Note: In May, I wrote an article titled “The New Work From Home Economy.” Then in August, I wrote a piece called “Tech Companies Flee California (Finally).” I recommend reading those first if you haven’t.
For decades, California has dominated both technology and venture capital in the U.S. Almost half of all venture capital comes from a tiny area around San Francisco.
The economy around Silicon Valley and San Francisco had an incredible, multi-decade economic boom due to all the wealth that was created. It seemed like an unstoppable trend.
But that’s all changing now. Even before the current crisis, things had reached a tipping point in San Francisco. Taxes were too high. Government bureaucracies were too big. Housing was way too expensive.
COVID-19 simply sealed the deal. The rise of remote work means people don’t have to pay $4,000 for a single bedroom apartment in San Francisco to work at a technology company. Almost every tech firm now has remote work options. Today you can live in a reasonably priced house in Idaho and still work for a lucrative salary with a big tech company.
Collapsing Rent, Fleeing Companies
As a result of this trend, rents in San Francisco have collapsed. According to the apartment listing service Zumper, the average one bedroom apartment in San Fran is down from $3,700 pre-crisis to $2,700 today. That’s a HUGE 27% decrease in just a few months. A drop like that is practically unheard of.
The latest big tech firm to flee the Bay Area for Texas is HP Enterprise, a tech firm with 2,600 employees. And my August and May pieces have many more examples — this isn’t just a one-time event. Some of the most well-known VCs in the world have also recently announced they’re leaving — including Keith Rabois.
The exodus is underway — and I think it’s going to continue for some time. I don’t think the entire tech economy of California is going to collapse. The Bay Area will continue to be the biggest innovation center in the U.S. for years to come. But serious change is underway, and it’s going to be great for the rest of the country.
ROC (Rest of Country)
For those of us that don’t live in San Francisco, the importance of these changes cannot be overstated.
Wealth is about to get more evenly distributed throughout the country. Talented workers everywhere now have a shot to work at the hottest firms. You don’t have to live in one of the most crowded and expensive cities in the world anymore to do so.
Today there’s not enough innovation happening outside of the big tech hubs. I think this is about to change. Startups will begin to spread throughout the country like wildfire.
The ability for anyone to be a startup investor has a big role to play here as well. As I wrote about a few weeks back, the SEC recently increased the limit on how much startups can raise per year using Regulation Crowdfunding to $5 million (up from $1 million).
This is a hugely important and (very) timely improvement. For many startups, $5 million is enough to kickstart a lot of growth and innovation — and it will be happening across the country. I believe this method of funding is going to be critical to growth outside of the big tech hubs going forward.
So despite all the challenges we face going forward, there are also many things to be excited about. The tech exodus from California is certainly near the top of the list.