Landlords are trying not to rent to startups in San Francisco
42floors.com
42floors.com
VCs have longer time-horizons (a typical VC fund will be spent over 5 or so years) and appear more stable to landlords. In addition, one of the toughest problems for VCs as I understand is dealflow - when it comes to a super-competitive round, Andreessen or Sequoia will often push other VC firms out of the round by throwing their prestige around.
SF Office space could make the difference to a hot start-up looking to raise their Seed or Series A and move to the city, especially coupled with a time horizon of only 12-24 months. It may not be enough to lead a competitive round, but may certainly enough to get a piece of it.
For a VC firm the real-estate market and rising rents have a limited effect on the success of their investment portfolio and the returns from real-estate don't justify investing money that could otherwise be put into their core business of investing in startups. A $100,000,000 can fund a lot of startups. It's not going to buy a sound diversified portfolio of San Francisco office properties.
Edit: this would be a really clever idea for a fund to raise a round just to buy real estate to lease to their portfolio companies. It will give investors a chance at indirectly investing in startups with secure value backing the investment.
The last thing VCs need to be is a landlord.
In a market downturn in a worst case scenario...this real estate has underlying value besides its immediate income producing potential. It will likely retain more value than their actual startup investments.
Source: Im a former commercial real estate leasing broker and former commercial real estate underwriter.
Anybody doing that would almost certainly be buying high and left holding the bag when an economic downcycle arrives.
Any VC fund that doesnt diversify their investments to cover market movements wont survive very long.
Plus, even with a bubble bursting, commercial real estate in prime locations will retain much of its value. It will definitely outperform the startup market.
VCs that plan to use LP money to own and operate a commercial real-estate project are likely to get a "no, thank you", as LPs have access to REIT sector with much better purchasing power, IRRs, cashflows and operator experience.
If the VC firm is leasing and then sub-leasing, the reverse selection bias works against it, as the rapidly growing company is going to be the one moving out the soonest, needing higher square footage and shopping around for entire floors (or buildings, or campuses) will give it much better rate per square foot.
With that said, if anybody was doing it, it would be A16Z, considering how much Silicon Valley land and commercial real estate belongs to Arrillaga family.
Accounting is much easier than it used to be, so we can afford to be a bit more inconvenient. Maybe it's time for a vertically integrated startup service provider. Don't VCs already do things like arrange legal services for their portfolio companies?
See also: http://kyle.marek-spartz.org/posts/2014-04-30-startup-servic...
I guess Plug & Play Ventures is the outlier here, having started in real estate.
On a related note there is no reason VC could not do the same with talent. The could be hiring talent and feeding that into their portfolio. They could also facilitate easy movement of people between companies in the portfolio so that you get better team fit. The only problem with all this is it takes effort.
The biggest problem is capital tie-up. Buildings are expensive, in Cali, they are even more expensive. I've always wanted to try this idea though, perhaps in a large converted-warehouse or even a traditional down-town office-space somewhere like Austin.
Again though we must ask ourselves, what's more likely to help a start-up, office-space (in a time when more and more companies are moving towards virtual working arrangements), or an additional 100k/200k? Just some food for thought, like I said, if done right, it could be a very good perk to offer, but it's hard to justify the cost.
Cough And, shameless self-promotion, I'm looking to move into the VC space in an entry-level analyst/associate position if anyone has any exciting opportunities. Or even boring opportunities, I like boring too. :)
Commercial lease is really only applied to companies that can stay in business. A long lease is often not enforceable. The incorporated company simply declares bankruptcy and it's hard to collect the money on the full term of the lease. I remember in the Dot Com bust days some failing startups simply stopped paying rents but stayed on, to stretch that last dollar or to burn out that security deposit.
The entire point of a startup is to not stay its current size - either it will grow wildly or disappear altogether.
If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business.
Quick example: imagine you are an IT consultant brought in to automate data manipulation processes in BigCorp (or more often MediumCorp since BigCorp has an internal team doing this already).
There's 150 people currently downloading data into Excel, running a few macros they know nothing about, and then reuploading the CSVs. You figure out what the data flow is, read up the API doc, and build some kind of process that does it in 5 minutes in bash on a medium instance on AWS, whilst fixing the errors the macros were making.
Will it be an easy sell? You were expressedly brought in to do this, but you'll find that the manager in charge of the 150 people - let's call him the CXO - is going to fight every inch of the way to stop you from launching your product. He'll point at the diff between his crappy but nevertheless, in production stuff and your script as cause for audit, creating a weeks/months long review process (because nobody can find the time, or wants to take the responsibility and the fight). He'll blame you for creating a "toxic" work environment. He'll bog you down in endless 2h long lunchtime meetings unrelated to the main point in an attempt to make you lose your professionalism in front of external stakeholders. He'll list missing new features then put them through the audit process.
