There are these headlines:
Aug 26, 2020: Palantir’s Bay Area move makes Denver the city to watch amid Silicon Valley’s exodus
Dec 1, 2020: Hewlett Packard Enterprise moving headquarters from Silicon Valley
Dec 12, 2020: Oracle to move headquarters from Bay Area to Texas
And then there are these headlines:
Dec 11, 2020: Yes, The Biggest Exits Are Still Bay Area Companies
Dec 24, 2020: Ignore the tech naysayers — San Francisco isn’t dying
Dec 28, 2020: California May Lose Some of Its Stars. But Silicon Valley Is Forever.
So which one is it?
Every few years there is a flurry of headlines along the lines of Silicon Valley Is Dying / Dead / Irrevocably Dead. Memorable instances: the 2001 dotcom crash, the 2008 Sequoia R.I.P. Good Times, and now the 2020 / 21 pandemic.
We can’t even agree fully on what Silicon Valley is, most say it’s the counties of Santa Clara and San Mateo but often we lump in San Francisco and even all the 9 counties that are technically the Bay Area. But instead of regurgitating various arguments that have been debated at length, in line with the continued aim of being succinct and practical, what this article focuses on is why things will be fine for Silicon Valley, based on over 20 years here.
1) Living aka how cheap are you willing to go? Silicon Valley denizens themselves will mention two reasons especially: high cost of living, especially when it comes to housing, and long commute times, exacerbated by low availability of public transportation. Then there are significant gripes about the local customers, whether it is too much emphasis on tech, too much liberalism, or too much competition even to get into pre-school. Making up our minds about the state of Silicon Valley is further exacerbated because we can’t agree on how much weight to give to different metrics — there are completely reasonable arguments to give more weight to certain data over others. All that said, yes if you want to have a truly informed view of data or net migration, check out https://siliconvalleyindicators.org.
At Tau Ventures there is no question Silicon Valley has worsened enormously in this aspect. Without different social choices and better governance, the huge challenge is going to aggravate further. We caution all existing and prospective entrepreneurs accordingly — it was true before covid and we are distressed to see it getting exacerbated.
2) Hiring aka how much are you willing to pay in terms of time and money to find good talent? This is in many ways an extension to #1. Silicon Valley does feel like a perpetual treadmill when it comes to hiring because engineers especially command a disproportionately high salary relative to other parts of the world. That partly reflects the demand for top engineers is really high here. But that doesn’t mean there isn’t a high supply and it doesn’t mean that engineers are actually being compensated appropriately, per the charts below.
At Tau Ventures we continue believing the Valley will continue attracting enough top talent — an established culture of risk-taking, the relatively pleasant weather (fires notwithstanding), academic fixtures like Stanford and Berkeley that train good people. And even if incumbents offer better packages (salary, equity, bonus, benefits etc), there is a (justified) systemic dissatisfaction in compensation. Finally if you have an idea and are willing to work for it, the kind of receptivity an entrepreneur gets in the Bay Area is still considerably harder to get in parts of the world.
3) Competition aka how afraid are you of the big bad wolves? Big Tech has been mostly booming notwithstanding covid and legal scrutiny, case in point in Q3 2020 Google, Facebook and Amazon alone added $163B to their market caps (Amazon is HQed in Seattle, Google and Facebook have employees worldwide, the point is a significant portion of Big Tech’s wealth accrues to the Bay Area). But let’s also recap three of the ten biggest IPOs in 2020 included AirBnB, Snowflake and DoorDash, all of which HQed in Silicon Valley. Is that just a lagging effect and that the future of startups is troubled?
At Tau Ventures we actually see the exact opposite and do not buy into the narrative that Silicon Valley’s success is killing its own innovation. There are many other good places already, some are rising at faster rates, it’s just that the gap between them and Silicon Valley is getting smaller. Our view is we are moving to a multipolar world, where a handful of places will be significant clusters of innovation, and coordinating within them increasingly easier. And that’s great news for entrepreneurs who can then hire some of the best technical talent in the Valley, complement it with talent from everywhere else, and have well-capitalized acquirers ready for a huge range of check sizes.
4) Venture Funding aka how much do you care about being close to VCs? Silicon Valley is the biggest concentration of venture capital in the world and we think that will continue. Being physically close to VCs does make it easier to get introductions and have meetings, especially at early stages. At Tau Ventures we believe this will remain mostly true in a pos-covid world. In 2019 we closed seven new investments, in most cases we had never met the entrepreneur beforehand and in a couple of cases we still haven’t. But based on many investor conversations we are in the minority as most funds tell us they are looking for more face to face as conditions allow. To put in perspective, roughly half of the venture capital in the US is in the Bay Area and that is so overwhelmingly clustered we don’t see this advantage changing significantly for the next few years.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.
