- Sky high valuations and expensive staff are making Silicon Valley’s luster less attractive than before.
- Top VCs are finding better value outside of California with Europe now an increasingly attractive option for tech start ups and investors.
- Many companies are now setting up secondary offices in cheaper cities outside of San Francisco for non-essential staff as costs sky rocket.
Office rents in San Francisco have reached levels not seen since the dot-com boom, and the arms race between the Silicon Valley giants to poach the sharpest minds in tech is getting more cut-throat by the day.
VCs know this all too well, and some are starting to abandon the Bay Area scene altogether.
"San Francisco is over," Marta Söjgren, a partner at Swedish VC fund Northzone, said in an interview with Business Insider. Space, talent, and an increasingly moneyed investor base mean the costs of keeping top staff and preventing poaching is sky high, she says.
"Talent won’t stick around for more than a year. You’re pulling your hair out to keep people."
The environment has led to a re-evaluation of the city’s prominence for buzzy tech start-ups. House prices in San Francisco are four times the national average. And the average house price is now $1.3 million — nearly double what it was five years ago, according to Zillow. A recent bout of IPOs, from Uber and others, may well increase house and rent costs even higher, further decreasing the city’s lustre.
"Europe is where the value-add is possible between funding rounds, you can get sometimes three times the value for European companies over US for the same money," says Söjgren.
Investors are now joining the dots with smart money flowing into an increasingly competitive European scene.
"We’re also now seeing more sophisticated investors coming into Europe, because the deal flow and talent base is popping up."
"People are chasing better value," says Ed Zimmerman, a partner at law firm Lowenstein Sandler, and founder and chair of the company’s Tech Group in an interview with Business Insider.
"Europe and places outside of the Bay Area are very attractive and this is a trend that we’re seeing."
Cities like Boston and Salt Lake City are increasingly attractive, but not just for their lower rent, according to a recent report from Cushman & Wakefield, a commercial real estate services company based in Chicago. Similarly, companies are moving non-essential day-to-day staff outside of the Bay Area where possible, according to Söjgren, with sales and marketing staff often based in cheaper hubs.
Companies that don’t have unique tech needs but still need IT staff in San Francisco are often unable to match the buying power of giants like Google, Facebook, and Amazon. That cost pressure is leading to an exodus, says the San Francisco Chronicle. Lyft now has some 750 support staff based in Dallas, cutting down on space in prime San Francisco territory.
London is currently Europe’s fintech hub, but Brexit and comparatively high prices have seen exciting companies opt for other European destinations such as Berlin, Dublin, Paris, Lisbon, and Amsterdam.
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