Is San Francisco Too Expensive For "San Francisco"-Based Startups?

By Elissa Maercklein of Priceonomics

Silicon Valley - the promised land of innovation, venture capital, and exorbitant costs of living. And many of the most valuable companies from the region, such as Square, Stripe, Airbnb, Uber are all based in the city of San Francisco.

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Increasingly, however, it's hard for startups to compete in the market for talent in the infamously expensive city of San Francisco.

In March 2017, a blog post by Zapier CEO, Wade Foster, announced they would offer a $10,000 “De-Location Package” to employees that would move out of San Francisco. Fintech startup Varo Money announced in July that they plan to move their headquarters from San Francisco to Salt Lake City, citing high home prices among other reasons.

We decided to analyze whether startups based in San Francisco actually had offices elsewhere as well. Are companies located in the city for fundraising and marketing purposes, but also creating offices in other cities and countries? Is this phenomenon limited later stage companies only or are early stage companies saving costs this way too?

We took a look at the startups headquartered in San Francisco to determine if and when they expand to locations in other regions and where those regions are. Specifically, we pulled data on the 903 companies headquartered in San Francisco that have more than $5 million in funding from our Craft dataset of companies and their locations. 

We found that 38% of San Francisco tech companies companies had locations elsewhere - with New York as the top U.S. city for an additional location and the U.K. as the top country for an additional location. Even for early stage startups (defined as raising $5-10MM in this analysis), 21% of San Francisco companies also had offices elsewhere. 

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For context, the table below shows the distribution of these startups in buckets based on total funding that we will use for this analysis.

As one might expect, there are far more startups in SF with less than $50 million in funding than there are those with more than $500 million in funding. While many startups aspire to be the next Uber or Airbnb, the distribution is heavily skewed towards those with lower amounts of funding.

 

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Data source: Craft

To begin, we analyzed the distribution of companies that have solely their San Francisco location and those that have office locations outside of San Francisco. Of the 903 companies that fit our criteria, 339 startups (roughly 38%) have locations outside of San Francisco, which means that 564 of companies only have their primary SF office. See the companies with locations outside of San Francisco here.

We then categorized companies by funding amount to see if there is a relationship between the amount of funding a startup has received and whether they have expanded to office locations outside of San Francisco. Our hypothesis was that companies with more funding have more capabilities to expand into new and potentially lower cost locations but we wanted to see if smaller, earlier-stage companies also had offices elsewhere. The graphical display of these two distributions clearly show that as the funding amount increases, the percentage of companies that have office locations outside of San Francisco increases, while the inverse (companies with only their San Francisco location) decreases.

 

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Data source: Craft

The graph below shows a clear trend that companies with higher amounts of funding have locations outside of their primary headquarters in San Francisco. As companies grow, they definitely have offices outside of San Francisco but it’s important to note here that even a significant portion of smaller companies have locations elsewhere.

 

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Data source: Craft

 

Taking the analysis one step deeper, we also took a look at the percentage of companies with locations outside the United States, in addition to those with locations just outside of San Francisco. Out of the 903 startups in our dataset, there are 219 (roughly 24%) of companies with locations outside of the US, compared to 38% that just have locations outside of San Francisco.

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Data source: Craft

Next, we analyzed what the top cities in the United States where these companies have additional locations. The table below shows the top 10 cities where startups headquartered in San Francisco have additional locations. New York tops the list with 128 companies that have New York locations.

 

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Data source: Craft

Finally, we did a similar analysis to see what countries are most popular for startups to have additional locations. The table below shows the top 10 countries where startups headquartered in San Francisco have expanded to for international office locations. The U.K. tops the list with 105 companies from our dataset that have international United Kingdom locations, which represents roughly 48% of our subset of companies that have international locations. Also of note is that three of the top four countries are English-speaking countries

 

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Data source: Craft

Key takeaways:

  • 38% of startups headquartered in San Francisco with more than $5 million in funding have an additional location outside of San Francisco
  • Companies with higher amounts of funding have, in general, office locations outside of their primary headquarters in San Francisco; however, a significant portion of smaller companies have locations elsewhere, as well.
  • The most popular US city for SF startups to have an additional location is in New York City. The most popular country for SF startups to have an additional international location is the United Kingdom.

Comments

Bigly Thu, 01/18/2018 - 23:32 Permalink

I love those skscrapers built on massive fault lines. Except for the highest paid- and commie- people are bolting from that shit filled cesspool. 

I predict falling rents within 2 years. Good luck in renting those hideous buildings. 

dunce Thu, 01/18/2018 - 23:32 Permalink

There is nothing about tech that is geo specific. You can do it anywhere. Facebook, twitter, google, youtube, type of services can be set up in India or China.

desertboy Thu, 01/18/2018 - 23:50 Permalink

SF is all programming and biotech engineers; that's now 95% of VC investment.  There's barely any hard-tech people left, and they usually don't work in start-ups.  Bay Area, an echo chamber of crony capitalism - intellectually scintillating it's not.

Golden Showers Fri, 01/19/2018 - 00:43 Permalink

Boring.

What I want to know is what other countries consider SF to be a good Additional Startup location?

I really doubt 9 of those 10 could do worse at home.

Something also tells me that Columbus, Ohio isn't in the top ten faggot Shithole cities any more. Doo dah to that.

But don't worry SF: you can always say "we smoked some niggas dicks" and be proud. Be proud of your selves. Good for you.

Now go do your thing and remember your dental dams. Go, go be free and run like the wind you retarded thumb sucking pussies trying to drag everyone down into your cribs you pathetic disgusting whores and life hating scabs. No one wants you. You make us puke.

Go sue VW over your cabriolets and get a skin doctor for that tumor on your ugly bald headed face, for you women.

And for you ugly bitches, I recommend you listen to Willy Dee about Bald headed hoes. Becuause you are fucking nasty.

https://www.youtube.com/watch?v=6sWfk1H6ZpE

pitz Fri, 01/19/2018 - 01:35 Permalink

Tech left the Bay Area a long time ago.  Now all we have is a bunch of companies regurgitating stuff that was perfected 30 years ago, such as ftp sites (Dropbox) and "the Cloud".  Very few SV tech companies actually make money which is pretty sad.  Even fewer actually pay their engineering employees enough to afford a middle class lifestyle.

pparalegal Fri, 01/19/2018 - 03:01 Permalink

Meh. There is still room around San Jose (outside the Mexican gang neighborhoods) and Redwood City streets for employees to park the cars they are living in. Things get dicey around Oakland. You could lose both your car life.

fishwharf Fri, 01/19/2018 - 09:52 Permalink

I remember SF in the 1960s.  It was interesting and exciting, but sadly the place no longer has any attraction for me.  The traffic and crime drove me away more than the high prices.  There is very little traffic where I live now, and the police actually investigate car break ins and burglaries.  In San Francisco when you call the police to report your car or house has been broken into, or someone steals your purse, you are told to leave a message on the recorder and you are given a police report number for your insurance.  They rarely send an officer out to actually investigate.  There are just too many "petty" crimes.

koan Fri, 01/19/2018 - 09:55 Permalink

W Hen the big one comes a little later this year, rent will be cheaper, if you don't mind rubble.

And for the rest of us, we will get to see the collapse of the (appropriately named) Millennium Tower.