Why Technology is Driving More Urban Renewal

Posted on Jul 10, 2012 | 50 comments


Like many I read the headlines about Pinterest moving from Palo Alto to San Francisco and thought about the trend it portends.For those not familiar with the local geography, Palo Alto is the north end of what most consider “Silicon Valley” although nobody local calls it that. Palo Also is about 35 miles south of San Francisco.

Palo Alto is home to Stanford. It is the birthplace of Hewlett Packard. And Facebook. It is adjacent to Mountain View, home to Google. Further to the south are the legendary companies of Cisco, Apple, Intel, eBay, Yahoo!, Juniper and countless others.

Back in 2006/07 when I sold my company and then worked at Salesforce.com there were very few options in SF for technology folk to build their careers at big, growing companies.

Today there’s many. In addition to Salesforce.com (the 800 pound gorilla) there is also Twitter, Zynga and Square – just to name a few. And now Pinterest.

So why all the movements towards cities? It’s clearly more expensive for office space and living. In addition to higher rents many cities impose city taxes on local businesses. It’s clearly a complex topic without black-and-white answers.

Fred Wilson ponders this in his post “Cause and Effect

Technology innovation doesn’t occur in a vacuum. It happens in a dialog with society. And sci-fi writers are but one example of the way society impacts technology.

I think that’s one of the reasons that many of the most interesting bay area startups are choosing to locate themselves in the city. And it is one of the reasons that NYC is developing a vibrant technology community.

Society is at its most dense in rich urban environments where society and technology can inspire each other on a daily basis.”

I’m sure there’s a lot of truth to that. I see it first hand in Los Angeles where given the growth of YouTube networks the worlds of art & technology are colliding. It’s becoming harder to distinguish tech companies from media companies.

Many “tech companies” now have green screens. And make-up artists. And costume & set designers. And sound engineers. And post production. And writers! And even … yes … actors.

I can’t say for sure, but it feels to me like the re-urbanization of technology companies is driven by a broader trend of the tech industry overall – cloud computing. In driving down the costs of building businesses it’s driving down the age of startup founders and thus they’re starting companies where young people want to live – in urban environments.

I’ve been meeting with LPs (those who invest in VC funds) over the past year and discussing trends I see in the market and where I think we need to be as a firm to be near to and meet the needs of our customers.

One of the major trends I’ve outlined is this movement of entrepreneurs (and as a lagging indicator venture funds) to more urban environments.

And it’s not just the movement from Palo Alto to San Francisco.

The same phenomenon is happening in many places.

  • In Massachusetts companies (and VCs) have migrated from out by Waltham to Back Bay (Boston) or Cambridge.
  • In LA companies used to be concentrated near Pasadena or in the San Fernando Valley. These days it’s Santa Monica and Venice. Not exactly “urban” in the way you think of SF or NY but certainly relative to the suburban communities of LA and at a minimum it’s where young people want to live / hang out
  • In England they were all in The Thames Valley (45 minutes west of London) and these days they’re all near Shoreditch east of London
  • I think NY has always – by definition – been urban. But there does seem to be huge startup energy around the Flatiron District / Union Square.

For those that aren’t aware of the broader technology shifts of cloud computing, the trend is described in a post I did about changes in the software industry.

The costs of building a company have gone down dramatically, from $5 million to get to launch in the late 90’s to $500,000 (or even lower) today for web companies.

As a result younger people are creating startups because they can. It’s far easier as an inexperienced 23-year-old to get $200,000 from somebody than $2 million or $5 million.

So we’ve seen an explosion in the number of startup companies and subsequently a huge burst in the number of incubators.

I think the urban tech renewal is happening for the same reason.

It’s not that young people wanted to live in Mountain View in the past. In fact, so many DID NOT that companies like Google & Yahoo! had free buses with wifi from San Francisco to their Palo Alto and Sunnyvale headquarters.

Young people want to live where the action is. They want to live amongst other young people. They want nightly restaurants, bars, dance clubs, karaoke, or whatever other late night activities are available to those with fewer encumbrances.

You know the story. You get older. You get married. You have a kid. Then another. Suddenly you feel the pull for a backyard and nearby parks. And a bigger house wouldn’t hurt so that when your mother-in-law is in town for 3 weeks it doesn’t feel like you see her quite so much.

So you move outside the city – even though you feel a strong pull to stay. It’s why many of the older executives at San Francisco startups live in Marine County and commute in. Or they do so from Burlingame, San Ramon or even Palo Alto.

I suspect the shift from the burbs to urban environments – or more specifically to places where young, single, technical startup people WANT to live – will continue into the future and will not decline.

