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?
“If it were obvious, you would have seen more of an exodus to a single place,” said Lauren Gross, Founders Fund partner and chief operating officer.
Founders Fund, the firm that conducted the internal poll, is currently housed in a low-slung brick complex in San Francisco fronted by Yoda from Star Wars and known for housing George Lucas’s film production company. This year, the firm spent months considering locations for a major new office. The question of where else Founders Fund could build a presence had come up before—its backer, Peter Thiel, left San Francisco years ago—but the idea took on new urgency during the pandemic.
Partners passed around a spreadsheet where they could nominate and vote on cities, according to people familiar with the discussions, who asked not to be identified discussing private deliberations. In weekly Zoom meetings, dozens of names came up. The firm seriously considered about a half-dozen cities, among them Los Angeles, Miami and Denver, which is now home to portfolio company Palantir.
The Founders Fund team also listed all the cities outside the Bay Area where it had invested in startups or had close ties to founders. It factored in tax rates, local regulations and proximity to a major hub airport, the people said. New Orleans, the pick of Michael Solana, a Founders Fund vice president, got eliminated due to what some considered a subpar flight schedule. Ditto Nashville.
In the end, no city could foster enough momentum among the Founders Fund staff. The firm will mostly stay put, and has scrapped plans to pursue a major new office for the time being. Instead, it will open a smaller office in Miami.
But even though the firm isn’t going anywhere, several individual partners at Founder Fund have moved out of town. In addition to Thiel, a vocal San Francisco critic who has lived in Los Angeles for years, partner Keith Rabois recently said he would move to Miami. And partner Scott Nolan splits his time between Los Angeles and San Francisco.