San Francisco's AI-fueled siren song

Despite a pandemic-powered exodus and an ongoing social crisis, San Francisco is bouncing back as the center of the tech world

San Francisco – and the surrounding Bay Area – has been the global home of tech startups and venture capital since it spawned the silicon microprocessor revolution in the 1970s. Maybe the biggest threat to that ongoing centralized dominance of the innovation economy came via COVID, which saw a necessary shift away from the value of in-person working arrangements and towards distributed workforces. San Francisco’s high cost of living and struggles with a skyrocketing unhoused population led to a mass migration of tech talent.

The Wall Street Journal reports this week that the trend is now fully reversed, with entrepreneurs and investors heading back to San Francisco from some of the more popular COVID-era alternatives, including Miami, LA and Texas. The reasons are the same that have kept San Francisco and the Bay Area ascendant in the startup world since the very beginning: It’s the place with the highest concentration of interesting things happening.

Right now, the most interesting things are happening in AI, and San Francisco has established itself as a hub for that activity. One key reason is that ChatGPT maker OpenAI has offices in the city (and its CEO Sam Altman calls it his home). YC also moved the site of its accelerator program to SF proper and once again requires founders to attend in person, after having shifted to remote flexibility during the pandemic years.

San Francisco’s AI bona fides aren’t exactly new, either: At the beginning of last year, we were all talking at TechCrunch about the rise of the so-called ‘Cerebral Valley’ in SF’s Hayes Valley neighborhood – a hotspot for founder hacker houses (ie., shared living accommodations that offer room and board, plus living expenses in an all-in model) and for community events and happenings. It was clear then that being on the ground during this fresh moment meant big advantages over not, and that doesn’t seem to be any less true now.

The Bay Area has also always had an advantage when it comes to talent, and to the ability for that talent to circulate through the ecosystem as its very literal lifeblood. Sharing people across startups, legacy big tech cos, incubators, the investment side and beyond means a cross-pollination that it’s pretty much impossible to replicate without the unique draw of Silicon Valley’s engineering challenge catnip cornucopia and the risk-happy money engine that fuels it all.

That said, I used ‘siren song’ in the title of this newsletter for a reason: The lure of San Francisco includes the potential for major payoff, but it also could end up with your ship dashed to bits on jagged rocks. Okay, that might be a bit hyperbolic just for the imagery, but there are downsides to pivoting to the Valley – even if your investors are telling you it’s a smart move and everyone else in your cohort seems to be doing the same.

First, there is an abundance of talent in San Francisco, and a growing pool with specific expertise in generative AI – the buzz category du jour. That talent comes at a high premium, however, with salary expectations for the Bay Area in general, and San Francisco in particular, dwarfing those found elsewhere. And while the talent is migrating to the region where they can, there’s still a huge amount of often overlooked, skilled workers in other parts of the world who either can’t or don’t want to be in San Francisco – and who often come with a much more affordable price tag, too.

That distributed talent brings with it a diversity and heterogeneity of perspective and experience, on top of being a) available and b) reasonably priced.

Second – and this is harder to pin down since it’s still such a relatively new and under explored phenomenon – is that remote and distributed workforces likely offer a number of tangible benefits when compared to colocated pools of staff. As someone who worked at an effectively fully remote organization for a decade (TechCrunch) and who witnessed just how effective it has been at arm’s length at another (Automattic, which powers WordPress), I know that it results in a different kind of organization, but one that’s no less able to succeed and thrive.

People love to talk about the opportunity for spontaneous discovery and inspiration that comes with working together with others from an office, and that definitely has its benefits – as does being physically surrounded by people working in and around whatever you’re working on. But a distributed entity, with pockets of people working in silos, perhaps within communities with very different concerns and areas of focus, also has the potential for inspired thinking – along totally different axes.

The ‘San Francisco is back!’ narrative is actually an old one, and its opposite, ‘the rise of the rest,’ is likewise a familiar tune. This time around, though, I’d posit that the ascendance of the Valley doesn’t have to mean the shrinking of the rest of the world in the overall picture of the innovation economy. Tech is just too big and too pervasive at this point for that to be true anymore, and AI’s viral pervasiveness means no one center will emerge to completely eclipse the rest.