And with startups so go VCs. Spark Capital, Flybridge, Founder Collective, NextView Ventures … all in Boston or Cambridge not west of the city.

In San Fran you find more recently established VCs like True Ventures, First Round Capital, Freestyle, Kii Capital and others.

And there has been a similar move from Sand Hill Road to Palo Alto itself with firms like SoftTech VC, Felicis Ventures, K9, Accel, True Ventures (other office) and Floodgate.

In NY you find the broader Flatiron / Union Square are home to USV (obviously), IA Ventures, First Round Capital, FF Ventures and the incubators General Assembly and TechStars.

I’m sure I’ve forgotten many who have moved or set up anew since I wrote the list in one sitting and with no research.

In LA the VC shift is clearly to Santa Monica / Venice, home of Rustic Canyon, Greycroft, Anthem and just about every incubator (Amplify, Launchpad, Mucker, Science).

GRP’s offices are near Beverly Hills. Our lease runs out in 2013. No prizes for guessing where our new offices will be located ;-)

Image courtesy of Philip Bouchard from Flickr

  • http://arnoldwaldstein.com/ awaldstein

    Hi Mark

    I’ve never pasted a comment from another post, so this is a first for me:

    “Culture is driving innovation more than tech itself today.

    “People adapted themselves to the possibilities of behavior as tech
    advanced up the ladder. For a long time. Every new thing was a wow. We
    just didn’t know that we could do that. Apple was the artist of this
    paradigm.

    “Now.. as product creators, we plumb culture and create platforms for it to surface.

    “Now…in cities, not only is culture intensified, it’s a mobile
    moshpit for innovation. You can’t invent social mobile intersections in
    the wide open spaces, You discover them as we bump into each other and
    other things to share to each other.

    This was my response to Fred’s post and germane to yours as well.

    I’m not being lazy, just don’t know how to say it any better.

    I can see you on the west side much moreso than BH!

    BTW…need some advice on something if you are OK with a personal ask?

  • http://devblog.ailon.org Alan Mendelevich

    I remember reading somewhere just recently that there’s just no office space available in Palo Alto and around. Isn’t that the main reason?

  • http://about.me/humphrey HumphreyPL

    Hi Mark, In Australia the co-working space has been exploding in the major cities of Melbourne and Sydney along with incubators that are wiling to throw in $25k for startups. I think for us its more been a move from the garage, home office and such to a centralised area of shared services where people working on their different businesses can lend a hand, hear a pitch, share some advice and generally help out. There Coworking spaces are also becoming hubs for events in the evening which is really bringing the similar minds in the city of 5million together which can only benefit long term startup growth. Hope you can come to Australia to see them happy to give you a tour! Cheers, H

  • http://bothsidesofthetable.com msuster

    always wanted to spend time in Aussie – would be great to find an excuse soon ;-)

  • http://bothsidesofthetable.com msuster

    doubt it. you think there is tons of office space available in SF? If that were the issue companies would move to San Mateo, San Jose, Sunnyvale or other areas that are cheaper than the city.

  • http://bothsidesofthetable.com msuster

    Sure. Hit me up on email. Happy to try and help.

  • Matthias Galica

    “near Beverly Hills.” Well played, ha.

  • http://influitive.com/ Abdallah Al-Hakim

    agree that cities are already and will increasingly become the hubs of innovation. This is why it is critical for big cities to realize their advantages and create the environment to facilitate this process.

    One place you didn’t mention was Boulder, Colorado. Some young people especially the outdoors types might prefer to live in a smaller but vibrant community such as Boulder where they have access to terrific outdoors opportunities.

  • http://about.me/humphrey HumphreyPL

    Well Lean Startup Machine is coming to Australia in Sept/Oct ’12 but there is notmally a lot of activity around the StartMate Sydney Incubator Pitches around March/April 2013. There is also a lot happening in Singapore recently so you could make is a Asia trip :) Let me know the best way to formally invite you I will find an event!

  • Shan Sinha

    Mark- while your macro trend may still be true, I think the Palo Alto -> SF trend is less about young founders and more about cost / availability. There are many young startup founders that actually would want to be down in Palo Alto (the downtown area is actually better in many ways to some of the neighborhoods where startups are getting located in the city). But the fact of the matter is- Palo Alto office and residential space (to buy or to rent) are at significant premiums to the city.