Eventually, once a few months have been wasted, he'll point at your lack of progress as a sign of your incompetence, even though the working version was ready to be rolled out months ago. Nobody will question him because the company is profitable and it doesn't really matter how the process is done, just that it gets done. So, you leave the project, pocketing your pay - which they will pay on time so you don't make a fuss - and things continue as before for the CXO and his team, perhaps even gaining approval for a further 50 in headcount to develop the new features or to compensate for the expensive SQL and scripting training (MS stack, of course) that he's sending his entire team to in batches, whilst you'll have made a bad impression on that company's management and be burnt out of their network.
The CXO benefits outside the company as well, as he can now say he managed XYZ employees which is how people automatically gauge someone's success. This enables a succession of ever greater responsibility positions (or entry to Harvard Business School, who actually asks you "how many reports did you have"). "Well, if the previous place trusted him with 150 people..."
It's even worse in startup space because VCs and many founders understand that growth at all costs is what matters, so there are significant incentives to doing it today, even if badly, vs doing it tomorrow but well and in a way that doesn't pile technical debt. It's a winner takes all, so you just need to pour in enough millions and you'll reap the billions (in fact this is also the very structure of a VC's portfolio, investing in 10 different ways of doing the same thing in the hope one wins, even if it means the others all die).
So some founders may be doubly incentivized: making the company as large and cash flow burning as possible both to appear like the obvious winner, and to justify mammoth fund raises at a time of abundant capital seeking yield; and, if things go wrong, well, they managed hundreds of millions of VC dollars and hundreds or thousands of people in dozens of global offices and it sounds damn good for their next try.
And this is where both WhatsApp and Instagram did things differently: they focused on getting the user growth scalable without enormous headcount growth, whilst - at least in Whatsapp's case - having enough cash flow to hold on until the mega acquisition (and in Instagram's case, sustaining the company on the early rounds). Pointing at lack of revenue is not particularly useful - I would say even a red herring - when even SaaS companies go 5-10 years without showing profitability and with enormous fund raises for growth (just look at the analytics space for recent examples).
The hedge fund space - which is almost by definition results driven - has already caught on - Bridgewater type funds with a thousand employees are the exception rather than the rule and seeing AUM over a billion USD per head is more common than "unicorn" startups.
I agree with pg's definition of a startup as being about growth (in the eponymous essay). In users, not headcount, in revenue, not funding. Even if there are many cases where one drives the other, targeting headcount growth and fundraise amounts as success KPIs is an instance of the https://en.wikipedia.org/wiki/Cobra_effect.
Growth for the sake of growth?
I would actually think that this is pretty far away from what startups are about.
Established companies grow and shrink, too. They close offices and factories, open new ones, and occasionally file for bankruptcy protection. But they do these things much less frequently than a new company, and they do it with the backing of a much larger and more reliable cash flow. That cash flow means that even in bankruptcy, an established company's creditors usually end up with a significant recovery. From a landlord's perspective, these are the things that make established companies more attractive than startups. Thus, in this context at least, "startup" means nothing but "new company" and carries none of the other connotations that most people here assume when hearing the term.
You can, of course, attempt to appropriate the word "startup," redefine it to mean something else, and then attempt to get others to use your new definition, but empirically it seems that almost everyone is using pg's definition above for that word.
4 years in, no profit. After 5 years, they became "profitable before marketing costs", which was the largest business expense (in the millions).
Huh. I should dig and find out if they still call themselves a startup from 2009.
So one wonders about the whole "wisdom of the crowds" or "herd" in this case, and whether or not they can sense something that isn't showing up in other indicators. I've been looking but other than the extensively covered late stage valuation madness I've not found good correlation for this feeling.
In Surowiecki's telling, if you get a room full of people to write down a guess about how many jelly beans are in a jar, the average of all the guesses will be surprisingly accurate. But if the people are allowed to yell the answers aloud, the first person who yells a guess "anchors" the guesses, and so if that first guess is radically wrong, a substantial bias is introduced into the overall distribution of guesses.
Real estate agents in a small geographic area, such as one city, often talk to each other, and therefore they generate a conventional wisdom, but each of their opinions influences everyone else's opinion. So you can get a herd action that is greatly at odds with reality.
That's less because the numbers (measured inflation and unemployment) actually call for an increase and more to just remind markets that: rates won't stay at zero forever and non-zero rates aren't the end of the world.
Until Detroit and Stockton and Pittsburgh are doing well again, aggressive policy is going to continue to fuel massive growth in SF and the Bay Area.
Tightening is not coming fast nor aggressively.
Detroit and Stockton, less so.
Or, thinking about the other direction, even restricting ourselves to within California San Francisco and the Bay Area single-handedly pay for a massively disproportionate part of state government services and redistribution. Perhaps it's time to go way back to metropolitan city-states as the proper scale of government.
