Silicon Valley Is Over, Says Silicon Valley

“Oh my god, this is so cute!”

Robin Li, an investor with the San Francisco venture capital firm GGV Capital, was standing in the lobby of the Madison building in downtown Detroit. Built in 1917 as a theater and refurbished several years ago as a tech co-working space, the Madison checks all of the aesthetic boxes of hipsterdom: reclaimed wood, exposed brick walls, pour-over coffee served by tattooed baristas.

“This is nicer than San Francisco,” Ms. Li concluded.

Last month, I accompanied Ms. Li and roughly a dozen other venture capitalists on a three-day bus trip through the Midwest, with stops in Youngstown and Akron, Ohio; Detroit and Flint, Mich.; and South Bend, Ind. The trip, which took place on a luxury bus outfitted with a supply of vegan doughnuts and coal-infused kombucha, was known as the “Comeback Cities Tour.”

It was pitched as a kind of Rust Belt safari — a chance for Silicon Valley investors to meet local officials and look for promising start-ups in overlooked areas of the country.

The tour making a stop in Youngstown, Ohio. From left, Mayor Jamael Tito Brown of Youngstown and Mayor William Franklin of Warren, Ohio, with Mr. Ryan. Credit Andrew Spear for The New York Times
But a funny thing happened: By the end of the tour, the coastal elites had caught the heartland bug. Several used Zillow, the real estate app, to gawk at the availability of cheap homes in cities like Detroit and South Bend and fantasize about relocating there. They marveled at how even old-line manufacturing cities now offer a convincing simulacrum of coastal life, complete with artisanal soap stores and farm-to-table restaurants.

“If it weren’t for my kids, I’d totally move,” said Cyan Banister, a partner at Founders Fund. “This could be a really powerful ecosystem.”

These investors aren’t alone. In recent months, a growing number of tech leaders have been flirting with the idea of leaving Silicon Valley. Some cite the exorbitant cost of living in San Francisco and its suburbs, where even a million-dollar salary can feel middle class. Others complain about local criticism of the tech industry and a left-wing echo chamber that stifles opposing views. And yet others feel that better innovation is happening elsewhere.

“I’m a little over San Francisco,” said Patrick McKenna, the founder of High Ridge Venture Partners who was also on the bus tour. “It’s so expensive, it’s so congested, and frankly, you also see opportunities in other places.”

Mr. McKenna, who owns a house in Miami in addition to his home in San Francisco, told me that his travels outside the Bay Area had opened his eyes to a world beyond the tech bubble.

“Every single person in San Francisco is talking about the same things, whether it’s ‘I hate Trump’ or ‘I’m going to do blockchain and Bitcoin,’” he said. “It’s the worst part of the social network.”

The tour through the Midwest was organized by Representative Tim Ryan, a Democrat who represents northeastern Ohio. Representative Ro Khanna, a Democrat who represents Silicon Valley, came along for the ride, as did J. D. Vance, the author of “Hillbilly Elegy.” (Mr. Vance, a venture capitalist who now seems to magically appear every time the words “Midwest” and “manufacturing” are spoken aloud, has also been leading his own whistle-stop tours of the region.)

Recently, Peter Thiel, the President Trump-supporting billionaire investor and Facebook board member, became Silicon Valley’s highest-profile defector when he reportedly told people close to him that he was moving to Los Angeles full-time, and relocating his personal investment funds there. (Founders Fund and Mithril Capital, two other firms started by Mr. Thiel, will remain in the Bay Area.) Mr. Thiel reportedly considered San Francisco’s progressive culture “toxic,” and sought out a city with more intellectual diversity.

The group had a roundtable discussion with business leaders in Youngstown. Credit Andrew Spear for The New York Times
Mr. Thiel’s criticisms were echoed by Michael Moritz, the billionaire founder of Sequoia Capital. In a recent Financial Times op-ed, Mr. Moritz argued that Silicon Valley had become slow and spoiled by its success, and that “soul-sapping discussions” about politics and social injustice had distracted tech companies from the work of innovation.

