AI Boom Sparks Return of Silicon Valley Startup Migration Wave
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On February 20th, news emerged that during the pandemic, many Silicon Valley founders and investors left the San Francisco Bay Area for other U.S. cities like Miami. They criticized San Francisco's dysfunctional government operations and high cost of living, while touting successful fundraising and remote work models outside the Bay Area. However, four years later, San Francisco has once again become the epicenter of a tech renaissance, attracting entrepreneurs and investors in droves.
In 2020, venture capitalist Keith Rabois urged startup founders to join him in leaving San Francisco for Miami. He boasted about the city's relative safety, lower taxes, and a mayor who was very friendly to the tech industry. Rabois, who calls himself a contrarian investor, made fortunes by investing in companies like Airbnb and DoorDash. He once tweeted that San Francisco was "terrible in every way."
However, the strategy of moving to Miami appears to be faltering. Several startups backed by Rabois are relocating or opening offices elsewhere to better attract engineering talent. At the end of last year, after falling out with some colleagues, he was ousted from venture capital firm Founders Fund. Now, he plans to spend one week each month in San Francisco working for his new employer, Khosla Ventures, and is busy renovating a house there. During the pandemic, many Silicon Valley investors and executives like Rabois relocated to sunnier U.S. cities, criticizing San Francisco's dysfunctional governance and high living costs. Tech founders boasted about raising funds outside the Bay Area and promoted remote work.
Four years later, that gamble hasn't paid off as San Francisco experiences a tech renaissance. Entrepreneurs and investors are flocking back to the city amid its AI boom. Silicon Valley leaders are engaging in local politics, pouring tech money into ballot measures and campaigns to make the city safer for families and businesses. Investors are also pushing startups to return to the Bay Area and bring employees back to offices.
San Francisco has largely weathered broader startup funding pressures. Last year, Bay Area startups saw a 12% funding drop to $63.4 billion. In contrast, smaller tech hubs like Austin, Texas (down 27%) and Los Angeles (down 42%) fared worse, while Miami's venture capital plummeted 70% to just $2 billion. Mo Koyfman, founder of venture capital firm Shine Capital, stated: "A tech ecosystem like San Francisco, built over the past 50+ years, won't decline just because of a few years of pandemic turmoil." He noted the proximity of universities like Stanford as a key reason top VC firms need to maintain operations in the Bay Area. New York-based Screen Capital opened a San Francisco office in January.
Despite being criticized by Labois, once hailed as one of Silicon Valley's top startup scouts, entrepreneurs and investors continue returning to the city. Fintech startup Brex's co-founders Henrique Dubugras and Pedro Franceschi moved back to San Francisco under investor pressure late last year. Though the company relocated to LA, NYC, and Miami during the pandemic with its valuation soaring to $12 billion, it had to lay off 20% of staff earlier this year.
Airtable CEO Howie Liu has been meeting sales clients in San Francisco after spending most of the pandemic in Los Angeles. Erik Torenberg, an investor in Scale AI and Figma, recently moved from Miami to San Francisco where he launched a new media company. Elon Musk, an outspoken critic of San Francisco's progressive culture, relocated Tesla's headquarters from Northern California to the outskirts of Austin during the pandemic. He has been overseeing the operations of X (formerly Twitter) and xAI, his artificial intelligence startup founded last year, in San Francisco.
Max Gazor, a general partner at venture capital firm CRV and board member of Airtable, stated, "The reality is, the talent is in San Francisco. Given how fast these companies are innovating, especially in AI, the talent pool here is crucial."
In recent weeks, tech companies in the Bay Area have intensified efforts to push for a return to the office. Trading app Robinhood Markets announced in January that managers would monitor office attendance via check-ins to ensure employees return to the office. Meanwhile, fintech companies have implemented return-to-office policies requiring employees living within 50 kilometers of their urban headquarters to come in twice a week. In addition, other tech companies are also expanding their operations in San Francisco. Last year, venture capital firm Y Combinator moved its headquarters from Mountain View, California, to San Francisco and required founders participating in its startup accelerator program to be physically present. OpenAI recently leased two new buildings near the Mission Bay community in San Francisco, expanding its office space. The company's CEO, Sam Altman, has his primary residence in San Francisco's Russian Hill neighborhood.
Of course, some tech leaders who left San Francisco in recent years have not returned. Ben Horowitz, co-founder of venture capital firm Andreessen Horowitz, moved to Las Vegas during the pandemic and still lives there. Billionaire investor Peter Thiel, who founded Founders Fund, resides in Los Angeles. Meanwhile, the fintech company co-founded by Jack Dorsey is one of the more notable tech firms adhering to a remote work policy.
As an early executive at PayPal, Rabois is known in Silicon Valley for his outspokenness and successful investment track record. However, a year after joining Founders Fund, he chose to move to Miami, spending $29 million on waterfront property and opening a new office for the company. At the time, low interest rates fueled a boom in startup financing, and Miami Mayor Francis X. Suarez declared the city the world's crypto capital. However, as the pandemic eases and interest rates rise, the funding environment has become tougher, and the cryptocurrency market has also fallen into a sell-off. Miami-based startups supported by Rabois have begun relocating or setting up offices elsewhere, including the AI startup Delphi. A year after raising funds from Rabois, the company recently chose to move to San Francisco.
Traba, a contracting startup that Rabois first invested in three years ago, recently opened an office in New York, where most of its employees now work. OpenStore, an e-commerce company co-founded with Rabois in 2021, opened a new engineering center in the San Francisco Bay Area last year, although he noted that two-thirds of the startup's employees still work in Miami.
Meanwhile, Rabois' negotiations with Founders Fund reached an impasse, and he ultimately chose to join Khosla Ventures, where he had previously worked for six years. This month, he opened a new office for Khosla in Miami, becoming the only one of the firm's five managing directors to work there.