This means that fewer companies seek capital early in their lifecycle. Founders are more likely to attempt to bootstrap, and, even if they do want to raise capital, the institutional investors demand more pre-funding traction than ever. The path to startup success now begins with frugality.
The most significant overhead is the founders’ cost of living. San Francisco already had high rents in 2010 and they’ve gone up an incredible 50 percent in the three years since. In short, San Francisco property values are toxic for early-stage companies, and, as I will address next, the city fails to make up for it in other ways.
Culture and environment
San Francisco is an amazing, diverse city. It is unquestionably cool, and its nightlife and culture are commonly credited to the influx of tech workers and tech startups. But if you look at what startup founders and early employees actually do with their leisure time, it’s mostly cramming into a café while searching for an elusive power outlet, drinking good coffee, drinking good beer, reading a good book, or going on a nice hike. Arguably Berkeley loses on the coffee and the beer, but it’s close, and Berkeley creams San Francisco at the rest. More and more people are looking to flee the city, and their East Bay friends are continuing to ask why they don’t just move already.
Labor pool
Finally, San Francisco has a large tech worker labor pool — not just in the city proper, but from transit and highways that bring in workers from all over the Bay Area. However, transit flows both ways. Berkeley has a reasonable commute from the East Bay and most of San Francisco. Thumbing through the most recent labor statistics, I calculate the functional labor pool of software engineers for an office in downtown Berkeley is still two-thirds the size of the labor pool for an office in SoMa. And because of the (relatively) lower housing prices and nerd-friendly amenities, many potential workers would be open to relocating here.
If you think you’re going to be the next Twitter, the larger labor pool of San Francisco or the South Bay may actually matter, but that’s a good problem to have, and your early team will be too busy counting stock options to object to an office move.
Moving to Berkeley has been one of the best decisions we’ve made here at BitGym, and my discussions with colleagues in the industry inform me that the trend will continue. Sure it will take years, but the conditions are right. Before long, a successful “anchor” company will emerge, creating a hotspot as well as spinning off newly minted millionaires. These folks will finance and found more companies, and the process will repeat. And it’s already begun.
