San Franciscans are moving to Austin, Miami, and elsewhere.
Samantha Lee/Business InsiderSome tech elites are making moves out of San Francisco, as they rethink the area's costs, political climate, safety, and more.
Keith Rabois, for example, is heading to Miami, while Ben Ling tells Business Insider he's weighing Austin or Miami.
Silicon Valley, and San Francisco, have long been been the capital of America's tech economy thanks to a variety of important factors.
But the pandemic, and the rise of remote work via Zoom, has changed things.
More departures could threaten Silicon Valley's tech dominance, but they could also herald in cheaper rents, making the area more attractive to newcomers and residents alike — and maintain the region's longer-term viability as a breeding ground for innovation.
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San Francisco brought Keith Rabois enormous riches.
His resumé reflects a litany of Silicon Valley's success stories: executive roles with LinkedIn, Square, and Khosla Ventures; investments in YouTube, Airbnb, Palantir, Eventbrite, Lyft, and dozens of others; myriad board seats and IPOs.
Now, the venture capitalist with Founders Fund is done with the Bay Area, citing frustrations with San Francisco's high taxes, high crime rates, and liberal political culture.
Rabois is heading to Miami, joining a slow-drip wave of other departures by venture capitalists and startup founders since the start of the pandemic. They include:
Ben Ling, founder of Bling Capital and a former Khosla Ventures partner, who told Business Insider he's weighing a move to Miami or Austin
The CEOs of Splunk, Dropbox, and Brex, who have all recently left the Bay Area, per a report from The Information.
Joe Lonsdale, a VC and Palantir co-founder, who's moving his investment firm to Austin
J.D. Ross, an Opendoor co-founder and current Atomic general partner, who recently moved to Austin
The pandemic continues to shift families' priorities, San Franciscans' perceptions of the city, and companies' long-term remote work plans, leading both tech bigwigs and worker bees to reconsider their San Francisco addresses.
See more: The remote-work boom born from the COVID-19 lockdown has prompted some tech workers to reconsider living in the Bay Area. The region's rivals see it as a growth opportunity.
While just a small slice of the tech world, these high-profile exits could encourage peers to seriously mull if they need to continue paying sky-high real estate prices and California's taxes, decisions that in aggregate threaten to reshape Silicon Valley's tech dominance.
Keith Rabois has had a string of successful roles and upcoming IPOs
Steve Jennings/Getty Images for TechCrunch
"There are lots of people that have already moved that haven't been written about that are pretty high profile," Rabois told Business Insider, declining to name who else left. "Post-COVID, I think the concentration of talent has atrophied, perhaps permanently."
He said that pre-pandemic, San Francisco's spot at the top of the tech hierarchy outweighed his dislike for the city, but remote work scrambled that hierarchy.
Other techies are weighing the benefits of living in the Bay Area against drawbacks that include San Francisco's problems with homelessness, theft, and shoebox apartments, and the Bay Area's issues with congestion, taxes, and an ever-worsening fire season. Some VCs have been talking about leaving on a group text, one participant told Business Insider.
Eight months into the pandemic, the tide of departures is being closely watched, and the habitat choices of tech bigwigs like Rabois and Dropbox CEO Drew Houston are now at the center of a debate about Silicon Valley's future.
Among residents, city officials, and businesses, the big question is whether the pandemic has permanently made Silicon Valley's mix of startup-friendly features obsolete, or whether the disruptions of the virus have simply provided an opportunity for a certain class of people to make a lifestyle change.
"Candidly, some of those leaving have already found great wealth here in the Bay Area ecosystem, and so they have the privilege of leaving and declaring some other city 'the next big thing,'" said Ron Conway, the founder of SV Angels who's been called "the godfather of Silicon Valley."
Conway helped architect San Francisco's tech-friendly reputation as an investor and through alliances with politicians like the late mayor Ed Lee, who passed one of Conway's pet issues, a temporary payroll tax break that let Twitter and other San Francisco-based companies off the hook for millions of dollars.
Not all of Silicon Valley is packing up, of course, and some VCs are poking fun at the departure headlines on Twitter. Some of this year's exits are temporary – Bloomberg Beta's Roy Bahat briefly moved his family to Wisconsin to help Joe Biden win the election – and the permanent exits are a win for some groups. Housing advocates say that after years of worsening tech-catalyzed income inequality, they won't miss the leavers, and lower office and housing rents could attract newcomers and entice residents to stick around.
