Michael Soswal's first surprising encounter with the vibrancy of San Francisco came in 2017.
That's when he and his co-founders of Standard AI, an AI startup funded by incubator Y Combinator, moved from New York to San Francisco for the summer.
“At first we planned to move back to New York,” says Soswal, 44. “But after living in the Bay Area for two or three months, we had much more network connections than we had in 50 years of living in the United States.” New York.”
Where are you going to go and get more support, more connections, the right kind of environment, the right investors?
— Michael Soswal, Generation Lab
When the coronavirus hit, he moved to Seattle and worked from home, Soswal told me. Last year, when he and his partner chose to co-found a new company, they thought about the best place to start.
“We thought, where else would you go to get more support, more connections, the right kind of environment, the right investors? Building a company is hard. It takes everything you have, and even then there is an 80% chance of failure. So why stack the deck against “Yourself? It was a no-brainer to come back here.”
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Generation Lab, which Soswal co-founded with longevity expert Alina Su and UC Berkeley bioengineering professor Irina Conboy, aims to commercialize technology that can help clients identify and manage long-term medical conditions.
Soswal's position is different from what you may have heard from the media and red state politicians over the past few years. They weave a story about a region—indeed, the entire state of California—in secular decline. About Silicon Valley, whose best days are over. The wholesale flight of money and talent to new and welcoming places like Miami and Austin.
But there wasn't much truth to that narrative overall, and it's more questionable than ever today, when the Gulf region has emerged as a hub for investment in artificial intelligence.
There is no shortage of news nuggets to illustrate the “death ring” narrative around San Francisco.
On Tuesday, for example, Macy's announced that it would close its massive store overlooking Union Square sometime within the next three years. But the closure is part of a major corporate downsizing that includes closing 150 stores nationwide, 30% of the total.
There's nothing historically new about San Francisco bashing. The practice dates back to the Gold Rush, when the city's strong pull as a staging place for Forty-niners seeking their fortunes in the nearby hills gave rise to an equally powerful counter-narrative.
Hinton R. Helper, a visitor from North Carolina who eventually gained notoriety as a white supremacist, wrote in 1855 of the city's “rot and corruption, its misery and wretchedness, its crime and infamy, its gold and its dross. … Decadence, extravagance, and vice confront us at every turn.” a step.
It's a short walk from the Helper screed to the map Florida Gov. Ron DeSantis displayed during a televised debate with Gov. Gavin Newsom in November, which purportedly shows deposits of human waste around San Francisco. (This did not help DeSantis' presidential campaign avoid an early demise, any more than Helper's criticism helped stem the flow of fortune seekers to California.)
It's true that the AI investment craze has brought a jolt of capital to the Bay Area's entrepreneurial economy, but this is just the latest iteration of a story that goes back to the rise of Silicon Valley in the late 1960s — or even to the 1939 founding of Hewlett-Packard in Palo Alto.
The region has experienced a long series of technology booms and busts over the decades, but each bust paved the way for the next boom. In the 1980s, Valley chipmakers lost their dominance in semiconductor memory to Japanese competitors.
But within a few years, as Anna Lee Saxenian, an economist and political scientist at the University of California, Berkeley, noted in her definitive study of the region, “Regional Advantage,” in 1994, new semiconductor and computer companies like Sun Microsystems emerged, and Silicon Valley regained its footing. former vitality.” By 1990, Silicon Valley was home to “one-third of the 100 largest technology companies created in the United States since 1965,” Saxenian wrote.
Key to its enduring position at the top of the innovation economy has been the Bay Area's infrastructure of institutions (Stanford and UC Berkeley), legal, technical, and financial professionals, and its population of tech workers—all of which have created “dense social networks and open labor markets.” “.
By contrast, silicon hopefuls tend to put all their eggs in one basket, and when the contents of that basket leak out, there will be little to fill them again.
Miami is an obvious example. The city's mayor, Francis X. Suarez, tried to make the city a center for cryptocurrency finance and innovation. Cryptocurrency exchange FTX has purchased the naming rights to the arena where the NBA's Miami Heat plays. International conferences for Bitcoin and cryptocurrency followers filled the convention center in 2022.
Miami has tied itself to the first “city currency,” a cryptocurrency that Suarez claimed would help boost the municipal budget.
The effort was unsuccessful. FTX collapsed after its founder, Sam Bankman Fried, was indicted and later convicted of fraud; The Heat arena is now named after Kasya, a Miami software company.
