It has been an incredibly tough period for everyone the past few months as the global COVID-19 pandemic has wiped out whole industries from the economic map.
While tech has been among the most resilient industries in the face of this cataclysm, the extreme mobility of the industry’s workforce begs large questions about what the future of startups and work will look like moving forward.
We’ve debated what COVID-19 will do to the rise of the college town as startup hubs and how the pandemic will change the way we work in coffee shops and neighborhoods. Now, we want to address one of the larger questions that has been bugging us: Will tech continue to centralize in hubs like San Francisco and New York City, or will remote work and all the other second-order effects lead to a more decentralized startup ecosystem?
3 views on the life and death of college towns, remote work and the future of startup hubs
We have three perspectives from our writers, with wildly different predictions about what the future has in store.
First, we have Danny Crichton, who believes that tech, and particularly the VC industry, will remain as concentrated as ever, although where it is concentrated will perhaps shift a bit. Meanwhile, Alex Wilhelm asserts that startup growth outside major hubs will actually accelerate, spreading tech wealth even farther outside the metropolises. Finally, Natasha Mascarenhas argues that the combination of the economic dislocation of COVID-19 and the increasing attention to equity in tech will lead to more intense investment outside core startup hubs.
Danny Crichton: A new Napa Valley café shows why in-person networks matter
First there was Sand Hill Road. Then there was South Park. And now there’s Solbar at Solage in Calistoga.
Despite the wide availability of remote work tools over the past two decades, VCs have always miraculously congregated in extraordinarily tight quarters. VCs weren’t attracted to Sand Hill’s low-slung office buildings for the architecture, which were and are a terror to eyes with a taste for anything more sophisticated than “here be four walls and a roof.” VCs didn’t head to South Park to enjoy what Google Maps calls a “tree-lined oval garden” nestled between light industrial buildings. And they aren’t heading to Solbar in Napa Valley for Californian cuisine and a dining room conveniently closed on Partner Mondays.
They congregate in these places to tap extremely dense networks of intel, sourcing, camaraderie and expertise that happens to be located at these all-but-arbitrary locations.
Of course, Solbar isn’t the hub right now of the new geography of VCs. But I am willing to bet serious dollars (say, $5?) that some bar/café/vineyard/resort in Napa or Tahoe will indeed be the next Madera or Buck’s on Sand Hill, or Caffe Centro or Mourad in South Park. Because there is always going to be a new power spot where deals get done.
Venture capital, like investment banking, lobbying, talent agencies and other “networking” fields, are all about velocity of information flow. As much as we want to lie to ourselves and say that you collect the same knowledge from your phone and its plethora of messaging and video chat apps, the reality is that the spontaneous combustion of information that comes from being where the right people are is critical to success in these fields.
It’s intentional serendipity. You walk into a power lunch spot and see the founder you’ve been eyeing the past six months talking to your VC competitor for an hour. You ring the founder up afterwards, and get the scoop that they launched their fundraise that day. They never sent an email; there was no announcement of a fundraise on Twitter. You happened to see it, and acted on the knowledge you gleaned from the encounter. Now you’re ahead of your competitors.
The idea that the “COVID-19 economy” with Slack, Zoom and email are somehow going to substitute for the intensity of information flow these fields require is insane. Yes, these tools can work well for many professionals that work in process-oriented and managed fields. Engineers, lawyers, doctors — a lot of professions can do pretty much all their work remotely with the right communication and documentation culture.
But VC is not one of these fields. It’s perhaps the most decentralized, asynchronous, stochastic and chaotic work you can do. And it is really, really hard to do it remotely.
Are VCs leaving San Francisco? Based on everything I have heard: yes. They are leaving for Napa, Tahoe and anywhere gorgeous outdoor beauty exists in California. That bodes ill for San Francisco’s (and really, South Park’s) future as an oasis of VC.
But the centripetal forces are strong. VCs will congregate again somewhere else, because they will always have a need for market intelligence. The new, new place might not be San Francisco, but I would be shocked just given the human migration pattern underway that it isn’t in some outlying part of the Bay Area.
Does that mean San Francisco won’t be a startup hub in the future? Ultimately, the vitality of any city is based on its underlying quality of life. SF has more endowments than most — breathtaking views, gorgeous architecture and urban spaces, and strong neighborhood communities. If the city can maintain its quality of life through this crisis, there is no reason why the founders, tech workers and other professionals who have flocked to the city in past decades won’t continue coming.
