Comment by mbesto | Hacker News Reader

Comment by mbesto | Hacker News Reader

I live in SV and love the quality of here. Honestly though, the situation for early stage startups here is becoming untenable.

My theory is the following:

- Seed money is drying up (there's legitimate data to support this) because it's all being saturation in Series Alphabet companies that are all raising on legitimate growth or legitimate track records (but with zero growth and very good connections).

- The housing situation is atrocious, and the tech scene is getting older (read -> having kids).

- This means employees are saturating towards Google/FB/Apple/etc because that's the only thing you can afford to do in the bay area. When you can afford pay hundreds and thousands of developers $500k all-in packages because your yearly profits alone can sustain the whole of the bay area (looking at you Apple) then it's almost impossible to compete for talent in anything that isn't Google/FB/Apple/etc or a Series Alphabet with strong capital.

- The rest of the world has learned all of the failures and lessons of SV and caught up. And yes all of the "inbound content" you created was free consulting to the 5 man shop running out of Madison, WI who is now competing with 3 man Stanford drop-out of the mid 2000's.

My bet is on this fund and other similar funds, like the middle market PE funds in tech (PSG, KKR, GSV, etc), Indie.vc, Venture for America, etc. This is the next big horizon in money making tech investing, not the next Instagram...those days are over.

It's amazing how many tech companies no one here has heard of but are making very legitimate money and are based in very unconventional locations. Tampa Bay, Minneapolis, Charlotte (and the tech triangle), Knoxville, Orlando, Atlanta, Provo, Boise, St Louis, Denver...you name it. I think we're gonna see many more Bandwidth.com's, MailChimps, Kabbage's, Outcome Healths, etc in the very near future.

I have a startup in a state which is very much a flyover: so much so that our license plates read "New Mexico, USA", to assure people that we are, in fact, part of the union.

I moved from LA to Santa Fe a year and a half ago and started a company. Was able to buy a 3 bedroom house, big yard, nice neighborhood, walking distance to restaurants, brewpubs, and a grocery store for ~$1500/month, and got a couple roommates which puts our monthly cost at $400. That's a lot of runway.

There is a lot of underutilized talent here since there aren't a lot of traditional jobs, and we have two national labs within an hour of us (Los Alamos and Sandia) that feed in a steady supply of engineers and scientists.

All of this has created a startup scene both here and in Albuquerque an hour away filled with companies doing really interesting things, none of which are trying to build the next great way to deliver more ads to people. And being able to get outside the city in 20 minutes to go hiking, skiing, etc. is pretty amazing after working through LA commutes.

There are things I miss about LA (the ocean!), but there are just so many advantages to having a startup here that now I couldn't see it any other way.

Are companies in the Albuquerque/Santa Fe startup scene ever hiring? Is it all word of mouth? New Mexico would be one of my top choices but all I ever see online are government Los Alamos etc. positions for people with advanced hard science degrees. It would be hard to resist the temptation to move there if there were any clear opportunity.

I know Descartes Labs is hiring.

I which I could send you a private inbox. I will definitely be interested on moving to NM for family reasons. My github account is huherto.

The SV BigCorps have really poisoned the well out there. It's depressing that the majority of good programmers in the bay area are obsessed with the compensation package. Not saying it's the wrong decision, but like you said, it sucks the air out of everything else. I'd want to blow my fucking brains out if I had the typical Google SDE/SRE's job and the most interesting challenges were whether it was worth it to take the Google Bus to work or how to deftly navigate the D'Amore spiderweb, but that's life if you want to work with good people out there. I've interviewed with "top flight" YC alum etc. startups in the area and came away hugely unimpressed. Maybe it was just luck of the draw, but as a startup guy, I have no reason at all to move out that way. Over time stuff like this will result in bland, money-driven talent with good pedigrees and hurt innovation, to echo your point again.

>It's depressing that the majority of good programmers in the bay area are obsessed with the compensation package.

I think many people across a lot of industries are primarily concerned with their compensation packages when evaluating jobs.

What a dull truism. I'm not living paycheck to paycheck, I make silly good money for where I live. The fact that I could be making 400k+ total comp in Google Mountain View hell or Facebook Palo Alto hell does nothing for me.

I have a hard time believing that the majority of people making 400k+ at either Google or Facebook would consider their work/life situation a type of hell.

I understand why some people don't want to work for those companies or in those areas, or aren't motivated by money. But I think many others do, and the ones that are living it now are doing so by choice and for their own reasons.

Well to give you and idea on how expensive it is to live, let's talk taxes. Let's say you are married and make 400k a year and live in San Matteo , CA. California tax rate is 9.3% and federal is 33%. So before living you owe have (400,000x(1-(.093+.33))=230,800.

