The Biggest Change To Venture Capital Since Crowdfunding

Note: In May, I wrote an article titled “The New Work From Home Economy.” Then in August, I wrote a piece called “Tech Companies Flee California (Finally).” I recommend reading those first if you haven’t.

For decades, California has dominated both technology and venture capital in the U.S. Almost half of all venture capital comes from a tiny area around San Francisco. 

The economy around Silicon Valley and San Francisco had an incredible, multi-decade economic boom due to all the wealth that was created. It seemed like an unstoppable trend. 

But that’s all changing now. Even before the current crisis, things had reached a tipping point in San Francisco. Taxes were too high. Government bureaucracies were too big. Housing was way too expensive.

COVID-19 simply sealed the deal. The rise of remote work means people don’t have to pay $4,000 for a single bedroom apartment in San Francisco to work at a technology company. Almost every tech firm now has remote work options. Today you can live in a reasonably priced house in Idaho and still work for a lucrative salary with a big tech company.

Collapsing Rent, Fleeing Companies

As a result of this trend, rents in San Francisco have collapsed. According to the apartment listing service Zumper, the average one bedroom apartment in San Fran is down from $3,700 pre-crisis to $2,700 today. That’s a HUGE 27% decrease in just a few months. A drop like that is practically unheard of.

The latest big tech firm to flee the Bay Area for Texas is HP Enterprise (HPE), a tech firm with 2,600 employees. And my August and May pieces have many more examples — this isn’t just a one-time event. Some of the most well-known VCs in the world have also recently announced they’re leaving — including Keith Rabois

The exodus is underway — and I think it’s going to continue for some time. I don’t think the entire tech economy of California is going to collapse. The Bay Area will continue to be the biggest innovation center in the U.S. for years to come. But serious change is underway, and it’s going to be great for the rest of the country.

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