As for VCs — if the new central node is a bar in Napa and that’s the new “place to be” — that could be relatively more permanent. Yet ultimately, investors follow the founders even if it takes time for them to recognize the new balance of power. It took years for most VCs to recognize that founders didn’t want to work in South Bay, but now nearly every venture firm of note has an office in San Francisco.
Where founders go, VCs will follow. If that continues to be SF, its future as a startup hub will continue after a brief hiatus.
Alex Wilhelm: Danny is an ignoramus — the rise of the rest will accelerate
There will always be a high concentration of startups and venture capital activity in the Bay Area and New York City. Thus it has been, and thus it shall be.
But the two areas’ diminishing status as the only centers of gravity in American startup culture has been underway for so long that when I consider the question “what is the future of SF and NYC as startup hubs,” my most basic answer is more of the same declines in prominence we’ve already seen.
Instead of arguing if other parts of the country will succeed long-term in building startups — they are — I want to explain why the present-day trend of more places in the Union becoming able to support startup ecosystems will not only continue, but accelerate.
Today, it’s now unsurprising to see tech IPOs from Chicago, SaaS companies raising interesting rounds in Atlanta and dueling unicorns in Utah. This is the reality here in America, a land that now features a bevy of startup hubs capable of building neat companies that are venture-ready and scaling them to material size.
All that was true before COVID-19.
Why would the trend accelerate? Because in the pandemic era, companies that are geographically flexible will have access to the best talent. In the past few years I’ve seen my friend group — overly-indexed to tech workers and journalists, I admit — drift away from Silicon Valley first in drips, and more recently in gobs. Indeed, more folks than ever in this remote-work friendly quarter are talking about leaving San Francisco, Oakland and the South Bay. Why stay in a place you can’t afford to save money or buy a house, when you could do the same job from, say, New Mexico, where there’s parking and affordable housing?
This movement will decentralize startup operations: Having two offices will become the norm, as will fully remote companies. If you lose atoms, you lose mass. And if you lose mass, your gravitational pull lessens. This is what will — and is — happening to Silicon Valley and New York City.
Finally, something interesting will also happen to the investors who power startups. Post-pandemic, the VC world will break into two groups: Those willing to invest more aggressively around the nation into more diverse founders, and VCs who stick to their geographic guns and only invest in companies and founders that they can drive to meet.
You can call this a split between “Handshake VCs” and “Zoom VCs,” or you could describe it as a generational rift. But what matters is that the fragmentation of tech talent — and therefore the founder grist that is molded into new ventures — was happening and will only go faster now.
So much for needing to be near Sand Hill Road.
Natasha Mascarenhas: Decentralizing startups is key to improving diversity in tech
San Francisco and New York will remain primary startup hubs, because clichés exist for a reason.
But, if the pledges for diversity efforts are honest, San Francisco and New York might lose their earned pedestals sooner than we think.
For the past few years, we have seen non-coastal cities grab attention from both high-profile venture capitalists and geographically-specific microfunds. For the past few weeks, we’ve seen venture capitalists promise to break their traditional networks and find Black talent to invest in, period. If actions follow these promises, the exclusivity of a San Francisco dinner is much less interesting for deal flow for a founder with a hot startup pitch who lives in Toledo, Ohio.
I’m thinking of change in terms of decades, not years. Silicon Valley has had a history of inaction in terms of breaking from its decades-old patterns. I believe in this change, but with a heap of salt.
The hottest technology in the Valley right now is also the most exclusive: Clubhouse, an invite-only platform loved by high-profile members of journalism, venture capital, tech and even Hollywood. One investor told me that this was the future of communication, when to me it just seems like a digital version of The Battery. As Danny argues, Silicon Valley won’t disappear, it will just look different.
But I’m hopeful that some venture capitalists will defy odds, test completely new structures for deal flow and, a decade from now, have the returns to prove why it’s worth completely upheaving the idea that San Francisco is the only place to strike gold. We’re already seeing newer firms beat out their predecessors when it comes to diversity.
The ball is already rolling.
The other day, I asked a Baltimore-based founder who had just finished Y Combinator’s Startup School about the first time he realized that the tech world was his passion. He continued to list more than a dozen newsletters around tech, diversity and startups to prove his point.
When I asked if he planned to move to San Francisco once the world reopened, he spiraled into an anecdote about running into GV investors unexpectedly upon landing in SFO, before concluding, “I think it’s important to invest back into your own communities. I’ll come back to Baltimore.”
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