(Sort of a tangent, but it is called out in the article...) Why DO companies insist on starting out in the bay area? Is it really that hard to find talent in second-string tech hubs?
Game companies need a variety of talent that can be hard to find. This includes engineers, artists, writers, and so on. The Bay Area isn't the only place you can find that mix of talent. There are probably as many game developers (if not more) in Southern California, but also in Montreal, Seattle, Chicago, Austin, Vancouver, etc.
The trick is that it really helps to attract talent if you are based in a place where people want to live and are likely to find other employment. Once you are established in your career, if you move for a company you ought to like living there. And if you like living there it helps if there is another place you can work if something happens to that company.
I've always imagined it was because the VCs bought the buildings they rent out to the startups, and probably the apartments as well. That makes the bay area a big money laundering machine where cash is guaranteed to flow from the investors through the VCs to the startups and back to the VCs again. Cha-ching!
That's not laundering. That's selling shovels (and jeans and beans and baths and beds) to the gold miners.
There may be a laundering component to it, though. If you're a fund manager, and you can't steal the principal directly, you might be able to invest it in a company that you can then require to set up headquarters in a place where you personally own rental property and service businesses. Chances are that some of the money you give to the company in your capacity as fund manager will come back to you in your capacity as landlord/business owner. Then you can turn around and invest that in your own employer, if you feel like it, so you can also buy in to all their outstanding lottery tickets.
This is just possible. It is not guaranteed to be happening.
If I give you $10, tied to an agreement that you both mvoe to town, and will eventually pay me back (in expectation) $11, and I also own property and suchlike that cause me to (in expectation) get another $7 from you in living costs, then my ROI is 80%.
If I just rent to whomever, I'm not getting the profits from the initial investment, but I'm also not driving up the rents by getting people to move to town. My expected ROI is at least a little bit lower, and possibly quite a bit lower.
Not saying it would actually work out in practice, or that this is something that's being deliberately engineered, but it at least seems plausible.
Why are sales and rental prices so high? Because demand is rising faster than available stock is increasing.
Why is demand rising so fast? Because people are moving there.
Why are people moving there? Because that's where their employers want them to work.
Why are employers locating there? For some, prestige address. For others, proximity to investment capital.
What does proximity have to do with investment? Couldn't a VC gain competitive advantage by locating in some other city that doesn't have such vicious competition for unicorns?
I don't have an answer to that. It doesn't make sense to me as a strategy, because I have incomplete information.
It isn't for a lack of trying. Attempts to go too cheap have ended in failure typically - people don't want to move to the middle of nowhere for a one company job when they have a nice well of employment already. The network effect is very real in a that critical mass of workforce talent can provide concrete advantages. That said moving to the fringe of the network seems to be a good move to get the best of both worlds if possible - Palo Alto was once the cheap option.
It probably is inflated due to ego - Juicero certainly didn't need significant talent (or have it for that matter) but if you are developing something that needs complexity like say self driving cars or their parts it could pay off.
Also, proximity to talent. If all the other game developers are in the same area, it's easier to recruit employees with "come work for us, we're 2 blocks east" than it is with "come work for us, we'll pay relocation expenses".
For developers in general, remote work is an option, but specifically for the highly-collaborative creative work that goes on in game dev (and especially the genre Telltale was running) a remote culture is a _lot_ harder to get right.
Workers follow the jobs. Where do you think all the L1s, H1Bs, O1s, TNs, and the people from other US cities come from?
About 50% of the people I meet moved here from somewhere else. It's easy to recruit people with "Come work for us. We can't give you more money, but we can offer more purchasing power, which is better. The homes within a 15 minute drive of the office--even at rush hour--are less than $1500/month."
For their story-heavy games, it seems like Telltale might have done okay with a location near the Georgia film industry, especially with the Walking Dead television show operating out of Riverwood Studios in Senoia, south of Atlanta.
I meant that I've wondered how much goes from the investors to the VCs (but then not back to the investors) via property rentals. I used "laundering" in the sense of "covering up where the money came from."
In my imaginary property model, the VCs make money regardless of whether the companies they back succeed, while the investors only win 1 out of 7 times, upon company successful exit. To the investors, it _looks_ like they've put a lot of money in the startups, but a significant portion of that goes back to property rental companies via salaries and office rentals. Which would be lower anywhere else, which is why I suspect the VCs are disincentivized to move companies elsewhere (or invest elsewhere). They make the most rent here.
But I don't actually know anything factual, like how many VC people privately hold heavy investments in bay area REITs. Even a well-intentioned (dedicated to making their client companies successful) VC would be a fool to not invest in REITs, now that the cycle is here, but after a few years of that and seeing where their money really comes from, I wonder if they can keep their good intentions.
I'm really not involved in the startup scene much at all, but my impression is that the amount of startup funding available elsewhere is just nowhere close to what's available in the Bay Area.
That might have two implications: First, more startups are able to get funding in the first place, and, second, of the ones that get funded, the average amount of money they raise is much higher.
If so, then it's not necessarily that more companies insist on starting out there, so much as that it's a sort of survivor bias: The Bay Area's business climate is just one that is able to grow more startups to a big enough size that you hear about them.
I would love to see a breakdown that shows the amount of money companies spend to be in the Bay Area versus the amount of money they raise, compared to the money companies would save not being in SV versus the amount they can raise there. It might be worth the added cost, it must be worth the added costs, but it's strange to just say "they can raise more money" because they also spend more. There may be fewer VCs in Pittsburgh, but cost of living is also lower, there are plenty of challenge-hungry programmers and MBAs there, and CMU is (subjectively) a better CS school than UC-Berkley.
The answer I keep hearing is that it keeps the founders near the VC money, which doesn't make sense here as I don't believe Telltale was pursuing that.
I've always wondered how much cash Double Fine burns through to stay in SF.
> I've always wondered how much cash Double Fine burns through to stay in SF
The documentary on Double Fine releasing Broken Age sort of touches on this as it chronicles the journey from idea, kickstarter, development, and release. In there there were some small layoffs or needing to shift people to bring in more money. Tim goes through some visual changes as well as the stress mounts.
The talent pool is deepest in the valley/SF and the VCs do have connections within it. You're also close to your VCs, and some VCs do provide helpful guidance to founders (that's what YC is all about).
I always figured it was because many SV startups are selling to other startups/VC portfolio companies at first (more open to new products, less risk averse with vendors, etc..) so it makes sense to be where your customers are.
its absolute insanity, and there is a huge competitive advantage by not doing that, and hiring smart people somewhere unpopular who don't want to live in the Bay Area or Austin and are looking for neat jobs to nab.