    That’s assuming you can even find anything available. Inventory is extremely thin. Our company is looking for space in Palo Alto right now and it’s slim pickings. The reason- Palantir is just sucking all the oxygen out of the commercial real estate. Residential 1 and 2 bedroom apartments are probably 25%+ more expensive than comparable places in the city, if not more.
    I’d argue that in the bay area, Palo Alto is more desirable than the city for many (not all)… but the fact of it is, that the city is just more affordable and more importantly, actually has availability.

  • Brian Li

    Sure beats sitting in traffic to/from metropolitan cities. I suppose the theory behind clustering has yet again been proved. That said, i recently moved down to Sunnyvale to avoid the101. Realized that the productivity lost even on a company shuttle (that’s 2hrs, each-way) just did not out-weight its benefits. Hope to catch up with you sometime over the summer. URSWA reunion? :)

  • Dave

    Correction needs to be made. On average, the rental costs for SF are cheaper both for residential and definitely for commercial space, not higher. As someone who actually lived and built companies in both locations, this still holds true (and even Techcrunch have reported such recently).

  • Littell

    Nice article Mark. Can’t say enough about the power of non-planned-networking that occurs in SF or any city (be it in a bar or soccer field or whatnot). Since arriving in ’98, always felt there was just so much more synergistic-capability (poor wording but u get the idea) in SF than in Silicon Valley.
    Assume you saw Benchmark’s recent news of moving to mid-market too.
    Another factor(s) that I can’t help will also feed Urban Renewal is that folks are getting married later and later, and those that are are having smaller families. I also can’t help but wonder if cities will be better able to fund infrastructure costs (police/fire/etc) / financials in the future as compared to ‘burbs, thereby making cities even more attractive (could be wrong here though).
    Anyway, great article. Only suggestion – “SF” instead of “San Fran” :)

  • http://petegrif.tumblr.com/ Pete Griffiths

    A lot of the older companies had to be out of town because they needed to establish ‘factories.’ You couldn’t build a semi-conductor plant in the middle of SF. The next generation was system software which ‘followed’ the hardware vendors. Physical proximity was important to achieve critical mass. But now software is ‘eating the world’ and the resultant products are divorced from their hardware and event their system software roots. Companies may rely on cloud services that are delivered from sites out of town but they don’t need to be near them. So the divorce is nearly complete.

  • Greg Mand

    Only thing I can add is thanks for the shout-out to my town of Burlingame. And yes, with a young daughter I longed for more space than SF and deal with the commute to SF.

  • http://twitter.com/RedRussak Red Russak

    Any thoughts on Seattle?

  • http://devblog.ailon.org Alan Mendelevich

    well, I’ve only been there a couple of times but I was always puzzled why people build startups in SF in worse conditions (imho) than in PA and at first I was explaining it to myself with the same arguments you outlined in your post and the fact that I’m relatively older than most “startupers”, have a child, etc. Than I read that article that Dave mentioned here (http://www.bothsidesofthetable.com/2012/07/10/why-technology-is-driving-more-urban-renewal/#comment-583272948) and it explained it to me.

    Anyway, most likely it’s the combination of things and can’t be explained simplified to one thing or the other.

  • http://blog.ideatransplant.com Jan Schultink

    Startups in Israel on a map http://mappedinisrael.com/

  • laurayecies

    I don’t believe SF is cheaper. And SF has a payroll tax that’s significant – San Mateo and Santa Clara counties do not.

  • laurayecies

    I think it’s great that there are lots more interesting jobs in San Francisco – more choices for people and hopefully shorter commutes. I do disagree to the implied assumption that startup people are young and single :-)

  • http://bothsidesofthetable.com msuster

    That might be. I guess cheaper is relative. If you consider non Palo Alto locations (Sunnyvale, San Jose, San Mateo, etc.) I doubt that still holds.

  • http://bothsidesofthetable.com msuster

    I know. I didn’t say 100% are young and single. But certainly more so as a % than you would likely find in traditional industries.

  • http://bothsidesofthetable.com msuster

    very cool. thanks for including.

  • http://bothsidesofthetable.com msuster

    from what I hear (and saw when there) similar trend.

  • http://bothsidesofthetable.com msuster

    You were the classic case, Greg! Hope it’s all going well.

  • http://bothsidesofthetable.com msuster

    good points.

  • http://bothsidesofthetable.com msuster

    re: fortuitous meetings – great point. thanks.

    re: SF (which is what I say) – I sometimes elongate for non local readers. Also, when I grew up in NorCal we simply called it, “The City.” ;-)

  • http://bothsidesofthetable.com msuster

    reunion long over due. let’s pick a different restaurant but I’m definitely in!