The problem here is twofold: first, not enough of the money being created is flowing into operating assets; second, the operating assets being purchased with this money aren't productive. This seems like an obvious and natural consequence of a service economy, in which the dominant inputs are labor and real estate. When you pay higher wages, that money has to go somewhere. Some of it goes toward consumption, but most is surplus and gets invested. It has the same problem it had when it was created: it can go toward real estate, operating assets, or portfolio investment. No one wants operating assets in a service economy (because they're not productive), so it ends up in real estate or portfolio investments. That drives up asset prices but does not increase output. Diverting more of this money into operating assets (things that make stuff) would increase output and alleviate the pressure on asset prices. Instead it goes into more wages (paying people more does not make them produce more) and real estate (paying more for land or office space does not make it produce more, either). One of the few bright spots was oil, but the sharp drop in prices has made investment there unattractive as well, and has reduced nominal output at the same time.
The central bankers can control the rate of asset price inflation by making money cheaper or more expensive, but they can't do anything to increase output when the money they create is used primarily to acquire nonproductive assets, or to acquire at higher prices assets that are already being fully utilized. That's why real estate is expensive and output is stagnant, and why fiscal transfers won't solve anything.
Any number of solutions suggest themselves: relaxing regulatory requirements to make manufacturing, utilities, and other non-service industries more productive; fixing China so that surplus cash in the US can be invested in operating assets there instead of domestic real estate; fixing laws that limit the supply of real estate, both to directly reduce the price and to make it less appealing as an investment; investing more tax revenue in infrastructure instead of transfer payments to individuals (where much of it ends up in ... real estate); radical alternatives like breaking up the United States into separate nation-states that are more cohesive internally. I'm sure you can think of others as well.
That said, why would the Fed tighten money in the fall when we're so close to an election year? I know they hold longer terms to hopefully avoid political swings, but, it just seems like bad timing.
That said, I'm not entirely convinced Yellen will tighten. She has a reputation as a dove on monetary policy and seems weak to me, overly afraid of the effect her actions will have on the stock market. It wouldn't surprise me if we end up with another 1997 situation, where some temporary economic instability makes the Fed put off tightening or even introduce additional stimulus, and this ignites a speculative bubble that raises prices beyond all reason and then bursts.
(The username is ancient, I've had it on various sites since college, and while I'd love to be thought of as a prophet, my track record isn't that good.)
I doubt this will take place. If anything, I think we will see deflation?
These low interest rates have provided gambling money to the 1 percenter's. (I don't want argue--just the way I see it.)
There's a part of me that want to cash in on these low interest rates(part owner in a home in the Bay Area--that people really seem to want.), but my inner voice--wants the fed to raise rates?
Why--the poor/middle class have been left out of the recovery(unless you are in tech.). We get essentially 0 % on our meager cd savings accounts. We can't gamble in this bubbly/momentum/free money stock market?
In essence, what the poor/middle class got out of this recovery is no change in wages, higher rent, higher fees, and 0 percent on our savings. (I do appreciate the access to health insurance though. At least, they(hospitals) can't attach my interest in a home-- if I got sick, and managed to survive? Before Obama Care, I couldn't get health insurance, and always knew I was one judgement away from being homeless. (For those that hate ObamaCare, I would be happy with a 2 million, nationwide--homestead exemption, incorporated into our federal bankruptcy laws? All homes should be judgement proof.)
So Janet--raise the interest rates. The rich boys are just gambling, and laughing! They have so much money they don't know where to put it? The REIT's are buying up too many commercial/residential units; on your free money--I sometimes wonder whether its foreigners(who can buy a home in the U.S., as easily as picking up a phone), or REIT's whom own more?
See, only the banks, and their Best clients are given this free money. I am not seeing the trickle down? We got out of the risk of Depression? It's time to raise rates, and never bailout another bank again.
The problem is that the American middle class needed the bailout that went to the banks and raising interest rates will hurt an already down and out main st. Frankly, we should have just given a massive tax rebate to the middle class. Of course, it's politically infeasible, but they would have actually spent the money in the real economy rather than using it to drive up asset prices.
Plus just in terms of the benchmarks they watch: The headline CPI is currently at a miniscule 0.1%, way below the 2.0% target. The personal-consumption-expenditures (PCE) rate is somewhat higher at 1.3%, but still below the target.
You're right that it's bad timing in that their rate increase is likely to come shortly before a bust, and therefore will be second-guessed to no end. But that's the case precisely because it's coming far too late. The solution was to normalize rates near 2% during 2013 and then raise them slowly from there as data improved, not to delay further. Normalizing policy sooner would have limited the overheating this article is all about and therefore limited the impacts of the coming bust, perhaps even to a sub-recession level. Further delay will make things much worse.
The election is irrelevant to an independent central bank, and in any case the major elections are (not that you'd know it from reading the MSM) 15 months away.
The best time to raise rates was a long time ago. The next-best time to raise rates is now.
If the SF Bay Area had its own monetary policy, things look a lot different in the local statistics, of course.
