After a decade of hyperactive growth, America’s tech hubs now are in danger of sharp reversals.
It may seem like a distant memory, but downtown San Francisco was still largely a financial center only 10 years ago, when its conversion into a bro-dominated tech capital of the universe wasn’t yet in full bloom. Back then, the tech industry was known for being dispersed across the suburban towns of Silicon Valley, and venture capitalists famously lined Sand Hill Road in Menlo Park.
Eventually, tech companies large and small flocked to downtown San Francisco, and the urban workforce took on a very different look. Startups—some wooed by generous tax breaks—converged on a gritty central district and helped reshape the urban core. A similar trend has played out in cities from Seattle to Cincinnati. Thousands of tech workers poured into San Francisco as an influx of new-generation companies like Salesforce, Uber and Airbnb created densely packed, high-style urban tech campuses. That attracted droves of venture capitalists—long sequestered in quiet office parks outside the city—who were soon springing up to hobnob with founders or other investors, seemingly on every street corner.
But today, all of that is threatening to come apart at the seams.
The age of the pandemic has jolted a string of companies into favoring work-from-home policies. Seattle-based Amazon and Microsoft have emptied their offices at least into the fall. In the Bay Area, Google workers can work from home through the end of the year, and Twitter and Facebook essentially have encouraged employees to abandon offices for good.
Their practices could be influential for countless other companies. Thousands of engineers and product managers could be working via Slack channels from literally anywhere. “Not everyone wants to be downtown,” said Clara Brenner, managing partner with the San Francisco VC firm Urban Innovation Fund.
These changes, amplified by waves of startup layoffs and retail business failures, have begun a morbid transformation of downtown tech hubs. A historically concentrated web of wealth and talent is about to lose people—the glue that bound the new tech ecosystem together. Depending on the extent and permanence of the exodus, startups won’t have much incentive to keep offices in town as they increasingly resort to distributed workforces. This could have a ripple effect for the new generation of VCs based downtown, as well as the traditional Silicon Valley firms that converted the city’s South of Market warehouses into their satellite offices.
If entrepreneurs and investors aren’t hanging out downtown and holding meetings at Blue Bottle Coffee, what reason do VC firms like Sequoia and Andreessen Horowitz have to stick around? As the pandemic shakeout widens, venture firms may choose to retreat. Small VCs could be on their own. And Sand Hill Road may even reclaim its role as the valley’s gatekeeper of deal flow.
Photo by Alexander Davis/PitchBook
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