  • http://bothsidesofthetable.com msuster

    that may be re: costs, I’m not sure.

    re: where people want to live – there will always be people who prefer one or the other. But on the whole, my anecdotal evidence suggests way more people prefer SF than PA

  • http://bothsidesofthetable.com msuster

    I love Boulder!

  • http://bothsidesofthetable.com msuster

    Didn’t think many non-Angelinos would know “Century City” ;-)

  • http://twitter.com/JoryDJ JoryDJ

    Mark, I’ve noticed the same and am wishing this had happened sooner.

    Back when I was a “young” entrepreneur–in my 20s in ’99–I moved from Brooklyn, NY to San Francisco to be on the building team of a media start-up. Because we were all New Yorkers the thought of being in Silicon Valley never even crossed anyone’s mind. I can’t speak for the founders, but all of them moved to SF, my guess is, for easy commutes and because they were used to more urban life. We were located at 5th and Market–the edge of downtown retail and Tenderloin chaos. The Mall wasn’t as built up, and our startup was across the street in the Mint St. Alley. I had to walk over syringes, and once even sidestepped a passed out person, to get into my office. The few times I had to head down to SV for meetings I hitched a ride with people who had actually driven cars in the past 10 years. We lasted 2.5 years. Was it the city location? Don’t think so, but I would not be surprised if isolation was an issue.
    Of course living and working in SF wasn’t sustainable during the bust. I was forced to buy a car and start working on the Peninsula. Today, my company (is 7.5-year-old startup) is located in Belmont–not the Valley per se–but still south of SF. We agreed on the location because my partners live South and we figured we could hire/retain more tech talent farther down the Peninsula. While most of our SV office employees are based south of the city, I don’t know if that’s the case anymore. Talent is where it wants to be. I’m always fascinated and inspired by tech entrepreneurs who say screw it and move to Vancouver or Vermont to start their next creation.
    Despite our office location, I did not want to move south and located to the East Bay–a compromise with my husband, who was in grad school at Berkeley at the time, and because we now have 1.8 kids. People ask me why I don’t just move for a faster commute. I just can’t; I’ve lived in proximity of a city for so long and love having my urban amenities close by. I no longer have the impression of the Valley as a sterile office park, but still I cannot fully embrace it. I understand why companies are moving, or even starting, in cities. There is something to be said for having proximity to urban culture and public transportation to feel connected with consumers.

    Thanks for kicking off a great conversation.

  • MHSzymczyk

    Mark – in LA, you also have Culver City included with that Venice/SM pocket. Seeing more companies in the CC area. West CC seems to be significantly cheaper than East CC right now. Also, I wonder what impact the new train from SM to downtown LA will have given LA is trying to prop up downtown LA area for business…

    Btw – I sent you an email this morning. Available next week to grab a coffee? Have some great updates since last time we met…

    Matt
    Zugara

  • Shan Sinha

    the last company i started was in sf and the overhead from the city does not make an appreciable difference until you’re at scale (which amounts to just over 1% of total payroll.

    Palo Alto is significantly more expensive than SF in today’s market.

    Office space wise (at least for a tech company) in Palo Alto is running between $6 and $7 per sq ft per month. Pinterests space as an example is leasing at $7 / sq ft per month.
    The most desirable parts of SF (SoMa) are running for $4 – 5 per sq ft. You can move up closer to financial district in Class A space, generally good accessibility for $3 per sq ft per month.
    Let’s say you really squeeze in your people and only 100 sq ft per person (which is on the very low end) and offer very generous startup payroll at $150K per year (all-in with overhead), the relative office space overhead alone (how much more you pay in PA compared to SF) is ~3% of payroll (which is 2 – 3x of the SF payroll tax). If you give people the space that they actually need (150 – 200 sq ft per person), you’re at 5 – 6% of payroll..
    Now there are some parts of Palo Alto that are cheaper ($5 / sq ft), but they are less desirable, not as conveniently located along CalTrain.

    I’m comparing prime Palo Alto vs prime SF (SoMa reasonably close to CalTrain).

  • Shan Sinha

    I definitely observe the same thing.. just saying that cost difference is actually enabling this trend even more in the bay area.

  • http://innovocracy.org/ MartinEdic

    “Many “tech companies” now have green screens. And make-up artists. And costume & set designers. And sound engineers. And post production. And writers!”

    As a writer who works in B-B marketing I’ve often wondered why tech companies put so little emphasis on writing. All too often tech companies fail miserably at telling the story of what they do and why anyone should care, something we (writers) specialize in. It is part of an engineering culture that typically assumed knowledge on the part of the user. Fortunately, as your comment shows, we are moving away from that bias. Telling the story is, in many ways, the key to all marketing including tech marketing…
    Given your propensity to long form writing I suspect you agree! Get a writer involved sooner rather than later.