In the 70s the big focus was on the wage-price spiral, so hourly wages and prices paid were important indicators. Today there is zero wage inflation going on despite near-full employment, and instead asset prices are in an upward spiral. The preferred indicators should have changed to reflect reality but they haven't. That reality is that outside of a bubble sector there may not be wage growth during the lifetime of anyone now living. When the unions ruled the roost and labor's share of revenue was sky-high, a focus on wages was appropriate. Today, unions are almost gone, wage growth is nonexistent, and virtually all money being created is flowing to owners of capital. I'm not interested in debating whether this is healthy, and neither should the FOMC; that's not its job. But under these conditions, asset prices should be the primary driver of monetary policy, not wages or employment and certainly not the near-useless CPI-U. That driver is screaming slow down!!! and has been for some time now.
I think that the shared office spaces are really a wonderful solution so that young companies can have a great space without the long-term commitment. Ironically when we visited one (in Chicago) there were quite a few corporate "outposts" there with large companies like IBM.
I've been solidly in the "actual value is being created by a lot of companies, mainly because tech (via startups) is destroying existing monopolies", but that's less true of some.
I think SF itself is probably a startup bubble and will correct, but it might just be a "go back to how things were a year ago", not a complete implosion. And the least bad way for this to happen is by sub-sector, like happened with all the shitty social buying apps a few years ago.
This is very similar to the dry-bulk market. It should be instructive to look at how companies like DryShips and Diana Shipping handled the enormous spike in the Baltic Dry Index several years ago, how they've fared since, and how they've managed their businesses afterward. The cyclical nature of markets cannot necessarily be controlled, but it can be harnessed to outperform one's peers, and if you are a REIT portfolio manager or smaller property manager, your job depends on doing just that.
It's already close to late 2015, so the halfpoint of the predicted period is only 18-21 months away. That fits your observation that landlords expect the bust to be less than 18 months away.
Surprised that was, dare I say, "fair and balanced".
What interested me was the way that in this discussion, each of the separate reasons for the landlords being reluctant to rent to start-ups has been discussed separately - analysis - where what the landlords are doing is making a synthesis.
Eventually the price of real estate and labor will be so high that the relative disadvantages of other locations will not matter.
They went up and down sandhill road/SF, and got a couple really lousy offers for funding, and were shocked at how harsh the VC community can be.
Their board member (one of our closest/best mentors) recommended they go back, but make the first slide in their pitch deck "We're moving to San Francisco." They got five term sheets in the first two days, ended up raising from a top-tier firm.
Yes, this is anecdotal, but no, this is not an exaggeration. You can raise money being unwilling to go to the bay area, but you have to have a really compelling vision/growth rate. People have to be fighting over you.
VCs are weird.
Oakland or something may be a different situation (not sure if doing the South Bay thing would even save you any money - Palo Alto ain't cheap), but anecdotally people in Utah get told the same thing again and again. You can stay in Utah, and costs will be way lower, but you'll probably pay for it. (Note: our company is remote with headquarters in Utah)
(East Texas is famous, or notorious, as where patent trolls like to file their lawsuits.)
[1] http://fortune.com/2015/07/28/zenpayroll-jobs-denver-colorad...
I'm seeing the other side of the coin, where getting hired is proving very difficult. The joke here is even the dirtbag climbers have PHDs.
Or you could always move to Amsterdam: http://blog.booking.com/
Booking does have a somewhat strange reputation when it comes to their coding style, I'm not sure if I could really come on board fully with their workflow.
Ha. I haven't gotten a Perl job in Boulder since 1999, and I don't know if I've seen one posted since then, either. My expertise is a little broader than just slinging Perl, fortunately, but I do find it to be a most agreeable language to a creative, visually-oriented mind.
What am I referring to is the scenario where you can apply for a job, and rarely even expect to hear back from a potential employer, as the total number of people also applying makes that impossible. This, I don't think, is very different from other areas of the country.
Google moving to Boulder is sort of a mixed bag, and there is a number of people who are not looking forward to them coming.
Right, I think that is a function of resume spraying, to be honest. I agree that it is pretty common.
Note to employers! You can stand out by treating applicants as human being and simply replying 'no, it doesn't seem like a good fit' when someone applies for a job. I love what Zapier does, for example--they respond to everyone.
Luckily there there are countries not far away (closer than most US states to Colorado) that provide some serious mountains. Imagine living in a large (fictional) cultural and tech hub in the plains 100 miles east of Boulder. That's what Amsterdam may be like in this regard (distances are off, but infrastructure looks much denser in the Netherlands and its neighbors).
The mountain side is still more distant than in Boulder, but "different country" means a different thing in Europe.
Things are not cheap here in Bend, but I have more of a feeling of getting in earlier, while things are still growing.
Didn't seem like much business was happening when I visited, though (other than tourism).
Is there a tech scene now?
Yeah - it's small, but seems to be taking off.
http://www.entrepreneur.com/article/223997
I had some doubts about moving back to the US from Italy, but so far we're really happy in Bend. We'll see how the winter goes.
I know they are building a bigger campus[0] so maybe they are having a hard time because it is a bigger number of reqs than in the past?
