June 1, 2012

Start-Ups Flock to San Francisco

Enid Burns for RedOrbit.com

Utter the word start-up, and probably Silicon Valley comes to mind. While the area across the bay from San Francisco used to draw businesses funded by venture capital - Facebook founder Mark Zuckerberg made the move across country to headquarter his business in Palo Alto - a new crop of start-up companies are setting up shop in San Francisco.

Where Silicon Valley once was a hotbed for new tech companies, the city is seen as "boring" by some of the younger companies started by younger founders. San Francisco now beats with the pulse of tech start-ups. "This is really where the center of gravity is," Dan Siroker, founder of San Francisco-based start-up Optimizely said in an article on Reuters. The company received seed funding from the tech incubator Y Combinator. The incubator's founder himself moved from Silicon Valley to San Francisco within the past four years.

The Reuters article notes that Y Combinator founder Paul Graham used to be "suspicious" when start-ups locate in San Francisco. He has made a turnaround. "Things have changed," the article quotes the founder.

New tech companies in San Francisco have plenty of neighbors. Twitter, Salesforce.com, Zynga, Yelp and other relatively young companies are all based in San Francisco. Some of the newer kids on the block include Gumroad, Optimizely, Benchmark, HubPages, Disqus, Digg, Pandora Media, Kontera, JustAnswer, AdBrite, Tagged and Scribd.

California remains a big draw for venture funding. A report released by Pricewaterhouse Coopers and the National Venture Capital Association based on Thompson Reuters data tracked 294 deals valued at over $3 billion venture capital investments for the state in the first quarter of this year. Of those investments, Silicon Valley grabbed $2.1 billion spread across 213 deals; Sacramento and Northern California scored about $8 million in venture capital investments, which went to just one deal.

While San Francisco is attracting new companies, incentives might not be enough for some companies. San Francisco enforces a 1.5 percent local payroll tax, which the Reuters article cites as a "jobs killer" according to the community. Mayor Ed Lee is working to alleviate these taxes, and has proposed moving the tax to be tabulated based on revenue, but the proposal has its opponents among the stalwarts of San Francisco.

Silicon Valley is still thriving, though many employees commute from San Francisco. Busses wired with Wi-Fi, either sponsored by companies such as Facebook and Google or independent busses that serve those companies, transport workers to their employer's campuses each day.

San Francisco has its appeal to many start-ups for this very reason. Employees take busses to Palo Alto and other cities within Silicon Valley each day when the employees of new start-up firms in San Francisco can simply walk to work. Proximity to their jobs, and a vibrant city are enough of an attraction to bring in some young, new companies. It remains to be seen whether taxes and other issues within San Francisco will eventually turn businesses away, or whether the city will find a way to keep them located within.