Is there a tech exodus in Silicon Valley?

Is there a tech exodus from Silicon Valley? Roy Bahat, a VC at BloombergBeta tweeted in Feb. 2019: “Startup geography: 2009: Founder moves to SF at request of VC from whom they just raised. 2019: Founder lives in SF and raises VC, then leaves. [self reply] SF has gone from startup hub, to startup headquarters-and-maybe-engineering hub, and risks soon becoming just a startup fundraising hub” (https://twitter.com/roybahat/status/1094750426589626369). A few months before that, The Economist published an article titled “Why startups are leaving Silicon Valley”( https://www.economist.com/leaders/2018/08/30/why-startups-are-leaving-silicon-valley), citing the high living cost in the Bay Area as the main reasons. Anonymous netizens discussed the topic on platforms such as Quora and Reddit. Some entrepreneurs blogged about it. What does the internet say? Here’s a summary.

1. Is there a tech exodus in Silicon Valley?

More netizens believe it than not. Provoked by the article published on The Economist, someone asked on Quora whether it was true that startups were leaving Silicon Valley (https://www.quora.com/Is-it-true-that-startups-are-leaving-Silicon-Valley). Among the seven people replied, five were positive. A tech hiring manager based in Silicon Valley said that in the past, migrating out of Silicon Valley was driven by pull forces (the allure of another area), but more recently, it was increasingly driven by push forces (the desire to get out of the Bay Area). A marketing manager of an IT outsourcing firm mentioned that a few years ago, Silicon Valley VCs invested half of their money in startups outside the Bay Area; now it was close to 2/3. A technocrat pointed out that whether startups left the Bay Area or not depended on their technology position. Whereas startups using relatively mature technologies might find it easier to open the shop elsewhere, firms working on tech frontiers would still stay in the Bay Area because it was where the coolest tech and talent were. Some people mentioned that instead of relocating, most firms would set up satellite offices at other locales and hire there.

An entrepreneur who just relocated from the Bay Area to the Nevada side of Lake Tahoe wrote a nice article on the topic, speaking from his personal experience while citing rich information from online sources (https://medium.com/@stuartwmcleod/the-great-tech-xodus-why-startups-like-mine-are-leaving-silicon-valley-in-droves-8303387da8c6). “Moving to Nevada has been great for my wallet, my family, and my health”. He pointed out that hiring is very expensive in Silicon Valley, so is housing and raising children there (he is the father of three children). Meanwhile, he also acknowledged challenges of moving out of Silicon Valley – one of them is having to drive down there for important meetings (I’m guessing he had investors or team members there) and losing access to a large international airport.  

Two people believed that the statement was a misconception.

Echoing The Economist, The Tribune Content Agency published an article titled “‘The Bay Area is broken’: Why Silicon Valley startups are hiring elsewhere” (https://www.dailyrepublic.com/all-dr-news/wires/business/the-bay-area-is-broken-why-silicon-valley-startups-are-hiring-elsewhere/). The article focuses on hiring elsewhere instead of relocation. The main message is that hiring is a nightmare for startups in Silicon Valley, as labor cost is soaring in the area. Many local startups therefore set up satellite offices elsewhere to save labor cost.

2. Reasons for leaving the Valley or hiring elsewhere

Obviously, people unanimously believe high living cost and labor cost (which is directly related to living cost) are the main reasons why entrepreneurs fled Silicon Valley. “Enormous salary expectations – driven by the Bay Area’s soaring cost of living and competition from well-paying giants such as Google and Facebook – have made it too expensive for a growing number of local startups to recruit employees here” (Tribune Content Agency). Increasing family size can worsen the housing problem. Some pointed out that while it was relatively easy for bachelors to rent a bedroom in the Bay Area, it was hard for families to afford a house. A person who just relocated from a firm’s Bay Area office to its Portland office said he made the move because he could no longer put up with his family’s living condition. For years, he, his wife and their two children lived in a rented two-bedroom apartment. Relocating to Portland, his family immediately afforded a five-bedroom house. He admitted that being stationed away from San Francisco did create some changes to his relationship with the company – he felt missing out on things happening in San Francisco.

Another factor that contributed to the trend, people believed, was that remote working was on the rise. Even for startups in Silicon Valley, it is becoming more and more common for employees to work from home. “Remote working is becoming increasingly viable as Silicon Valley shifts its focus from hardware to software and app development… Engineers can code from anywhere, and there’s no shipping costs associated with transporting their code around the globe” (Tribune Content Agency).  

Some people instead provided reasons for staying, the main ones being the coolest tech and topmost talent in the area. Aside from those, some people mentioned that workers would not want to relocate with a company when it moved elsewhere (it could be a hustle for the founder to replace the team). But more people who sided with leaving believed that relocating or opening up satellite offices elsewhere helped startups obtain a longer runway (the number of months the firm has to launch the idea/product before running out of money); Silicon Valley was only for firms that were best funded and super high performing.

3. Destinations

The destinations of outward migration include Nevada; Boise, Idaho; Portland, Oregon; Minnesota; Los Angeles; Austin, Texas; Boulder, Colorado; Ann Arbor, Michigan; Raleigh-Durham, North Carolina; Salt Lake City, Utah, according to the discussion. I have personally met some entrepreneurs who relocated from Silicon Valley to Boulder.

4. Tradeoffs 

For relocated entrepreneurs, there are obviously some downsides: transportation (lack of a large international airport nearby, lack of Uber), business infrastructure (lack of talent, investors, market), coordination, and having to travel back to the Bay Area for meetings. Some people suggested remedies. “If you make your team remote, you need to make sure that you maintain regular catchups. The communication and collaboration aspects change when you’re remote, so you might need to communicate more regularly than you would face-to-face.” Some remote teams managed to connect via video chat for lunches and happy hour drinks with online trivia games.

The gains are also enormous: better financial status for the company and the entrepreneur. Moreover, it seems people’s wellbeing is improved. Most migrated people were very happy about the decision. I personally know a software engineer who relocated from Silicon Valley to Bloomfield, CO (within-firm transfer). He feels it a total bliss!

5. Is Silicon Valley still worth it?

Someone said on Reddit (https://www.reddit.com/r/technology/comments/8ayq7e/the_bay_area_is_broken_why_local_startups_are/ ), “Silicon Valley is the best place for a grad. Go and earn a nice income in your early 20’s, and live slightly better than college lifestyle. Spend a few years and see if you are good enough to get those $300k+ packages. Most will never get there. Then at 5 year mark, move to somewhere more affordable (almost anywhere else in the US), and settle into a $150k-$250k career in flyover country living like a king.”

Why should we study this topic?

There is nothing “heroic” about it – it’s all about individuals trying to do what they see as best for their startups and their life. But because of the tension in the decision and its magnitude (relocating is not a small decision!), the phenomenon does posit some interesting questions…

An academic study on the topic can at least accomplish the following things. First, figure out the facts. Personal opinions can be subject to cognitive bias and sampling bias. Until we see the data can we know what is going on. Second, interpret what it means. Causal inferences on the antecedents and consequences will further our knowledge on clusters. Third, inform entrepreneurs. Is leaving Silicon Valley a good decision? What are the tradeoffs? Let’s speak with data.