What makes Silicon Valley so special anyway?
Silicon Valley has been a fertile breeding ground for launching and growing tech companies in a self-perpetuating ecosystem that's survived cycles. The government kicked off the flywheel with spending on military technology in World War II and the Cold War, as historian Margaret O'Mara traces in her 2019 book on the history of the region.
Steve Jobs, John Sculley and Steve Wozniak in 1984
AP
Buffeted by the constant flow of young talent, academic support, and government funding through Stanford University and the University of California, Berkeley, the Bay Area grew through cycles of space exploration, semiconductors, the Internet, mobile apps, and more. California's lax approach to the non-compete clauses in employment contracts — in sharp contrast to states where job-hopping is hampered by legal constraints — has led to an intellectual cross-pollination, and helped spur the rise of equity-based compensation at the heart of the startup dream, as Villanova University law professor Richard Booth has argued.
Newly-wealthy entrepreneurs who come out of successful companies, hungry to start or fund the next big thing, find support from the networks of law firms, banks, marketers, and other groups that sprouted over decades to support growing companies in what O'Mara called an "entrepreneurial Galapagos."
California, particularly Northern California, consistently tops the fundraising charts; last year, Pitchbook counted $257.7 billion in venture capital assets under management in California alone, compared with $60.2 billion in the second-biggest state, Massachusetts. The 10 largest funds closed last year were all raised by firms based in California. Silicon Valley's advantage has only increased as institutional investors diversify out of stocks and bonds, looking to get a slice of the next big thing before it goes public.
What's changed in the Bay Area
O'Mara, the historian, has said that "no region's glory days last forever."
The Bay Area's cost of living, for individuals and businesses, has crept ever higher, often pricing out those without a Big Tech salary and prohibiting startups from being able to pay enough to poach good talent, especially engineers.
In its march toward tech dominance, San Francisco lost some of its counter culture and artistic heritage, with WiFi-enabled vans that whisk employees away to campuses where they can eat, do their laundry, exercise, and even get their hair cut without leaving. The monolithic culture, which skews young, white, and male, isn't ideal for some founders' creativity and general diversity of thought.
Other cities have tried to woo tech dollars and founders, from Salt Lake City's "Silicon Slopes" to New York's "Silicon Alley." In New York, coworking companies housed startups that traditionally couldn't afford pricey real estate, and like in the Bay Area, they could benefit from the existing hub of young talent and business services.
As competition among VCs has increased, some started looking outside superstar cities like San Francisco, even before the pandemic. Steve Case's Rise of the Rest seed fund invests outside of New York, Silicon Valley, and Boston, and tech communities in cities like Austin have flourished, supported by more local investors.
See more: Young Gen-Z VCs are gathering by the hundreds in a Slack channel that's gone viral this week
One easy selling point for the non-New York City and Bay Area locales: taxes. Texas and Florida have no income tax, while California is discussing a tax raise to make up funding for schools and other services hurt by the pandemic.
Despite the pulls away, Conway said he's not counting San Francisco out.
"The Bay Area's challenges can be frustrating, to be sure, but there's still no place on earth like the Silicon Valley and the San Francisco Bay Area when it comes to talent, access to capital, and the tech ecosystem for startups that have created so many successful companies and founders," he said.
Ed Lee, Ron Conway, and Sean Parker
Steve Jennings for Tech Fellows/Getty Images
In a Friday podcast with The Information, California state senator Scott Weiner said he didn't buy the seeming tech exodus.
"It's very speculative for people to start asserting that we're going to have broad-based work from home," he said.
Wealthy San Franciscans' exits could bring "some welcome relief"
If nothing else, the current departures may be letting some air out of the balloon, which some believe would be a good thing for San Francisco's livability and its longer-term prospects as a viable breeding ground for innovation.
Since the start of the pandemic, city rents have dropped and moving companies' businesses exploded as some tech companies rolled out remote work structures and others cut staff.
Peter Cohen, co-director for the San Francisco housing advocacy group Council of Community Housing Organizations, said some of the exodus could counteract the wealth concentration that's kept lower-income people out of the city and squeezed residents trying to hang onto their homes.
