that can be a pretty
big hinderance to starting the company.

------
dsfyu404ed
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
Dude... you might have a good point in there somewhere. But that analogy is
making me hate you.

------
peter303
Too many infantile products. Basically apps telling you what earlier
generation knew through common sense.

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

------
jpao79
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?

~~~
kasey_junk
> 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?

That is hilarious. The Bay Area centrism to imply that there is no reason to
live any where else besides cost is absolutely ludicrous.

~~~
dsfyu404ed
There's some guys a few cubes over from me talking about how "Not for sale in
California" is a marketable feature on engine powered equipment.

~~~
cbcoutinho
Does that mean that the product doesn't meet Californian regulations? How is
that a selling point?

~~~
matthewwiese
California emissions regulations being more stringent than elsewhere (i.e. in
the Midwest) means that us flyover rednecks take pride in our big ol' machines
that drink up dinosaur guts. Take for example all the stupid-big Ford and Ram
pickups chugging along downtown streets here.

The implication being that, even if housing prices were equal, some might
prefer to live in SF or Seattle as opposed to Pittsburgh or Columbus due to
"culture fit" (hah, a buzzword applied to something novel).

At least, that's how I assume the parent intended their anecdote to be.

------
timothycrosley
For people looking for an escape from San Francisco: come join us in Seattle!
[https://www.codementor.io/blog/best-cities-software-
engineer...](https://www.codementor.io/blog/best-cities-software-engineer-
earnings-271vpf599k) 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
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
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.

------
MarkSanghee
[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

------
mmagin
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 :)

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

~~~
aaron-lebo
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.

~~~
Kpourdeilami
I would strongly recommend Canada, especially the Kitchener-Waterloo area. The
rents are very reasonable (~$700 USD for a one bedroom apartment, in the
safest neighbourhood in Waterloo) and there are tonnes of resources and help
available there for early stage startups (Velocity - a free incubator that
provides mentorship & office space, Communitech, etc) Not having to worry
about things like health insurance is very nice. Also, there are lots of
grants offered by the government and the universities there that make starting
companies much easier. Last but not least, the access to lots of talented
engineers graduating from UW who have experience working for companies like
Apple, Google, Tesla, etc makes hiring good engineer so much easier.

The only shortcoming it has is a lack of access to capital which is quickly
changing.

~~~
sulam
Yeah, we have an office in Waterloo and the people are very solid. I should
have mentioned them!

------
kilroy123
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-
wo...](http://www.businessinsider.com/tokyo-mile-high-skyscraper-would-be-
worlds-first-2016-2/)

~~~
csomar
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.

------
dwg
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.

------
babesh
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.

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

------
fblp
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
Yes it's in the article.

------
nailer
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.

~~~
ocb
Portland, LA, and Boulder all have the problems you listed...

Also the idea that Boulder has some kind of culture that the Bay Area doesn't
is laughable. Disregarding that only 100,000 people live there, I've never
seen a place more homogenously populated by "rich boring white people" in my
entire life. It's like an entire city of the stuff that pops up when
neighborhoods gentrify.

~~~
Danihan
Did it ever occur to you that a nice, "boring," safe culture is what many
people want?

~~~
ocb
Yes, it did? Boulder seems like a nice enough place to live. I was pointing
out how preposterous it is to claim that the Bay Area is a "cultureless void"
because of tech bros and left-wing politics and then claim that somewhere
that's the absolute epitome of those things is better.

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