0: http://www.denverpost.com/business/ci_27063628/google-build-...
For a small company, I'd say the time/cost of hiring a few good engineers is way more than a few months rent. You'll certainly pay a respectable headhunter quite a bit.
Many of the really amazing labor pool members are recognized as being amazing and are compensated and rewarded in such a way that it will be difficult to draw them away.
Then those that are looking are being courted by every other company.
The converse can be true - it can be much easier to get very high quality talent somewhere that there is not a massive labor pool. You'll attract the people who don't want to live in SF or NYC, or want a certain lifestyle, or to be close to where they went to college, etc. etc.
I'm not saying that starting a company not in SF is inherently better, but that "insurmountable advantage" is also one of the biggest disadvantages about SF. Your mileage may vary.
I live in the South of France in a big house that costs me $800 per month. I am about a 10 min walk from the TGV station that can take me to Paris in just over 2 hours. My kids are in French pre-k, I have top notch medical insurance that costs $139 per month to cover the whole family beyond the government insurance and I don't have to worry about my wife getting harassed by urine soaked homeless people at BART stations.
I can't speak for all engineers but given that there is an entire word outside of San Franscisco, I can see zero advantage to living there. Talent is there because they have to be. I'm sure a huge percentage would rather be working from a beach in Thailand or Tulum.
As far as investors, who cares? If you have a product people want to buy, investors will come to you. It's a myth that proximity matters. There were investors long before Silicon Valley startups were a thing. Plenty of billion dollar companies founded everywhere else. At this point, San Fran and the valley are prestige locations as opposed to offering any competitive advantages.
We could likely build an accomplished team in any major metropolitan area, but since our investors and board members are here (as are the other companies they invest in and manage), it makes sense to have the company here. (not entirely our choice, when someone invests millions of dollars into a company, they want to be close to it)
FOSS proved over two decades ago that you can build complex competitive systems with people you have never met. The fact that you couldn't make it work doesn't mean that it doesn't work. It means your company could not figure out how to make it work for you.
Large companies often have a ton of inertia, not a lot of competition, and they often take a very long time to fail. Just because they've started doing it, and are getting away with it for now, does not mean it's a good idea.
I'm not saying it's NOT a good idea, I'm just saying you can't tell based merely on the fact that they're doing it. They also have lots of employees who put in the bare minimum and punch a clock to draw a paycheck. Does that fly in a smaller, less well-funded company?
The experience of large companies that have large remote workforces and FOSS projects that have workers so motivated that they'll work for no pay probably doesn't translate well to a small startup that doesn't have the resources of a large company, nor the employees so motivated that they'll work for free.
Remote work, as you say, has it's challenges, and sometimes it's better to pay the money avoid the challenges than to pay the money to confront the challenges.
It takes work to establish your culture to work remotely well -- if you just hire some people that you only ever hear on Skype during standup and give them work, they don't become enmeshed in the fabric of the company. Cliques form everywhere but they can be especially brutal in excluding remote workers from the 'core' teams that are seen as successful within a company.
I'm sorry to hear it hasn't worked for you. If you attempt it again, make sure you evaluate whether you've built a culture based on 'being there' before hiring people who can't be. Lots of people make this mistake and just see cheaper workers.
Yeah, some teams like to take advantage of the far richer communication that's available in person rather than handicapping everyone to the lowest common denominator.
If you attempt it again, make sure you evaluate whether you've built a culture based on 'being there' before hiring people who can't be.
IOW, discourage informal social interactions between employees. Don't permit them to go to lunch together and talk at leisure about things.
Companies do not like spending money they don't have to. So since the Internet hasn't killed business travel, there must be a very good reason its still worth it.
I honestly do not believe for one second that this is a thing, or that it's a significant thing.
I would much prefer that my company let me work remotely. The Bay Area is full, seriously, and I'd be happy to work from many other places.
But denying reality doesn't help.
I think there are potential technical solutions to this problem (VR office at home), but I suspect it'll take legislation (aimed at getting vehicles off the road) to make remote work a real thing that a lot of people do every day.
And easier to disseminate. Searchability is far superior with tools than with voice conversations.
Two engineers talking to each other will share far more useful info than they will directly.
It's particularly jarring given how many of the same investors are arguing we should tear town universities and replace them with MOOCs, demolish shops for Amazon, and so on and so forth. Apparently face time and interpersonal interaction is an irrelevant artefact of the old world except when it comes to their own industry.
Is this really true? Seems far-fetched. Isn't that $20-30k higher than the Google base starting salary?
If you're willing to live a bit further out (like Milpitas/Santa Clara), you can live somewhere for under/around 2000, which (when split with a spouse/partner/roommate) can be reasonable given the salaries in the area.
Looks like I'd have to live with roommates if I moved out there.
Sure, a single guy can rent a single room and walk everywhere. Add in wife and kids and you need three rooms, a car, somewhere to park it. Schooling, activities, shoes and clothes, stuff...suddenly 140k isn't looking too flash anymore.
