San Francisco made headlines this month as the host city for the APEC Summit, and the scene was, to put it mildly, a study in contrasts.
Homelessness in San Francisco is a daily reality for over 38,000 people, more visible here than perhaps anywhere else in the U.S. Yet, during the summit, the city underwent a surprising transformation. Suddenly, 300 extra shelter beds opened, offering a temporary haven for many. The streets, usually littered with needles, broken glass, and… other debris, were uncharacteristically clean and orderly.
This is the same city Joe Rogan likened to “failed state” on his podcast just a month prior. The rapid turnaround showed us something important: when there's a real push, even a city as plagued with issues as San Francisco can clean up its act when it counts. And where might the city find the momentum for such change? Look no further than its tech sector.
Tech, long the heartbeat of the city, is still thriving. Big tech companies are committed to staying, the software industry is booming, and there's serious talk about San Francisco leading the charge in AI. Granted, recent headlines haven't been kind to the Golden City, but the tech sector could help rewrite that narrative.
Software isn’t going anywhere in San Francisco
You might have read my recent post on how Austin, Texas being the next big tech boomtown, and while it’s true that companies are seeking greener pastures outside of the Bay Area, this has been a slow drip. Many, if not most, are still sticking to their San Francisco roots, from Salesforce, to Reddit, Atlassian, Cisco, Square, Stripe, Uber, the list goes on.
Even Elon Musk, who moved his other companies out of California during the pandemic, tweeted this year that X’s headquarters will remain in San Francisco, despite being offered “rich incentives” to relocate.
"We will not," Musk said. "You only know who your real friends are when the chips are down. “San Francisco, beautiful San Francisco, though others forsake you, we will always be your friend.”
And it’s not just the biggest movers and shakers sticking in San Fran. The city still has an extremely strong network of up-and-comer software players, like rebate management software company Enable, which raised a $120-million Series D that values the company at $1.2 billion, software development platform Apollo.io, which raised $100 million this year, and cloud services platform Humane, which also raised a nine-figure round this year.
But apparently, the U.S. companies that launched the most valuable IPOs of the year—including two this week—didn’t get the memo.
San Francisco is making a new mark in AI
Earlier this year, esteemed startup accelerator Y Combinator decided to move its headquarters from Mountain View, California to… guess where? San Francisco. For YC CEO Garry Tan, it was a strategic shift.
Tan said, “Seattle once centered around Boeing, and Silicon Valley thrived on semiconductors.” So, what’s San Francisco’s ace in the hole? In Tan's perspective, it’s AI. “I believe this city represents the new frontier,” he said.
In the first quarter of 2023 alone, AI companies in San Francisco raised $11.1 billion out of a total of $22.7 billion invested in the sector. That’s about half of all global investment.
Commercial real estate giant JLL recently reported that office searches in San Francisco — a quarter by AI companies — have surged to levels unseen since the rollout of COVID vaccines in 2021. For those bullish on the Bay Area, this isn’t just a resurgence; it hints at the dawn of a new golden era.
The report found that a staggering ten AI giants are currently on the hunt for 700,000 to 800,000 square feet of prime San Francisco office real estate. Even more telling is the fact that AI companies have expanded their presence in the city by a whopping 300% since 2016. Tech truly is restoring the city of San Francisco to its former glory, slowly but surely.
Venture deeper into the city, beyond its bustling downtown, and you'll discover AI startups making waves in neighborhoods like Hayes Valley (now affectionately termed "Cerebral Valley") and the Mission District — where OpenAI, currently in the midst of its own firestorm, first put down roots. As JLL's managing director, Katy Redmond told Axios, "San Francisco is writing the playbook for being a new type of knowledge center."
San Francisco can be tech’s testing ground...and restore the city's glory
Tech has more to offer than just cold hard cash. In fact, many of the startups in the city could be innovating in areas that could really help San Francisco.
Take Atmos, which emerged out of stealth last year with $12.5 million in venture financing, and they want to give buyers more options as the nation faces a persistent housing shortage and during a time when mortgage interest rates have more than doubled since last year—which has in part driven the homelessness crisis in cities like San Francisco.
Then there’s Via (which raised another $110 million this year) that helps public transportation agencies, municipalities and school districts clear congested streets with optimized transit route planning, and Concrn, which has developed a 911 alternative that helps people experiencing mental health crises by connecting them with compassionate responders.
San Francisco is already leaning into being a playground for the latest tech. They've let Telraam set up its traffic-counting gadgets to help the city planners. Plus, they've got companies like Cruise and Waymo rolling out robotaxis around the clock. And now, there's talk about local police even using killer robots to keep the streets safer–which might be a tad extreme.
Of course, no single tech company can save a city, but it's clear San Francisco is willing to bet big on tech to fix some of its biggest issues.
There will be hiccups, San Francisco is still the world’s tech powerhouse
San Francisco's tech sector is also facing some real headwinds. Take the office vacancy rate, for instance. It shot up to a whopping 26.4% in the third quarter of 2022, a stark leap from a mere 5.2% in 2019. It's a red flag in what used to be one of the tightest office markets in the country.
And the uptick in crime and homelessness won’t likely do much to lure back workers to the city. For the local tech scene, this means navigating through a landscape that's drastically different from the boom times.
Still, these challenges haven’t stopped San Francisco from churning out new companies at an impressive clip. With 117 new organizations founded in 2023 so far, including 115 for-profit companies, the city's proving its mettle as a startup powerhouse.
And let’s not forget: San Francisco reigns supreme in tech when it comes to investment. According to Dealroom, the city and its Bay Area companion are unmatched in magnetizing investment. This year alone, local tech startups raked in an eye-popping $21 billion in venture capital – nearly twice as much as New York, the next in line.
Let’s be real. San Francisco tech might be going strong, but that doesn’t change the reality on the ground. No matter how many unicorns or billionaires the city continues to produce and as much money as they can throw at the problem, San Francisco’s true crisis is not something tech alone can solve. But tech's been steering San Francisco's story for decades, and that influence isn't fading anytime soon.
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