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San Francisco's VC Boom Is Over (bloomberg.com)
197 points by smaili 99 days ago | hide | past | web | 83 comments | favorite

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.

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.

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.

There are plenty of B2B companies to be found in San Francisco: Salesforce (whose new HQ will be the tallest building in the city), Zendesk, Twilio, CloudFlare, Fastly, Segment, ...

Agreed. Especially when you consider the article considers the following areas as a unit:

"New York Metro Area"

"LA/Orange County"

and of course the whole of "New England" -- yup an area that takes almost 10 hours to drive tip to tip: https://goo.gl/abZHs7

It's clearly an intellectually dishonest maneuver to split SF from Silicon Valley. Done probably just so they can generate the headline "San Francisco's VC boom is over".

And Oakland is nonexistent entirely!

I have friends who have lived in a San Francisco (and Berkeley!) for years who are too sketched out to visit Oakland, weirdly.

I'll admit that, based on what I heard before moving there, I felt the same thing. Joke's on me though, Lake Merrit's worst day is nicer than SOMA's best.

Mid-market near the big tech offices feels way more sketchy than anywhere in Oakland west of the lake.

It might "feel" sketchier but Oakland's crime rate in some of its nicest areas is on par without SFs rougher areas. Oakland is awesome but the per capita crime (even in areas like Lake Merritt) is not nice.

How does either compare with insane like south Chicago or st. Louis, or insane the other way like Seattle?

I worked in Oakland and had friends their. The vibe is much lighter than Saint Louis (where I’m from also) or Chicago. It’s more laid back but more crazy than SF (which is already a crazy city). All of Oakland has an artist vibe, the magic that has flowed of SF exist there for a short time. Lake Merrit, Jack London, Piedmont areas are pretty nice and a must visit, but definitely avoid East Oakland, Colesium BART area

I don't really feel safe in either mid market (tenderloin) or patches of Oakland, and I live here

Not sure in what world Lake Merritt is nicer than Soma even on an average day.

Sketchiness? Yeah, Soma has homeless people and some unpleasant crowds on 6th St and spread throughout; but it doesn't even come close to the sketchiness of pretty much anywhere in Oakland. I've had guns pulled on me on the outskirts Rockridge and that's supposed to be the nicest part of Oakland… don't really see that as likely to happen in Soma.

What then, weather? Soma has the sunniest weather in SF, but still remains temperate year round. When everyone across the bay is melting in 95 degree heat in summer, Soma stays a nice and cool windy but sunny 75.

Same thing happens in New York with the Bronx and New Jersey. I think there's a psychological stopping power to water that makes Palo Alto and San Francisco seem closer than Oakland (or the Upper West Side feel closer to Flatiron than New Jersey).

Bridge traffic + BART congestion means that it's easier for me as a resident of San Francisco to visit Palo Alto than Oakland.

Maybe not how it should be, but certainly how it is; with a new Bay crossing slated for 2040 at the earliest it'll be like that for a while.

Sorry, this is totally not true. It's harder to DRIVE to the East Bay than to arbitrary points south (not Palo Alto), but public transit is generally much better to the East Bay. And most of the driving congestion is simply getting onto the bridge, which I admit is non-trivial (especially with Giants day games thrown into the mix), but once you're on the bridge it's markedly better than 101 and roughly the same as 280. 280 is still a prettier drive, though!

It's easier to drive to Palo Alto than take any form of transport to the East Bay. And I live near Parkmerced, which may skew the numbers.

I mean, you live in possibly the most inconvenient part of the city. It literally can't get more inconvenient and inaccessible than Parkmerced. I lived there for a month and had to move because it was just so dreadful.

It’s inconvenient but the highway is right there. No car would make it hell

You essentially live in Daly City.

At what time of day? Currently Google maps shows a 20 minute drive from SOMA to downtown Oakland vs 40 minutes to PA. If you're trying to use public transit obviously the difference will be even greater.

Commute time, because that's what (work!) we're discussing. I don't know what BART train you guys ride, but my coworkers in the East Bay would often try to leave the office before 4:30 or after 6, or ride the train the wrong way for a few stops, because the tunnel is so crowded at rush hour. The bridge is awful for commutes, of course.

And some people apparently think "second Bay crossing" refers exclusively to a road, which is not what I meant

If you really are concerned about the crush, just walk back to Powell and you get yourself at worst a nice aisle or wall spot, the mistake is trying to get on at Embarcadero. Also, in general it's nothing compared to the human density London Tube commuters have to face even with 4-5 times the number of trains.

