How Silicon Valley fell victim to the complacent Californian elite

·7 min read
Silicon Valley California
Silicon Valley California

On Sand Hill Road in the heart of Silicon Valley, nervous founders filter into the offices of venture capital firms, hoping to secure millions of dollars to back their latest idea.

Among the most select firms is Andreessen Horowitz, also known as a16z — a fund founded by Ben Horowitz and Marc Andreessen in 2009, notable for its investments in Facebook, Skype, Coinbase and Clubhouse.

So it was all the more surprising when this rarefied Silicon Valley institution announced it was upping sticks and saying goodbye to the Bay Area.

Last month, a16z said it was moving its headquarters online, to the “cloud”, and opening three new offices in Miami, New York and Santa Monica.

The move has been taken as a sign that the sun is setting on the Golden State’s exclusive status as the go-to destination for technology founders – derailed by the rise of remote working, a rampant housing crisis, and years of economic mismanagement under its left-wing leadership.

Horowitz wrote that for a long time, entrepreneurs from around the world “were most likely to move to Silicon Valley”.

“The largest number of great technology companies emerged from Silicon Valley for good reason,” he said, as talented founders, ambitious staff and investors with a high appetite for risk gathered in the same location.

But Covid and remote work had put a sudden halt to this. “This change has profoundly weakened the Silicon Valley network effect,” he said.

What looks likely to be California’s loss could boost technology hubs around the world from Austin, Texas, to London.

“It used to be if you were career motivated and wanted the best opportunities you had to be in Silicon Valley, that is not the case anymore,” says Glenn Murphy, a headhunter at executive search firm Riviera Partners.

During the pandemic, many technology workers moved away from San Francisco, notorious for its sky high rents, to work from home. Companies including Apple and Google have faced pushback over efforts to force employees back into the office as the pandemic fades.

Meanwhile, residents of the Bay Area have complained for years about cramped housing, falling living standards and a growing opioid and homelessness crisis. More than 160,000 people were living on the streets in California in 2020, a higher proportion than any other US state.

Other executives have grown tired of the region’s unashamedly liberal politics and high taxes relative to the rest of the US.

Elon Musk, the Tesla founder, has spent billions building the company’s latest factories in Texas. He accused California of “fascist” policies around Covid lockdowns.

Tesla boss Elon Musk moved factories out of California - JIM WATSON/AFP
Tesla boss Elon Musk moved factories out of California - JIM WATSON/AFP

Palantir, the defence technology company, moved its headquarters to Denver, Colorado. Its chief executive, Alex Karp, ripped into Silicon Valley when the company went public in 2020.

“The engineering elite of Silicon Valley may know more than most about building software,” he said, “but they do not know more about how society should be organised or what justice requires.”

Peter Thiel, a PayPal and Palantir co-founder, has attacked what he calls “the woke religion” and called California a “one party state”. Joe Lonsdale, another Palantir founder, has gone so far as to set up an “anti-woke” university in his new home of Texas.

Unlike Texas, which has no personal income tax, the rate in California is the highest in the US, at 13.3pc for the highest earners. And creaking essential public services are failing to deliver, with the state plunged into rolling blackouts in 2020 as the grid struggled to cope in the face of surging demand during a heatwave.

Tech companies including Oracle and Hewlett Packard have moved their headquarters to Texas, while Apple is building a $1bn (£820m) campus near Austin.

Other hubs are also leaching staff from Silicon Valley. Zug in Switzerland is viewed as a mecca for cryptocurrency enthusiasts, with the Alpine city sometimes referred to as Crypto Valley.

Meanwhile, Big Tech companies that have chosen to stick with remote work are offering staff another chance to flee.

Meta, the parent company of Facebook, has steadfastly continued to allow staff to choose to work remotely or work in different locations, in part due to its commitment to a virtual workplace in line with its “metaverse” ambitions.

Policy chief Meta Nick Clegg - Lino Mirgeler/dpa
Policy chief Meta Nick Clegg - Lino Mirgeler/dpa

Nick Clegg, its policy chief and former Deputy Prime Minister, is due to split his time between London and California. Adam Mosseri, the head of Instagram, has also headed to London, as has marketing boss Alex Shultz.

Top executives have also upped sticks for New York, Israel and Spain. Even Mark Zuckerberg is commonly found in his home in Hawaii rather than California.

But social problems and remote working are not the only things encouraging founders to relocate. Booming technology hubs in cities such as London, Berlin, Austin and Miami have sucked in many entrepreneurs.

Increased venture capital funding is one factor. At least until the current financial crisis, it was easier than ever to raise capital in Europe. Founders in the UK raised $11.3bn in the first quarter of 2022, more even than in China, according to Tech Nation.

London companies raised a total of $26bn last year, according to data from Dealroom, behind only San Francisco, New York and the Boston metro area.

Data firm CB Insights, however, points out that the Silicon Valley area still accounted for over $100bn in funding in 2021.

Justus Brown, founder of mortgage technology company Acre, moved to Berlin and then to London having graduated from Stanford and worked in Silicon Valley.

“London has one of the strongest and most liquid financial markets in the world,” he says. “What better place to tap into deep capital markets?”

David Ripert, founder of augmented reality shopping start-up Poplar Studio, who previously worked at Netflix in Los Angeles, says that in London entrepreneurs get access to “big corporates from Asia or the US” in industries spanning tech, finance, gaming and media. “I was afraid that would change with Brexit, but I don’t think it has,” he adds.

In addition, a growing number of scale-ups – larger fast-growth companies typically valued at more than $1bn – means there are more jobs with pay packages that can compete with the compensation offered in Silicon Valley.

James Wise, a partner at the venture capital firm Balderton Capital, says there is a growing cohort of “Valley veterans” working in London, while lots of tech companies choose the capital as their first international outpost.

“With more billion dollar plus technology companies being built in London than in any other city in the world, bar San Francisco, being close to that emerging talent pool matters,” he says.

Murphy, of Riviera Partners, adds that salaries have become more competitive in London for top tier executives. He cites a top Facebook executive in the process of moving to a German technology company, which is close to floating, and another Facebook executive in talks for a move to a UK security start-up.

“Compensation is key”, he says, “People will not be expecting the cash to be the same. But if they think there will be a big exit, these companies are willing to put forward equity that in the past European companies would not have.”

Remote working has also boosted some smaller tech communities which have attracted talent that is happy to hop on a plane every few weeks to London or Berlin.

“Some people are moving to places like Lisbon and just travelling to London every couple of weeks,” Murphy adds, “and people are also taking advantage of tax situations since they can work anywhere in Europe.”

“There’s a clear pattern emerging here,” says Russ Shaw, of Tech London Advocates. “It’s not just big name executives quitting Silicon Valley. Entrepreneurs and investors are also leaving and seeking to establish roots overseas.”

He adds that the Government could do more to make the UK attractive, such as by streamlining and cutting the cost of its “high potential visa” scheme.

With Silicon Valley’s star fading as the likes of a16z head for the hills, there will be plenty of competition to scoop up the San Francisco diaspora.