Assume you're making 140k, after 10% retirement contribution and CA taxes leaves about $6400 per month net. With the average 1 bd apartment at $3200 now that's half your take home wage. Leaving $3200 per month is $800 / week. Or $20.00 an hour at 40 hours. Given typical start-up hours and not even counting the typical food/internet/car expenses. So, if you want to look at it as an all-in after expenses, yeah, even that kind of salary can feel like minimum wage. The economics of minimum wage here in SF are a LOT worse...
EDIT: And some that may not all be income tax? E.g. in Ontario one pays fed income tax, provincial income tax, Canada Pension Plan, Employment Insurance, and a few other I may have forgotten. In London, UK one pays income tax, national insurance, and council tax (property tax paid by property occupiers).
And for all that, we get to pay for our own health care and retirements too!
That said, I'd believe that if you include expenses like health care your net pay would be ~40% less than your gross pay. :P
Many of them want to "influence' the companies they invest in, to give them the best chance of seeing a return. They feel they can't do that as effectively if they can't hop in a car and drive to the office quickly.
"I also don't understand why most startups need an office."
Many managers, startup or not, are afraid of remote work, and feel that not being able to see butts in seats means that people are slacking off.
"As far as 'access to talent,' that's a bullshit metric as well. Remote workers can be anywhere. "
But as we've established, most of these companies are not set up for remote work. As such, remote workers being anywhere isn't relevant.
"As far as investors, who cares? If you have a product people want to buy, investors will come to you."
Ahh yes, the old "meritocracy" myth. As it turns out, simply having a good product isn't enough to succeed.
"It's a myth that proximity matters."
Except reality has not followed your logic.
"There were investors long before Silicon Valley startups were a thing. Plenty of billion dollar companies founded everywhere else."
Yes there were. But it's significantly harder to do it elsewhere given the realities of the situation.
Feel free to start your company wherever you want and show us that we're wrong. I'd be happy to have the pool of startup locations be more diverse.
http://recode.net/2015/07/29/yelp-admits-the-unicorn-bubble-...
For some reason it has only occurred to them now that hiring for offices in cities other than San Francisco might help them get talented developers.
They're not opening up new offices, they're looking to hire where they already have offices like New York and Phoenix.
We'll see. Perhaps it really will be an exogenous event which will halt the San Francisco craziness.
There's still incredible problems with getting good engineers to come to the general area as well: Baltimore/DC has SF-level cost of living but not nearly the amenities of the Bay Area. The weather here sucks most of the time, the general culture leans suit & tie, the traffic is just as bad if not worse, you don't have the redwoods/beaches/outdoor things nearby that many engineers tend to value. Moreover, there's still a major stigma against working remotely out here that hurts many East Coast businesses when looking for software folks.
It's a map of all murders in Baltimore, filterable by time period, race, gender, district, zip code, age, and cause of death. There are also some yearly charts below on the page.
What is going on with murders? 164 in the last six months, and they seem to be spread widely over the city, with just a couple murder-free sections (including one decent sizes one in the north part of the city, between 83 and 139).
Is those SF like art quirky culture areas, and the tech company areas, in the apparently murder-free areas?
For comparison Los Angeles has had 150 murders so far in 2015, even though it has 6 times the population [2]. Los Angeles county, with 16 times the population of Baltimore, has had 332 murders so far in 2015, so just over twice as many as Baltimore in the last 6 months.
(Both of the sites I cite are pretty interesting. Anyone happen to have a list of similar homicide exploration tools for other major cities?)
Note: I'm not trying to rag on Baltimore. Just astonished at the number and the geographic distribution of the murders there.
[1] http://data.baltimoresun.com/bing-maps/homicides/index.php?s...
[2] http://homicide.latimes.com/neighborhood/la-city/year/2015
If you're interested, there are several excellent explorations of the particulars of Baltimore's problems (which are present, usually to a lesser extent, in many other cities) from David Simon:
- Homicide: A Year on the Killing Streets (book)
- Homicide: Life on the Streets (TV series)
- The Corner: A Year in the Life of an Inner-City Neighborhood (book)
- The Corner (TV miniseries)
- The Wire (TV series)http://www.baltimoresun.com/features/baltimore-insider-blog/...
Baltimore can be anything it wants to be, but what it's aiming at right now are a batch of far more conservative startups than you'd likely see in the valley.
B2B, marketing, government and fortune 500-based startups have every much the right to succeed in Baltimore as anywhere else, and with access to DC, certain markets are even better suited to Baltimore than to SF... but from everything I've seen, it would be a great deal harder to make something like Twitter work for a Baltimore-area VC, and where SF is killing it is in understanding the potential of network-effect startups that don't necessarily deliver immediate value, and to my eye, Baltimore VCs aren't remotely ready for that sort of gamble.
Shortmail and Sickweather are probably the closest I've seen to breaking that trend to date, but Shortmail's already shuttered, and I hope that doesn't sour the pool.