Comparing to Palo Alto where you either have to take Caltrain and take what feels like a double digit risk of a multi-hour delay, or else a hour plus drive, compared to the 15 minutes it takes to get from FiDi to downtown Oakland is just ridiculous on its face. I've lived in both Oakland and Palo Alto, and anyone complaining about SF <-> Oakland commute has no sense of Bay Area commute perspective.

Sorry to tell you, but the general rule that adding road capacity doesn't reduce congestion (due to induced demand) will be true of any future Bay crossings.

Induced demand only goes so far, y'know. The rule is not that consistent.

What do you mean by BART congestion? I've been commuting for over 5 years during rush hour, and I can count on one hand the number of times I've had to wait for the next train due to overcrowding.

BART is more congested than it used to be, at least at Embarcadero. It's not uncommon to have to wait multiple trains if you want to get on going to Walnut Creek or Dublin/Pleasanton. It's still the most convenient way across the bay, though. The ferries are nice (and reasonably fast) but their schedules have to work for you.

Maybe I shouldn't tell you this, but just ride backwards to civic center and you will get a seat.

AC Transit and the SF Ferry are the best ways to cross the bay.

And I have coworkers that never go above 90th Street in Manhattan (let alone go to Brooklyn, Queens, or the Bronx).

90th!? I don't go above 23rd, pretty sure 90th is like the Canadian border.*

* Kidding, but there are people like this.

aside from central park and a few museums there's little to do above 23rd ;)

That's just stupid. Why?

Because they were raised in upper middle class suburbs and are scared of being in working class neighborhoods.

Sure, but also they have no reason to go. They have everything they need. I don't go to random suburbs in my city for no reason.

Fair enough!

There are a dwindling number of people who hold their nose at interactions with the bridge and tunnel crowd.

You don't need to go over a bridge or through a tunnel to upper Manhattan from lower Manhattan

Too fancy for interaction with commoners?

No Brooklyn, gotten too bourgeois?

Love Oakland and I lived in SF for decades.

I work in Oakland and can attest to seeing my share of thugs (color blind here), more so than S.V. and S.F.

Are these numbers about the source (where VCs are located) of capital or destination (where the funding goes)? Many SF startups get funding from Menlo Park but they are still used in SF. Is this counted as SF or Silicon Valley funding?

Culturally and politically they're completely different. Don't be fooled by the short geographic distance, that's like saying Canada must be just like the USA because they're right next to each other and English is the primary language in both countries.

While the companies in SF and SV might be distinct, investors (or founders) are willing to conduct 20mi arbitrage for funding.

SV investors (including YC) opened some offices up in SF, but well before that they were driving up and having meetings in other offices.

Actually, at the US/CAD borders culture and politics is generally pretty much the same.

Culture, yes, but there are legal differences which limit cross-border investment flows more than cross-border cultural or more-transactional-commerce flows.

Sure. The Prime Minister and the President are almost indistinguishable right now.

At the federal level, Canada generally flip flops between Tories and Liberals every so often and the US generally flip flops between Republicans and Democrats every so often. After 8 years of Obama, the US was due for a flip. After 10 years of Harper, Canada was due for a flip.

Not to mention that most of Canada's population - Greater Vancouver and the Windsor-Quèbec corridor - border the most left leaning regions of the US excluding California; the Pacific Northwest and the Northeastern US respectively. Alberta politics are roughly similar to those of Montana or the Dakotas.

"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.

Yeah, bubbles don't deflate, they pop.

The VC firms that parked in South Park in 2014 sure aren't packing up their bags.

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

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.

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.

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.

But thinking about it, the US economy is based on credit and VC is another form of credit, right?

No, VC is equity. It may be structured as a note for tax reasons, but the conversion potential dominates the rate or credit terms. Credit is the other side of debt, which is separate from equity.

(Bonus round: when the U.S. Treasury coins money, it records a claim against the Treasury's equity [1]. This is separate from the Federal Reserve's banknotes, which are a debt-like claim on the Fed. In practice, the Fed buys equity in the Treasury and then issues banknotes.)

[1] https://books.google.com/books?id=HIuxDQAAQBAJ&pg=PA169&lpg=...

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...

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.

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

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.

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.

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

Haha I love this statement. So true.

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.

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?

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.... 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.

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.

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.

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.

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

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

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

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.

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

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

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

I'll believe it when the rents go down.

Oh cool, THIS article again.

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.

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.

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