San Jose, CA

Are Startups Really Leaving Silicon Valley?

Richard Fang

Let’s take a look at recent statistics to see what’s really happening

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Greg Bulla / Unsplash

We all know that Silicon Valley houses some of the largest tech companies in the world. From Facebook to Apple, startups that started decades ago have grown into billion or trillion-dollar giants.

It houses not only these giants but also smaller startups looking to become the next mammoth. It’s the Silicon Valley dream, and the tech-fueled sector sees new innovations every single day.

With the pandemic, however, we’ve seen a shift in remote workforces and businesses operating virtually. Not only this, but we’ve also seen accelerators and incubators that usually require startups to move to the Valley to take part in their programs waive the rule due to these circumstances.

For accelerator Launch, hosted by Jason Calacanis, who runs the infamous This Week in Startups podcast, it was a hard decision to make. As an advocate initially of working in person, he has been much more open to remote working over the last year.

This soon translated into running their accelerator virtually, the first time ever for them. This turned out to be a great success which means building great startups doesn’t necessarily mean making a significant life choice to move to the valley.

Why do startups and companies leave the valley?

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Gene Gallin / Unsplash

It’s often painted in the media that startups are fed up by laws in California, as well as the high cost of living. One founder estimates it costs at least four times more to operate in the Bay Area than in most other American cities.

Last year, Elon Musk announced that he planned to move to Austin, Texas because he had enough of Silicon Valley. Technically he hasn’t made any signs of movement after he announced this, but a few tech companies are actually moving.

HPE (Hewlett Packard Enterprises) announced that it was moving its new global headquarters to the Houston area. This will be the IT spin-off of San Francisco Bay Area-based HP headquarter in California.

“We made the decision to relocate our headquarters to the Houston area in response to business needs, opportunities for long term cost savings, and team members’ preferences about the future of work,” HPE Spokesman Adam Bauer

The main reason, however, isn’t just for tax reasons. The most significant business expense is headcount, and for a longer-term play, moving to cities where workers are paid much less since the cost of living is lower helps trim the bottom line for a company.

The bigger your startup grows, the more this expense will increase, which is why some tech giants are considering the move.

Does this mean that startups are actually leaving the valley?

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Carles Rabada / Unsplash

Of course, earlier-stage startups don’t have as many employees or revenue. They’re in a growth phase where they need to hire talent and be in an area to network for business and funding.

A survey done by Telstra Ventures (an Aussie company that I worked for before) tracked capital investment in major and emerging tech hubs across America. They found that even though many companies spoke about moving interstate, the numbers did not reflect this.

According to the report, 96.9% of startups stayed in the Bay Area during 2020. 1.2% relocated from the Bay Area in which:

  • 21% relocated to another city within California
  • 21% moved to New York
  • 12% to Texas
  • 6% to Colorado
  • 4% to Massachusetts
  • 4% to Washington State

You would expect Austin, Texas to be the city that grew the most in startups, but in fact, it was Denver, Colorado, which grew by 21%.

Although these numbers looked at 2020 exclusively, Telstra Ventures put together this report to see if the past events did, in fact, impact the startup and Venture capital landscape in the US, especially if startups shifted around.

It has been a recent phenomenon that ‘you don’t need to be in the Bay Area’ to build the next unicorn. Looking at the numbers, however, not many have packed their bags as the majority stayed put.

However, other hubs did see more VC investment

This is the real exciting part about this. Although startups didn’t per se move, we definitely saw more startups spring up in these new emerging tech hubs.

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Telstra Ventures

Dallas / Fort Worth, Texas especially saw a huge jump, with an increase of VC funding by 66%. This is especially exciting to see that other hubs are emerging, and startups across the states don’t have to necessarily relocate if other areas are also getting eyeballs by VCs.

“Our investments are spread out all over the world, and the US is no different. From Austin, Boston, Denver, Los Angeles, New York, Seattle, and San Diego, we’re excited to see the VC investments increasing into emerging tech hubs,” said Mark Sherman, General Partner at Telstra Ventures.

For startups, the growth has not only been in Dallas / Fort Worth, Texas, and Denver, Colorado, but also in Minneapolis and Los Angeles.

Where you are doesn’t really matter

All of this points to one exciting fact across the startup landscape — innovation and investment are still going strong.

Regardless of whether startups are moving away from the valley, we still see massive growth within the landscape, which shows within the numbers.

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Telstra Ventures

Of course, with the pandemic, there have been massive funding increases within the health industry, but investments in cloud, network, and security technologies are also growing rapidly.

Across the board, we’re seeing increases in investment which shows innovation is growing in the market, and you don’t necessarily have to be in the valley to grow your startup.

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