This year, the partners at Founders Fund–a prominent San Francisco venture capital firm that has backed Airbnb Inc., Palantir Technologies Inc. and other leading companies–took an informal internal poll: If the fund could open a major new office outside the Bay Area, where would it go?
It’s a question many venture capitalists and startups have considered this year in some form or another, spurred into action by the coronavirus pandemic that has so many people working from home anyway. Tech workers are leaving California in droves, sending San Francisco rents tumbling by as much as 35%. Large companies have made the leap, too. Oracle Corp. announced plans on Friday to leave the Bay Area for Austin, Texas, e-cigarette maker Juul said it would move to Washington, D.C., and cybersecurity firm Tanium is moving to a suburb of Seattle. Even Elon Musk has said he’s now a Texan.
But the venture capital industry could prove particularly difficult to dislodge from Silicon Valley. Data from PitchBook shows that year after year, the Bay Area accounts for easily the largest proportion of venture investments in the U.S.–around one-fifth of all deals. Measured by funding amount, the Bay’s dominance looks even more formidable. Last year, 38% of all venture dollars deployed went to startups in Silicon Valley. So far this year, despite the pandemic, that number ticked up to 40%. And according to startup accelerator Y Combinator, the percentage of founders listing their addresses as within the Bay Area has held steady this year.
The numbers underscore the fundamental conundrum: Although many places around the U.S. are attracting more startups, no clear rival is emerging to Silicon Valley. So where can a venture firm go that would provide a decent alternative?