HomeTECHNOLOGYThe Bay Area is still the top tech hub, but the industry is decentralizing
The Bay Area is still the top tech hub, but the industry is decentralizing
April 12, 2023
Layoffs, remote work and pandemic-era changes are reshaping where workers live and tech gets made.
April 12, 2023 at 6:00 a.m. EDT
SAN FRANCISCO — As a computer science student in the Midwest, Alex Valaitis idolized Silicon Valley, drawn to the Bay Area like a theater major dreams of Broadway. But after five years of “soul-crushing” tech work, an exodus from San Francisco and rising crime in the city, Valaitis decamped in June 2021 for Austin.
“I like to bet on momentum, and Austin has it,” said Valaitis, 28, who runs a Web3 product studio anda newsletter about artificial intelligence.“More and more [tech] people seem to be flooding in every month.”
Silicon Valley has reigned for decades as America’s innovation capital, home to tech giants like Apple, Google and Facebook; unicorns like Uber, DoorDash and Instacart; and start-ups fueled by the venture capitalists that populate Sand Hill Road. But the region’s dominance has declined since the pandemic, as lenient remote work policies and a spate of layoffs have fueled the departures of workers and cleared the way for rising investment in other tech hubsacross the United States, notably Austin and Miami.
Silicon Valley still ranked first last year in terms of venture-capital investments and the number of deals, according to data from PitchBook.But funding for companies in Miami have nearly quadrupled in the last three years, totaling $5.39 billion in 2022, while deal volume jumped 81%. Austin venture capital investments rose 77% to $4.95 billion with the number of deals jumping 23%. New York, Seattle, Philadelphia, Chicago, Denver and Houston also saw relatively large increases in investment and deals, data shows.
These regions still pale in comparison to Silicon Valley, which in 2022 drew $74.9 billion in investments across 3,206 deals. That’s about $45.36 billion and 1,058 deals more than New York, the second highest region for VC fundraising. The Silicon Valley region was also the home of 86% of start-ups, up from 53% last year, funded by famed start-up accelerator Y Combinator.
But Silicon Valley’s share of total value of venture capital investments in the United States last year was at its lowest since 2012. And nearly 250,000 people left the Silicon Valley region during the pandemic, according to census data from April 1, 2020 to July 1, 2022.
“There’s no doubt that [Silicon Valley’s] sort of exemplary, center of the universe status has really absorbed some blows,”said Mark Muro, senior fellow at Brookings Institution.
Miami and Austin both benefited from fewer restrictions during the coronavirus pandemic. Early on,cryptocurrency and Web3 —a broad term for the next generation of the internet that would give people more control and ownership —were major drivers of Miami’s growth. Seattle benefited from having Amazon and Microsoft in its backyard, attracting more enterprise technology and also biotech, said Kyle Stanford, lead venture capital analyst at PitchBook.
“A redistribution [of funding] has definitely started. The pandemic, the fleeing of start-ups and remote work helped catalyze growth in those smaller markets,” he said.
Brianne Kimmel, founder of investment firm Worklife Ventures, hasnoticeda change in identity for the Silicon Valley region as many Big Tech workers have moved out of San Francisco to other places like Austin or Seattle.
“That’s really created room for young, very technical, traditional hacker types to come to San Francisco,” she said. “It’s giving the city a personality it may have lost in years prior.”
She points Cerebral Valley, an area in the Hayes Valley neighborhood where hacker houses filled with young start-up workers focused on AI are popping up. Kimmel compares the feeling to the Silicon Valley region during the early days of the internet, when people were huddling to work out of garages. She expects AI developments to accelerate people’s ability to work anywhere but also create concentrated areas of innovation across the United States that will draw workers.
But AI could ultimately change the industry and how many people are needed to operate those companies, said Muro of Brookings. If AI innovations fundamentally change the industry’s structure, the biggest impact to workers could be in the Silicon Valley region, he said.
Tech workers desiring the quintessential start-up experience are still flocking to the Silicon Valley region, said partners at investment firm Index Ventures. But unlike the past, more start-ups are popping up in other places — like Seattle, which is producing start-ups focused on cloud infrastructure and developer tools, and New York, which has also been a hot bed for AI, said Bryan Offutt, partner at Index Ventures focused on investments in software infrastructure and AI.
“Five years ago, 90% of companies would’ve been founded in San Francisco,” he said. “Now it might be more like 70%, with others starting in places like Seattle and New York.”
And once companies mature, many are finding it useful to look for workersoutside the Silicon Valley region as it widens the pool of prospective hires, said Erin Price-Wright, an Index partner focused on AI and machine learninginvestments.
“The need for talent to all be in the same place as they scale, we’ve sort of moved passed that,” she said. “It’s much more beneficial to branch out.”
Atli Thorkelsson, vice president of talent network at Redpoint Ventures, says Austin has grown as a hub for marketing, sales and customer teams for tech companies, and New York is capitalizing on a mixed bag of talent including those in financial tech, health tech and insurance tech.
“There is a way higher concentration of tech talent in New York than ever before,” he said. “The most prone [to move away from the Bay] seem to be those who are about five to 10 years into their career.”
The next generation of tech workers say the attractiveness of the Silicon Valley region as a tech hub depends on their ambitions, as those seeking to build companies and find funding still want to go to the Silicon Valley.
For Kai Koerber, a senior data science major at the University of California at Berkeley and founder of his start-up Koer A.I., the Silicon Valley region is still the place to be as he works on building his company. However, in a couple of years after he’s done some of the groundwork, the 22-year-old hopes to join some of his Gen Z tech peers by moving to New York.
“It’s great to be here and build your connections,” he said. “Then after that, live your life and have fun. I’m a young guy. I want to enjoy my 20s.”
Dylan Costinett, a senior data science major at Eastern Washington University, said that Silicon Valley region tech jobs have become less attractive in recent years. Instead, he’s planning to work for a third-party government software provider that will likely base him somewhere in the Northeast or Midwest.
“I got pretty worried about getting a job right out of college because I was seeing all the layoffs,” Costinett, 21, said, adding the high cost of living also plays into his feelings about Silicon Valley. “I’m not sure how stable Big Tech is right now.”
Some tech industry workers are also finding areas outside the Silicon Valley region more attractive.Airbnb was one of the first tech companies to allow permanent remote work. As a result, several workers at the company said they didn’t see the need to remain in the region.
Airbnb tech employees Sofia Ruehle and Ian Demattei-Selby, who both moved from the Silicon Valley region to Washington, said they believe the spread of employees leads to a diversification of ideas that allows the companies and workers to learn from different regions. And Rori Jones, Airbnb’s diversity and belonging business partner who moved to Denver during the pandemic, said six Silicon Valley region friends have joined her since she left.
“Pre-pandemic, if you weren’t in San Francisco, in some ways you were at a disadvantage for opportunities and promotions,” she said. “But now, it doesn’t feel like you’re missing out on anything.”
After spending nearly 15 years in the Silicon Valley region, Duncan Cook, engineering manager at Yelp, traded his techie lifestyle for the nature-filled Portland suburb of Happy Valley in December 2021. Yelp had told its workers they could work from anywhere. That allowed Cook to get away from what appeared to him as a growing drug problem in the region and move into a bigger home with his wife and new son. He says he’s excited to see flexible work fuel a larger distribution of the tech industry.
“I don’t think San Francisco is going to self-destruct any time soon … but it’s less of a shining star,” he said.
Valaitis, the tech worker who moved to Austin, said people like him are coming to a new realization: “You don’t have to be in the Bay Area to have success in tech.”
“I think that’s part of the disruption and narrative people are slowly waking up to, ” he said.