Bay Area may lose its title as the leading U.S. tech hub, new data finds

That’s a big change from last year, when only 6% said they would start a company remote. In 2020, the Bay Area was still the big winner, with 41.6% of respondents saying they would headquarter a company there, while only 28.4% said the same in 2021.

54d8e 1200x0 Bay Area may lose its title as the leading U.S. tech hub, new data finds

More than 40 percent of founders surveyed by Initialized Capital said the best place to start a company will be in the cloud.

Initialized Capital

Initialized Capital partner Kim-Mai Cutler said this isn’t surprising since the number of companies they’ve invested in that are setting up in the Bay Area has been declining for seven years. 2014 had the strongest concentration of Bay Area headquartered companies for their portfolio, with three-quarters of the fund centralized there. “From a tax base and economic perspective, [I think San Francisco] would be concerned because in previous cycles people have talked about company flight and I do think it’s much more real than it was a few years ago since we can actually see it happening,” she said.

For companies grappling with these decisions, it doesn’t necessarily mean they’ll move their Bay Area headquarters, but instead, it could affect where their next hires will be based. Zumper, a rental marketplace company headquartered in San Francisco, plans to hire 100 people in 2021 and CEO Anthemos Georgiades said he is unsure of whether those hires will be made locally, at one of their other U.S. offices or at an entirely new office location altogether. When he heard Miami was heating up, he sent a tweet directed at the Mayor of Miami, Francis Suarez, asking to learn more about his plans for transforming the city into a tech hub.

Suarez replied within a few hours and the duo have a meeting to discuss the prospect of opening a Miami office soon.

While Georgiades is not the only entrepreneur with an eye on Miami, Cutler thinks the enthusiasm and promises may be a bit overblown. They’re also not novel. The late San Francisco Mayor Ed Lee essentially did the same thing Suarez is attempting to do now, she notes, as Lee actively recruited companies to move north from Silicon Valley’s historical base on the peninsula ten years ago. “A lot of people are praising this mayor like, ‘Oh, he’s going out of his way to attract companies,’ but Ed Lee did that years ago. Ed Lee changed the whole business tax system of the city… specifically to attract more tech employees in San Francisco,” Cutler said.

Georgiades has also asked for a meeting with Mayor London Breed via Twitter, though he said he thinks he only got a response since he’s a tech CEO and many people were following his tweets. He said he’s looking forward to their scheduled meeting and mentioned several times he’s not trying to pit her against Suarez in a competition for who gets Zumper’s next 100 employees. Instead, he said over the last six months he’s had growing concerns from his employees about the safety of San Francisco, as more of his workers have had to deal with instances of crime in their neighborhoods. As a concerned resident himself, he said the death of the two women on New Years Day was a real tipping point for him and he’s increasingly concerned about the rate of crime in the city.

The amount of companies allowing their employees to work at least a few days from home is also projected to grow post-pandemic, with only 10% of companies that responded saying they’d require employees to come into the office five days a week. More than one-third of the companies surveyed will be moving to a fully remote or decentralized model in 2021. For companies with an office, a two to three day office work week was the most common answer, with 70% choosing that option.

ed453 1200x0 Bay Area may lose its title as the leading U.S. tech hub, new data finds

For the two-thirds of companies that will continue to use office space, most will not be returning to the office five days a week.

Initialized Capital

While companies like Facebook and Slack have announced it will adjust compensation if employees opt to work elsewhere, 61.1% of the companies surveyed do not plan to make salary adjustments based on the local cost of living.

As the CEO of an apartment rental marketplace, Georgiades believes San Francisco will truly see what it’s new normal will be in the summer, when more people are widely vaccinated and people will come flooding back to San Francisco — or not.

“People really love San Francisco and they want to build there, but there’s a lot of competition of where to build now and this conversation reflects that,” he said.

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