After 2020, Is Silicon Valley Really Dead?
Dec 31, 2020
After 2020, Is Silicon Valley Really Dead?
It goes deeper than one disgruntled billionaire
Silicon Valley has been unquestionably the place to be for aspiring tech entrepreneurs for decades. The whole industry has seemed to revolve around the Bay Area of California. Yet 2020 has challenged many things we thought permanent and Silicon Valley’s dominance is one of them.
Peter Thiel was one of the first high-profile founders to leave in 2018 and even then people were predicting the end was near. Yet there was little significant movement despite the chatter until the pandemic struck. This year the brain drain of top entrepreneurs has accelerated:
- Austin, Texas: Elon Musk (Tesla), Joe Lonsdale (Palantir), Drew Houston (Dropbox), Douglas Merritt (Splunk)
- Miami, Florida: Keith Rabois (Founders Found)
- Lanai, Hawaii: Larry Ellison (Oracle)
- Denver, Colorado: Alex Carp (Palantir)
All the cool kids aren't in one place anymore and it’s not just individuals as companies are shifting headquarters too. The garage where Hewlett-Packard was founded is known as the “Birthplace of Silicon Valley”. Yet its spinoff, HP Enterprise, joined Oracle in moving to Texas this year where AMD and Dell were already based.
This feels like a tipping point more than ever. Soon it will merely be one of many places the ambitious go to chase their dreams rather than the place. Several factors are leading to this trend which I will explore:
“If a team has been winning for too long, they tend to get complacent, and then they don’t win the championship anymore. California has been winning for too long,” — Elon Musk
A venture capital rule has been shattered
I was surprised to hear about the 20-minute-rule where venture capitalists would only invest in companies that were within a short drive of their office. If it sounds elitist and lazy, it’s because it is. I wonder how many venture capitalists lost out on great investments in the past because of this.
After 2020, venture capitalists have been forced to zoom like the rest of us and it doesn’t matter at all where you are physically located. The relic of an idea you need to be geographically close by is over. Entrepreneurs should no longer feel the need to set up their company in the Bay Area just to tick a box. If a VC passes over you in 2021 because of distance, it’s a blessing in disguise as they weren’t up to date with how the world is changing.
Life costs too much there
Salaries are high around Silicon Valley but so are rents and taxes. What’s the point in earning $100k a year and working crazy hours if your disposable income is mediocre?
Rules such as the 20-minute-rule and proximity to Stanford in a small area has meant demand for housing has crushed the supply. As the number of unicorns booms, more people are willing to take the risk of struggling to pay rent to see if they can make it big.
Individual taxes make other states look far more desirable as California ranks second last out of 50 states according to the Tax Foundation. Places like Austin in Texas have no state taxes meaning far more of your income goes into your pocket.
Y Combinator graduate, Ben Rahnema, rented a one-bedroom apartment in San Francisco but for the same money has a 3 bedroom house with a backyard and home gym in Austin. Makes you think, doesn't it?
Political monoculture
There’s a common link between many of the major founders who’ve left Silicon Valley; they are part of the Paypal Mafia. They all had a part in the payments company and therefore know each other pretty well.
Several members of this group have made the same point about why they moved:
“…increasing intolerance and monoculture.” — Alex Carp
“Austin is *far* more tolerant of ideological diversity than SF.” — Joe Lonsdale
“I think San Francisco is just so massively improperly run and managed that it’s impossible to stay here,” — Keith Rabois
Politics and business have become even more intertwined this year than previously. Some leaders see it as their duty to enforce certain views on the people they work with. This can make it pretty tense when the powerful disagree with things unrelated to the business itself.
Netflix CEO Reed Hastings made it clear he thought Peter Thiel’s political judgments tainted his leadership credentials when giving feedback to the Facebook board in 2016. Whatever your opinions of Trump, is it acceptable to rule out half the country’s population based on political views?
It’s difficult for people who intentionally create a bubble to accurately serve a population where they don’t understand a significant portion. It’s too easy for a leader to project their views across a company and to their user base without realizing people can rationally disagree with them.
Remote work is here to stay
It’s funny to think the tech startups who aimed to make online life as easy as possible needed a single location where they all physically went every day.
Twitter and Slack have told their staff they can work from home permanently. Facebook employees may with the permission of their manager. Other companies are still deciding their strategy but it’s fair to assume the policy will be widespread.
It’s great for employees especially those with children or other dependents. People have moved back to their home towns or whatever town they would live in if they didn’t need to worry about their commute. 2020 has proved offices aren’t mandatory for productivity.
Entrepreneurs no longer need large and expensive offices in San Francisco to attract the best employees. They can base themselves wherever is convenient for them and hire virtually.
Foreign competition is heating up
America used to have a near-monopoly on big tech but the world is catching up. The USA still has the most unicorns with 147 but China has 120, India 47, and the UK, France, and South Korea are all in double figures. Silicon Valley has relied on recruiting the best minds from across the world but now those minds may choose to stay closer to home.
No country is blind to the potential of a homegrown unicorn and the positive effects on the economy. Governments all over the world are promoting an environment to help their citizens succeed. Imagine if the future Satya Nadellas and Sundar Pichais decide to build their careers in India instead.
Silicon Valley has had it good for a while but now everyone else wants to keep hold of their brightest and can create the incentives to make them stay. The tech city may be considered the American dream but in the last few decades, the talent has been global.
Silicon Valley is not dead. It will need to get used to sharing the spotlight though. The lifestyle and cultural problems are in plain sight but this time we have proof geographical location isn’t as important as once thought.
This is great for entrepreneurs and techies who would rather live elsewhere without sacrificing their careers. The competition between cities and countries for the best talent should lead to further disruption in their favor. It’s also great for consumers everywhere to get products designed by people from different places with different ideas.