Attendance at cryptocurrency conferences has dwindled. MiamiCoin, which was worth 5 cents when it came to market in August 2021, is now trading at about 16 thousandths of a cent, if anyone is paying attention – it doesn't appear to have been trading for eight months. The city is looking for relevance in the modern technological landscape.
The same sources that talked about entrepreneurs fleeing the Bay Area to Miami, Austin, and others wanting silicon are now publishing articles about returning startup founders; Returns are often accompanied by complaints about the lack of a truly creative culture in their new homes, as well as traffic congestion and sky-high housing prices – very similar to what one would find in any large city.
As my colleague Hannah Wiley recently reported, San Franciscans are trying to capture the narrative by reminding people that the city and region offer unique advantages for entrepreneurs, especially in technology-related fields.
One is Angela Hoover, 25, who launched her consumer-facing AI research company, Andy, in Miami with backing from Y Combinator. At first, Miami seemed attractive because it seemed to host a healthy startup community.
However, attending AI events in San Francisco made it “unequivocally clear that the AI community exists in San Francisco. “It's like you have a front-row seat to a play, and at the same time you're in the play,” Hoover said.
“Despite what all the ominous critics say, [the Bay Area] “It continues to be a hotbed of innovation,” Ali Diab, CEO of Collective Health, told me. That's what prompted the company, which manages employer health plans, to move its headquarters back to downtown San Francisco after allowing its workforce to deploy to a work-from-home system during the pandemic.
“Obviously the AI revolution is taking off from here, but you also have strong enterprise software companies like Salesforce and Slack,” says Diab.
Collective Health also discovered that the cost of office space in San Francisco was lower than elsewhere in the Bay Area, including Silicon Valley. About 120 of Collective Health's 783 employees work in San Francisco, while others are spread across offices in Chicago, Texas and Utah, or work remotely.
Diab was an early critic of the “death loop” argument against San Francisco, observing in a mid-October op-ed in the San Francisco Chronicle that “as a Bay Area native, I have had to listen to people predict the demise of San Francisco.” My city all my life.” In fact, he wrote, “the oft-cited challenges facing San Francisco are no different from those faced by any other major city in the United States.”
He added that housing is “affordable in almost every major American city.” “New York, Chicago and Los Angeles haven’t solved their homelessness problems, and neither have a lot of other big cities.”
The Bay Area exodus story has always been exaggerated. Texas' appeal to entrepreneurs has never gone beyond three major technology companies that moved their headquarters there from California – Hewlett-Packard in Houston and Oracle and Tesla in Austin.
The importance of these movements may be more imaginary than real. In 2020, when Oracle announced its move to Austin from Redwood City, south of San Francisco, it said it was building a campus for 10,000 employees; The company employs 164,000 workers around the world.
When Elon Musk sought to locate Tesla's “global engineering headquarters,” the company's innovative brain power, he found it at the former Hewlett-Packard headquarters — not in Austin, but in Palo Alto. He announced his decision to move into that space in February 2023 at a joint event with Gov. Newsom.
Other states have never come close to California in the amount of their investment investments. In 2022, according to the National Venture Capital Assn., California companies raised $78.3 billion in venture funding, 40% higher than second-place New York. Florida ranked fifth with just $2.6 billion, followed by Texas with $2.4 billion (Texas' total was down by about half from the previous year).
San Francisco companies attracted nearly $31 billion in venture funding in 2022, according to CBRE. The Gulf region has attracted a total of $61 billion, representing 35% of all project funding in the United States.
Venture investing fell significantly in 2023, and venture-backed companies saw a sharp rise in “down rounds” — where their valuations are lower than they were in the previous round of venture injections — starting in late 2022. But these trends are playing out across the entire globe. . The world of project finance, and was more likely linked to rising interest rates and recession fears than any California-centric phenomenon.
In any case, AI has been a distinct bright spot, accounting for about 1 in 5 of all venture deals in 2023 and a third of all venture funds invested, according to accounting firm EisnerAmper.
No one doubts that San Francisco and the Bay Area present challenges. Soswal says he was concerned it would be difficult to recruit staff to come to the area. When he himself was considering moving back to San Francisco from Seattle last October, he “absorbed a lot of the negative aspects of the city that were being publicized at the time,” he says. But the city is in better shape than it gets credit for. … All the best people come here, because it's worth it.”