Now let's say you want to house your family. You decide to buy a house. Well you only have $230,000 so you can't put 20% down on a home with an average price of a million won in San Mateo, so you put 10% down on this home ( random home in San Mateo.)[https://www.zillow.com/homedetails/1715-Borden-St-San-Mateo-... ]

It's a 3 bed 2 bath home with 1400 square feet.I'm also assuming you have two kids.(each get their own room)

So now we're at 230800 - $110,000 = 120,800

Now you have to pay the yearly mortgage which is 5606 x 12 =67272

120800-67272= 53,028 left over to live in.

Well don't you need a car to go to work? What about a car for the wife? Car insurance? You are looking at 1200-1500 a month, if you buy a newer car and have great credit with insurance.

(1300x12) - (53028)= 37,028

You see how quickly it goes.

So the thing is I'm not sure if you can put a down-payment on a house less than 20%. That will take off on the mortgage (save you an additional 12-15k) ( I also assumed an interest rate of 4.37% for the 30-year fixed and I believe if you put more down you get a better interest rate)

Who pays a down payment out of a single year's savings?

Not many people. I expect that the more normal situation is years of apartment living, saving up, and then paying the down payment as a dual-income couple possibly with assistance from parents.

I assumed, that a person who would be moving there and would be buying a home and or have no savings...

I know hard for some people to imagine, but alot of people have no savings , leave paycheck to paycheck

Yeah, but unless you're putting the down payment on a house every year, that's an extra 110K (post-tax!) dollars every year after the first. I can't imagine how I could spend that much money, especially since the mortgage and car payments are already taken care of.

You are correct.

yeah you pay the down payment once. so this guys saying next year that person has ¢150k to live on.

no problem

You only pay 33% federal income tax on the income over $191,650. If you corrected for that, the amount left over would still be close to the median income for a family in the U.S ($59k).

You are correct.

https://smartasset.com/taxes/california-tax-calculator#NIGzB...

Total income after federal and state taxes is $241,739.

This is only true until the Republicans exciting new tax plan goes into effect. It kills the State and Local Tax deduction (SALT) to allow them to cut the Corporate tax rate to 20% and eliminate the estate tax while only increasing the federal deficit by $1.5 Trillion ($1 Trillion if you account for increased economic growth).

It's pretty unreasonable to believe you should be able to just move somewhere and put 20% down on a >$1M house after working for one year... If you are making $400k a year, you can rent a modest place for 2-3 years, and then you will be totally fine and able to buy a pretty nice home without issue.

Your math is way off. First, you don't pay the full 42% on all your income. The effective date will likely be in the 25-30% range. Then you assume that the borrower will keep paying 10% down payment every year. That doesn't make sense.

You (and the others in this subthread who are splitting financial hairs) are both missing and proving my point pretty hard. Which is that I'm not so money driven to care about doubling my earnings from their already high level, and more importantly, that the people who are out there do care about this and are happy, that is just fine, but that I personally find those opportunities and the people they please mighty drab and repellent. I hope that clears things up. Please re-read my first comment.

I'd stop going to work if they stopped paying me. Every unit of comp I am paid (and don't spend) now is 1+ units of comp I don't need to earn later. All other things being equal, getting paid more is frikkin' awesome. If you can live a life you'd want and make a lot, too, I highly recommend it.

thesmallestcat: except, you can retire early, and move to cheaper place.

It's worse in the midwest. 95% of the available tech jobs are boring as hell, so there's not much left to look for in them except money.

I love my BigCo comp package, but to tell you the truth, I would not go to a startup for a 50% raise, because the best part of working for the BigCo is that my code ships to tens of millions of people, and I see it on the service dashboard. You can't get that anywhere else. Hundreds of millions of people a month run my code. That is very cool.

How would a Bay Area tech company then compete with the like of Google of Facebook for top-talent then? It would be nearly impossible for most companies to match the compensation of the Big 4. The influx and concentration of wealth by those companies are essentially crowding out smaller companies and driving up local housing prices. Think about the billions of dollars that flow from around the world, and disperses itself in the small radius that is SV and SF.

What's the solution then? Have smaller companies move to the Midwest? Or radically cap salaries at 100k?

Right, that's the inner question of my comment, and the answer is, they can't. Hence the "poisoned well" analogy. Unless you're the founder and want access to Googler/FBer/etc. dollars, or you have dreams of transitioning to a BigCorp role, there's not a compelling reason to work at a bay area startup (well, unless you really like SF, a totally valid reason -- I love SF, but the tradeoff is a bit fierce right now).

I look at differently: it sucks that so many are willing to work for so little, or even nothing, that it sucks the air out of negotiating better compensation packages.