"The exodus of a handful of wealthy investors and executives from San Francisco as the bubble now starts to burst is not going to get much worry from affordable housing advocates," Cohen said. "Moreover, if this is the telltale sign for finally leveling off the growing inequities that have been making our affordable housing and community stabilization work so much harder, it could be some welcome relief."
Twitter headquarters on April 26, 2017 in San Francisco, California.
Justin Sullivan/Getty Images
It's unclear how the departures of wealthy individuals and businesses will affect San Francisco's bottom line, and neither the mayor's office nor the city's Office of Economic and Workforce Development responded to requests for comment.
The Bay Area desertions mirror those happening on the east coast, where financiers have swapped New York City for Florida and other sunnier locales, seeking more space, better weather, and perhaps most critically, lower taxes. In August, New York's mayor called the wealthy leaving the city "fair weather friends" and said they would be replaced by newcomers. He also proposed a higher tax on wealthy residents.
San Francisco is more exposed to tech cycles than New York, and this could be just the latest in its long history of booms and busts.
"Everyone either thinks San Francisco is the center of the universe or it's dead," venture capitalist Ann Miura-Ko, who's now in Austin, told tech journalist Eric Newcomer in his Wednesday newsletter. "It's just super annoying because anyone who has been here for over one cycle knows it always comes back and it always also falls out of favor."
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VOI CEO Fredrik Hjelm
VOISwedish electric scooter startup Voi has raised $160 million from New York fund The Raine Group.
Voi competes with rival scooter firms Bird, Lime, and SoftBank-backed Tier in Europe.
The fresh funding comes as the company continues its expansion across Europe and takes its total raised to nearly $420 million.
"We have the recipe for success and have proved both product-market fit and logistics," Voi CEO Fredrik Hjelm said. "Now this is more of an execution play."
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Investors continue to flood electric scooter startups with cash in spite of the pandemic, with Sweden's Voi raising a $160 million round from New York fund The Raine Group.
Founded in 2018, Voi offers scooter rental services across more than 45 cities in 11 European countries from its base in Stockholm. It doesn't operate in the US or Asia.
Riders can unlock and rent a Voi scooter by scanning a QR code on the vehicle with an app. Users are charged a fixed base rate for unlocking the scooter and are then charged by the minute for usage with the cost depending on the city.
Its new funding comes hot on the heels of Japanese investing giant SoftBank's investment into German scooter rival Tier as part of a $250 million mega-round.
E-scooters have proved, much like ride hailing previously, to be a capital-intensive industry with identikit startups requiring cash to fund a grab for market share.
The entry of SoftBank into Tier and now The Raine Group into Voi demonstrate a new maturity in the industry, according to Fredrik Hjelm, Voi's CEO.
"Growth funds are stepping into this space and they want more certainty when they invest," Hjelm told Business Insider .
"They want three to five times the return on capital rather than hundred-to-one moonshots which shows mobility is a mature and solid industry, not a boom and bust industry anymore. This deal is a sign of strength not just for Voi but for the whole industry."
Fighting it out with Silicon Valley competition
Well-funded US scooter players Bird and Lime have used their arsenals of venture capital funding to expand onto the continent.
Increasingly though, they have begun to lose out to smaller local copycats as Europe's cities clamp down on the number of scooter operators and turn to a competitive tender system.
In July, Voi raised a $30 million extension to its previous $85 million Series B round as part of its bid to take on its competitors and Hjelm remains bullish. "We have the recipe for success and have proved both product-market fit and logistics," he said. "Now this is more of an execution play."
The startup is making inroads into the UK, which only recently changed its rules to legally permit scooters on its roads. Like other European markets, the UK's regions are issuing permits via a tender process. Voi won tenders in the major cities of Birmingham and Liverpool, and the Cambridgeshire region.
The company claims that it was profitable for the month of June following an initial downturn in activity during pandemic-induced lockdowns in Europe.
In addition to the equity funding, Voi has secured what it calls the industry's first asset-backed debt facility at scale, which will be directed towards scooters and e-bikes in 2021.
Jason Schretter, partner at The Raine Group, said changes to the way we get around cities were here to stay. "Three years of evolution have taken place in just six months, and we are fully confident that we are only in the beginning of this trend," he said.
The fresh cash takes Voi's total funding to $417.9 million. Existing investors VNV Global, Balderton, Creandum, Project A, and Inbox joined the round.
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