Complaints about Silicon Valley insularity are as old as the Valley itself. Jim Clark, the co-founder of Netscape, famously decamped for Florida during the first dot-com era, complaining about high taxes and expensive real estate. Steve Case, the founder of AOL, has pledged to invest mostly in start-ups outside the Bay Area, saying that “we’ve probably hit peak Silicon Valley.”

But even among those who enjoy living in the Bay Area, and can afford to do so comfortably, there’s a feeling that success has gone to the tech industry’s head.

“Some of the engineers in the Valley have the biggest egos known to humankind,” Mr. Khanna, the Silicon Valley congressman, said during a round-table discussion with officials in Youngstown. “If they don’t have their coffee and breakfast and dry cleaning, they want to go somewhere else. Whereas here, people are hungry.”

Mr. Brown talking about Youngstown. By the end of the bus tour, many of the venture capitalists had caught the heartland bug.

This isn’t a full-blown exodus yet. But in the last three months of 2017, San Francisco lost more residents to outward migration than any other city in the country, according to data from Redfin, the real estate website. A recent survey by Edelman, the public relations firm, found that 49 percent of Bay Area residents, and 58 percent of Bay Area millennials, were considering moving away. And a sharp increase in people moving out of the Bay Area has led to a shortage of moving vans. (According to local news reports, renting a U-Haul for a one-way trip from San Jose to Las Vegas now costs roughly $2,000, compared with just $100 for a truck going the other direction.)

For both investors and rank-and-file workers, one appeal of noncoastal cities is the obvious cost savings. It’s increasingly difficult to justify doling out steep salaries and lavish perks demanded by engineers in the Bay Area, when programmers in other cities can be had for as little as $50,000 a year. (An entry-level engineer at Facebook or Google might command triple or quadruple that amount.)

When you invest in a San Francisco start-up, “you’re basically paying landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders Fund, referring to the companies that provide start-ups with messaging services and data hosting.

Granted, California still has its perks. Venture capital investment is still largely concentrated on the West Coast, as are the clusters of talented computer scientists who emerge from prestigious schools like Stanford and the University of California, Berkeley. Despite the existence of tools like Slack, which make remote work easier, many tech workers feel it’s still an advantage to be close to the center of the action.

Mike Garvey, left, president of M7 Technologies, a Youngstown company that provides precision measuring services, talking to the congressman from his district, Tim Ryan, center. Credit Andrew Spear for The New York Times
But the region’s advantages may be eroding. Google, Facebook and other large tech companies have recently opened offices in cities like Boulder, Colo. and Boston, hoping to attract new talent as well as accommodating requests from existing employees looking to move elsewhere. And the hot demand for engineers in areas like artificial intelligence and autonomous vehicles has led companies to expand their presence near research universities, in cities like Pittsburgh and Ann Arbor. Then there is HQ2, Amazon’s much-ballyhooed search for a second headquarters, which seems to have convinced some tech executives that cities between the coasts may be viable alternatives.

Venture capitalists, who recognize a bargain when they see one, have already begun scouring the Midwest. Mr. Case and Mr. Vance recently amassed a $150 million fund called “Rise of the Rest.” The fund, which was backed by tech luminaries including Jeff Bezos of Amazon and Eric Schmidt, the former executive chairman of Alphabet, will invest in start-ups throughout the region.

But it’s not just about making money. It’s about social comfort, too. Tech companies are more popular in noncoastal states than in their own backyards, where the industry’s effect on housing prices and traffic congestion is more acutely felt. Most large tech companies still rate highly in national opinion surveys, but only 62 percent of Californians say they trust the tech industry, and just 37 percent trust social media companies, according to the Edelman survey. So you can start to understand the appeal of a friendlier environment.

During the Akron stop of the bus trip, while the Silicon Valley investors mingled with local officials over a dinner spread of vegan polenta pizza and barbecue sliders, Mr. McKenna, the San Francisco venture capitalist, told me that he felt a difference in people’s attitudes in cities like these, where the tech industry’s success is still seen as something to celebrate.

“People want to be in places where they’re the hero,” he said.

(Source: The New York Times)