Compensation is how we provide for our families in this world. It's important. At least as important as the quality of schools and culture in an area, for example: two areas that lily-white flyovers are worse at. Note: I lived in the Midwest many years. The occasional urban area that defies the above is an exception, not the rule.

Note: I save the equivalent of a down payment on a nice home in the Midwest every year. Compensation is nice. In 5 years even if I have no growth I'll be able to move somewhere in the Midwest and buy a huge house even if my income halves. That security and peace of mind isn't available to folks happy to get paid less out of spite for the Valley.

snipped

I bet you think you aren't an outlier.

Good point! I think that the decision skews away from the bay area (for startup work) if you're particularly skilled. A mediocre developer can make a load of money, relatively speaking, in the bay area, and might get screwed in the midwest. As a big fish in a small pond, and as a force multiplier, I have more negotiating power here.

A "Big Fish" in the Bay Area is doing that much better, though. That's the whole point.

Everything I've ever learned about venture capital is centered around the notion that in order for the economics to work, you have to invest in big winners (companies that exit at valuations of hundreds of millions to billions of dollars), such as an Instagram.

Do you disagree with that? And/or are you saying that there are many of those kinds of promising startups outside of Silicon Valley to justify these new investment funds?

My personal opinion is that there's just too much money chasing too few good companies. In other words, I think many startups, including ones that are worth a billion or more on paper today, will ultimately fail to generate the necessary returns for many VC investors and firms. And as a result, the access to money at all stages will constrain greatly, and sharply.

There are numerous types of venture capital approaches utilized across the US economy.

The SV venture capital firms need massive homeruns because of the investing approach they use and the types of companies they invest into. It's not the other way around. They specifically back companies with zero profit, often zero potential for near-term profit, zero ability to sustain themselves, that bleed red ink in exchange for hopefully extreme growth. These VC firms intentionally avoid investing into less rapid growth, self-sustaining, profitable businesses. It's a choice, not a required direction. They want to play it big, they want to be rock stars, they want to get massively rich, they want to find the next Google. They're gold or oil prospectors, looking for the big haul; my opinion is most of them find that game addicting just as any Wall Street rock star does.

Mark Cuban is fond of saying that his preferred investing time frame is forever. What he means is, he ideally wants to invest into companies that actually have a sustainable business model, generate profit, and can pay out profits. He's basically a giant angel investor or his own VC firm, and he's on record as strongly disliking the SV model. In general terms, he represents an alternative approach to Silicon Valley.

You can find investors like Cuban all over the US. His particular wealth scale isn't necessary at all for what he does as an investor. Finding wealthy angel investors in Pittsburgh, or Salt Lake City, or Dallas, or Atlanta, is not particularly difficult.

I think angel investors are different than venture capitalists. The former typically make small investments, starting anywhere in the low five figures, up to seven figures, but more commonly capping out in the low to mid six figures and receiving a corresponding stake size in the companies.

Venture capital often requires taking sizable stakes in companies by investing millions of dollars, in order to have a chance at producing the returns it's seeking.

After thinking about it more, this Rise of the Rest fund for the Midwest, to me, is more like Y Combinator (and likely a competitor to it), in that it's essentially a giant seed fund that will then bring in its big-name investors and business magnates to make VC-like investments in the most promising companies.

Instead of having a large network of former YC grads, it has a network of some of the most well-known investors and business magnates in the U.S.

With that said, Steve Case is quoted in the article saying, "First and foremost, our goal was to generate top returns.”

I agree with you and I think that's why, despite good intentions, this fund might be a little misguided. On their site they discuss how they are sticking w/ the tried and true of what they know in terms of VC investment in tech companies. You can't fault them for that since it is what they know and are used to.

The issue with that in context of the geography of where they are looking is that yes, there will be talented tech workers out there and entrepreneurs (within the tech sphere) that they might stumble across. What could be more necessary in terms of stimulating economic growth is looking at non-tech entrepreneurs in this areas, or at least ones that are not some version of an internet company.

There are probably a lot of folks out there that have ideas for companies, ones that might be hyperlocal or regional, that could be good, sustainable businesses but won't grow like a unicorn. Their costs might not be so much personnel but capital expenditure. They might not be sexy investments. But, if the intent is stimulate economic opportunities in 'forgotten' areas, this is the more likely scenario than finding a superstar developer in a haystack.

Mind if I butt in with a noob question? What do you mean when you say "Series Alphabet"? Are these things funded by the company Alphabet? It feels like there a lot more background that I'm not privy to.

I think it refers to the fact that companies like Uber have had ABCDEFG rounds of funding

I think he's talking about Series A, Series B, Series C, etc. compared to seed stage/high risk companies.

Exactly this.

look at the last "who's hiring?" ...every month I see more and more listings outside of the Bay area

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