Yes, The Biggest Exits Are Still Bay Area Companies

Silicon Valley and San Francisco are over. Everyone is leaving California.

That’s the story line in recent months from scores of people—Elon Musk and other high-profile founders included—who have left the Bay Area to work remotely, relocate businesses, or start something new.

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But apparently, the U.S. companies that launched the most valuable IPOs of the year—including two this week—didn’t get the memo.

Last we checked, Airbnb, DoorDash and Snowflake–the largest U.S. venture-backed offerings of the year–are still headquartered in Northern California. They even maintain many thousands of square feet of that retro asset class known as office space.

The three IPO juggernauts are among a class of companies founded in roughly the past eight to 12 years in San Francisco and environs that have gone on to build big-name brands and decacorn valuations. Others that are now public include Uber, Lyft, Pinterest and, also this week, AI software unicorn C3.ai. And yet another—mobile e-commerce company Wish—is planning an IPO next week.

Unicorns staying put, too

Meanwhile, in the private markets, many of the most valuable unicorns are Bay Area-headquartered companies. That includes Stripe, Instacart, Robinhood, Chime, Coinbase and others.

Funding for area companies is holding strong across stages as well. So far this quarter, 380 Bay Area startups have announced new rounds, bringing in around $10.3 billion, per Crunchbase data. That’s more than a third of the national total of $27.8 billion so far in the fourth quarter. It’s also roughly the same breakdown as the year-ago period, with Northern California actually outperforming a bit in 2020.

A small crack in that outperformance, however, showed up at Series B. A survey of roughly the first two-thirds of the year found a shrinking share of Series B funding going to Golden State companies. Since Series B is often the final round before major scaling starts, we could speculate this is a sign future unicorns will be less concentrated in California.

Still, broadly speaking, Northern California’s startup scene is holding strong. Much of the anti-Silicon Valley talk in startup-land recalls the Yogi Berra saying about a restaurant he no longer patronizes: “No one goes there nowadays. It’s too crowded.”

By the same logic, no one wants to launch a company in the San Francisco Bay Area anymore. There are too many companies that have launched there and became wildly successful and super highly valued.

Sure, there are downsides. But few of the Northern California critiques from departing entrepreneurs contain new information. It’s been expensive, earthquake-prone, congested, politically left-wing and highly taxed for a really long time. Pointing out these things is about as insightful as observing that Minneapolis is cold, Texas is big, and New York is crowded.

Remote startup goldmine

While they may not seem like the most sensible places to launch a business, Silicon Valley and San Francisco still comprise the most successful tech startup ecosystem on the planet. Lacking a better explanation, we’ve in the past attributed this to a “reality distortion field” effect—or the local willingness to launch and heavily fund ventures that might sound ludicrous to more conventionally sensible folk.

What’s peculiar this time around is that the San Francisco-area unicorns launching massive IPOs and scaling global megabusinesses are doing it mostly with workers who could be based anywhere.

Since March, virtually every U.S. tech company has shifted to remote work when possible amid the pandemic. While many are still logging in to Zoom meetings from home workspaces in the Bay Area, they could just as easily do so from a Hawaiian island, Rocky Mountain hideaway, or Midwestern hometown.

The sense of geographic freedom is reflected in the early-stage landscape as well. Every week, we talk to startups operating with remote teams. While everyone is technically headquartered somewhere, that doesn’t mean a high concentration of staff are actually working there.

Theoretically, the shift to remote work could actually be helpful to the Bay Area’s continuance as a tech capital in that skilled people have more options and space. Those who want to work for local tech companies but live elsewhere are increasingly free to do so. That leaves more room and less traffic for those who want the Silicon Valley/San Francisco experience.

That said, on the flip side, the rise of remote work makes Silicon Valley’s dominance seem tenuous as a cost decision. Why locate in one of the most expensive and highly taxed U.S. regions if you don’t have to?

At this junction, it’s probably worth pointing out that SF-headquartered companies generally don’t keep most of their staff local as they grow.

We did a survey with available data last year and found that headquarters do not translate into headcount. While most big-tech companies founded in the Bay Area haven’t moved headquarters, their workforces tend to become much more geographically dispersed as they grow.

Drawing from available data for some of the largest technology employers in Northern California, Crunchbase News found most have less than 25 percent of their full-time employees working in the city where they’re headquartered. That includes Apple, Google, Intel, Cisco, Uber and Salesforce1.

Whether startups continue to headquarter in the San Francisco Bay Area at the same rate, of course, cannot be foretold. Palantir’s move to Denver this year could also be a harbinger of things to come, indicating it is feasible for even a well-established decacorn to relocate.

We’ll see. In the final analysis, no place offers the perfect work-life balance. And this year in particular, we’re feeling less bound to a particular location, Silicon Valley included. One big side effect of the rise in remote work, it seems, is that virtually all of us are spending more time thinking about being somewhere else.

Illustration: Dom Guzman