  • http://www.gordonbowman.com/ Gordon Bowman

    Yes, yes, yes. It’s all about where the founders themselves want to live. And increasingly that is in the cities.

    I think it’s a trend that will only continue with my generation. Many of my successful founder friends (upper 20′s and lower 30′s in age) have expressed staying in SF with no intentions of moving to the burbs any time soon.

    p.s. bonus points for choosing Francis Ford Coppola’s Columbus Tower as the picture. By far my favorite building in SF!

  • http://twitter.com/RedRussak Red Russak

    Planning on another trip any time soon? Would like to see what you think of the progress made since your last assessment – http://techcrunch.com/2011/05/05/a-few-key-people-really-can-make-a-huge-difference/

  • Littell

    Ah yes, (The City = San Francisco = SF) > San Fran >> ‘Frisco’.

  • https://plus.google.com/u/0/b/114718778524214371963/114718778524214371963/posts kidmercury

    the tech thing plays a part. the larger story is great depression 2.0, which is reducing the number of jobs in non-urban locations at a faster rate than it is in urban locations. ergo, a greater economic incentive to move to cities. we are at risk of a problem of excess population density; new york is a constant traffic jam, and some times it’s hard to catch a cab and you have to settle for some overpriced black sedan. shanghai had an 8 hour traffic jam last year. 8 hours!!!!! and you people thought LA was bad. pfft.

    will the move towards urbanization change when great depression 2.0 ends (an event unlikely to occur for 3 years minimum, likely longer)? probably not. a myriad of factors, ranging from peak oil to global commerce to government breakdown, will make cities a more preferable model of living relative to suburbs. as usual china’s behavior is instructive here; they build cities and move their people in, they don’t build suburbs and move folks into that.

  • http://technbiz.blogspot.com paramendra

    Does Geography Matter? http://t.co/6CtF7zzt

  • http://wac6.com/ William Carleton

    Red, Amazon’s commitment to “fill the gap” between downtown and South Lake Union is huge, just huge, in terms of increasing the vigor and attractiveness of the “physical plant” that is urban Seattle. To say nothing of pulling in professionals and the ecosystems to support them into the downtown area, rather than godforsaken suburban office parks.

  • http://www.feld.com bfeld

    Mark – you totally nailed this one. I just highlighted this on the Startup Communities blog – http://communities.startuprev.com/archives/2012/07/why-do-tech-entrepreneurs-love-cities.html

  • http://www.coefficientinc.com/product sbmiller5

    Boulder / The Colorado Start-up scene will be interesting. As a Denverite who worked at a Startup and is now launching my own, it will be interesting to see if Colorado goes through a similar transition. Boulder is driven by the Foundry group, the ecosystem Foundry’s success created and now Techstars.

    However, even for many outdoorsmen/women, Denver is a better place to live for those in there 20s. Offering good, but not the same, proximity to the mountains, a great young city life and oddly enough has cheaper rent for both housing and office.

  • http://influitive.com/ Abdallah Al-Hakim

    that startup communities blog site looks very cool and informative. It might just be me but I have never heard of it – You should promote it more :)

  • http://www.feld.com bfeld

    I will – soon.

  • http://influitive.com/ Abdallah Al-Hakim

    Terrific. I already subscribed to a couple of the sites

  • http://www.facebook.com/jtbed Justin Bedecarre

    Hey Mark and Brad, I recently answered a question on Quora that addresses this issue and includes Techcrunch posts and my infographic that I included here as well. http://www.quora.com/Pinterest/Why-is-Pinterest-moving-to-San-Francisco-from-Palo-Alto

  • http://www.xelsionmedia.com/ John Were

    Thanks Mark. As you say, as people get older they are more likely to have children and think about moving out of the city. These people have great experience, established networks and strong motivators in mortgages and school fees. Could these people work productively from home offices with a modern online collaborative virtual team environment? Perhaps they could even be located close to key clients rather than their co-workers? I wouldn’t suggest younger minds aren’t needed too but they could find the buzz they need in the collaborative working spaces of any appropriate city and not necessarily the same one.

    I’m understanding of the disadvantages this approach entails. Are there corresponding advantages in keeping virtual rather than relating to a particular geographic location? Your post references many physical places while the businesses themselves have customers and users all over the world. Could there be mindset benefits in having a virtual global workforce too?

  • http://grandresume.com/ grandresume.com

    Hi Mark, I’ve noticed the same and am wishing this had happened sooner.