No, it's on the Chesapeake Bay.
Consider someone who likes walking to work, groceries, and everything they need; hates driving and owning a car; loves having top caliber arts and entertainment; feels more alive living in a place where people are on the street; and enjoy an evening walking bar to bar drinking with friends and not having to worry about a DUI on the way home, cities offer a lot.
That is Boston, Manhattan, and SF in this country.
(Oh, and I can hold my husband's hand in the city without getting weird stares. That's not possible in many parts of the country.)
Some things I like about a few of those: Pittsburgh is the 2nd-safest major U.S. city for pedestrians (after Boston) [1], is nice and compact, and a beautiful setting in a valley at the intersection of two rivers. Chicago has one of two 24-hour rapid-transit systems in North America (NYC is the other one), a beautiful lakefront, great deal of ethnic diversity, and is possibly the best American city for skyscrapers (NYC is the only other contender). Atlanta is walkable/bikeable if you live in the city, has the 3rd-largest gay population in the U.S. (after SF and NYC), and is one of the leading centers of Black American culture.
Overall imo there are lots of interesting urban places to live, the main issue is just making sure to live in the actual city rather than the suburbs, if you want a city lifestyle.
[1] http://www.smartgrowthamerica.org/documents/dangerous-by-des...
Yeah but then your cost of living shoots up. I mean, I've priced Austin real estate. If I want to buy 2BR apartment in downtown Austin (the closest analogy to where I currently live in Brooklyn) I'm looking at half-million dollar properties. Which is fine for an NYC boy like me, it's what I'm used to, but then why am I moving again?
As an SF Bay Area resident since 2009, there's no better place if you want a career in tech.
Yes, you can still have a great career outside of SF but it's a lot easier here.
I have lived and worked in 4 US cities and the best engineers are here. The selection of good jobs is immense. If you are a decent engineer, you have so many choices.
From what I've read in this topic and elsewhere, the cost of living is very high.
I'd rather not live in a city with as much of a chance of an earthquake as SF has. Living in a known disaster area just seems kinda off...
Then there's just personal preference.
I live in a city of less that 200K, and I find it to be larger than I like. The other day I hit stop and go traffic in a larger city, and found myself wondering why anyone would subject themselves to that on a regular basis. Or subject themselves to crowded mass transit systems, those crowds are a big part of why I use my car instead in my city.
And so on...
You may not agree with or value those things, but a lot of tech people do.
The largest single employer of tech workers in the world is probably the US military, and those tech workers definitely don't trend liberal.
Okay, you got the occasional clashes with other clans for land but hey, you could always move somewhere else. That's impossible now, given the massive numbers of humans on this planet.
http://tarlton.law.utexas.edu/exhibits/aztec/aztec_property....
I doubt there's ever been an urban culture that didn't have some concept of property ownership, whether by individuals, "nobles", or the state.
That said, it was never as simple as "everyone holds land in common and can do whatever they want with it individually."
The landlords are therefore parasitizing the economy.
Although this article is about commercial space, residential space is just as outrageously priced. I think there should be three things that should never be allowed to be artificially restricted just for the greed of a few: food, water and housing.
Here's a good Economist article on this: http://www.economist.com/news/briefing/21647622-land-centre-...
The value you are receiving is location.
If you do not care for location, then rent office space in Tennessee where you can pay less than 1/4 of SF prices.
They only get to be parasitic when the real estate market is dysfunctional and supply is constrained, possibly artificially. In some sense they are acting as gatekeepers to a limited resource and providing liquidity by setting prices high enough that only those with need are willing to pay.
"the migration of startups from the Peninsula to San Francisco have led to the lowest vacancy rates ever"
The big move away from the cities played out in the USA as automobiles became popular. The trend started in the 1930s and was at its peak during the years 1945 to 2000. It's worth noting that what we are looking at now is some re-centralization. That may be surprising or counter-intuitive, but since it is happening, it is worth investigating why it is happening. And all of the folks who think remote work is the answer might want to ask themselves why the ease of remote work is not offsetting the trend that's moving jobs into place like San Francisco and New York.
Because it's scary. If you're Google or Facebook you don't have to bother with it because people will move to you. If you're startup whatever.io then you want to avoid risk that isn't directly related to your purpose so you probably try to park next to Google or Facebook and work hard on other solutions to the "how do we hire" problem.
That said, it actually is offsetting that trend. It's just doing it too slowly to be noticed, but as someone who's worked remotely for an SF startup for almost 6 years and pays attention to the Who's Hiring remote posts, etc. I can tell you there's been a somewhat dramatic uptick in remote hiring in the past couple of years.
I think there are some local re-centralization trends, but it doesn't really show up in the overall numbers. Most of the fastest-growing areas in the U.S. are suburban, e.g. the Dallas suburbs are growing far faster than SF is.
Fivethirtyeight had a piece on this focusing on millennials: http://fivethirtyeight.com/datalab/think-millennials-prefer-...
How's the internet access out there?
If anything its the VCs who are dumb: why are they not investing in startups in Midwest US, or (say) Paris, Sao Paulo, Tokyo, etc?
Should there be a downturn in tech, WeWork will be left holding the bag.
It's leverage. When you have ~unbounded upside and capped downside, lever the fuck up. (And yes, this is how you get ants.)
I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.
Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?
Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.
Seriously, expand only if you have people stacked three high and just enough to cover the next 1-2 years of conservative growth. And don't spend arms and legs on new furniture or other generic, high-depreciation items, get gently used kit from liquidators and recyclers. Enterprise shops throw out perfectly good stuff because they're redecorating or it's lifecycled out because it's recurring budgeted. Capture every advantage of their waste to your benefit.
Put another way, don't waste cash to look rich, spend some to make staff and yourself comfortable enough to get the job done and keep morale/productivity up (Penny wise, pound wise.) A badge of honor for entrepreneurs is spending as least as possible with the best results. Only looney billionaires buy diamonds to use as doorstops. (Sure most startups flush cash down the drain, but there's no reason for founders to inordinately waste investor's cash because it counts against their reputation in future dealings.)
Could anyone elaborate?
Also, sssshhhh. Stop with the hype. Ruining one city is enough.
On the other hand, a, say, San Mateo -> Oakland commute is pretty much untenable.
The Central Subway and new Transbay Terminal might alter this. That said, I don't think the new Transbay will directly link with BART -- will still be a walk, which is a bit of a shame.
P.S. if you're scared, move.
Doesn't mean there aren't real disadvantages, but it's something most people/startups should at least consider.
Unfortunately the prices in these places are also skyrocketing. I started paying $3k/mo for 1400sqft in a not great part of Emeryville last year. The current price for my exact same unit is $3400.
Then we needed to sublet our old space at 2nd and Townsend. Shawn Fanning's new company Rupture wanted the space. We hadn't moved out the furniture yet, and they were interested. So we sold it to them for $1. Way more relaxed back then.
Self fulfilling prophecy?
Bugs in the system?
There are of course other cycles based on human time scales. In movie soundtracks, there is a rule that you should never insert a song 0-15 years old. It either has to be brand new, or older than 15 years.
Where does the number 15 come from? Human time scales. A half a generation. The number 5 would be too short, while 30 would be too long.
Especially considering historical blunders and clear lessons that we've learned.
As you can see from that page, the theories about what it entails and what causes it are many and varied.
Here's a graph from 2013 from Calculated Risk (an economics blog) that shows recessions in blue shading.
http://2.bp.blogspot.com/-cF1c7HUBzQg/UV7FqoIP9BI/AAAAAAAAZt...
Maybe it's time to consider another location for startups. San Francisco is reaching it's limits, and let's be honest technology can really launch from anywhere. Let's get some other cities moving, San Francisco has enough.
Real Estate 101 is about leverage and the cost to borrow is directly impacted by the tenant mix and their respective credit ratings.
How do you operate in the real estate leasing game for years without knowing what landlords want?!
Of the two, it's more practical for landlords to accept shorter leases.
The article goes "low cost of capital", "5 year lease", "startups struggling to get their offers accepted by a landlord", "large security deposits" ...
Why don't these wellfunded startups just buy their own office buildings?
How on earth is this healthy? If your "company" continues to exist by sucking up investment money gained by doing a song-and-dance with a group of folks in an office, but never churns out a product, this is success? Good lord.
Some will probably leave, but then, they're dinosaurs anyway, and why would you want an investor who just doesn't get it?
And then what data do you show them to back up that grandiose proclamation?
But to answer your question - you don't show them data. You show them social proof. Show them the tools - GitHub, Slack, Google Docs, videoconferencing - and people using them, and the companies that have made it work, like GitHub, Automattic, Google, Cisco, etc. The whole point is to create an emotional reaction, not a rational one.
Profits.
It would be fantastic if that stopped being an important indicator.
It could be that there are cheaper ways to signal the health of an organization, or that they're not cheap enough to outweigh the SF premium.
Another source of this might be Labor Ready - warm bodies to fill an office space. And for those with higher skill, maybe we could tap some Hollywood extras?
Right before the first dotbomb I went on a tour of LoudEye/Encoding.com which had lots of Hollywood clients. The place was in a gorgeous antique building, wrought iron railings, full rack sized silicon graphics multiprocessors, and all of the front desk, office staff were Beautiful People (tm) and very busy and serious. It looked like a set for what a futuristic tech company would dream of.
We need that as the face of distributed remote companies so that the old money can have a nice artifact to look at while everyone is at home on IRC.
Just like the bond market is a better indicator of economic growth than the stock market. More money, more professionals, longer memories, not as much optimism.
Edit: future economic growth expectations, rather.
I don't think the US is decoupled at all. It's just the least crappy house in the neighborhood.
See Lou Barnes for some interested commentary on this: http://pmglending.com/loubarnes/credit-news/