Andreessen Horowitz Pushes VC Center Of Gravity Away From Bay Area
Source: Bloomberg, Sarah McBride, Lizette Chapman, and Katie Roof
Photo: David Paul Morris/Bloomberg
One of Silicon Valley’s most prominent venture firms, Andreessen Horowitz, has announced the location of its new headquarters: “the cloud.” The firm will keep its real estate in San Francisco and Menlo Park, California, but now plans to expand beyond those confines—formally opening up offices near Miami, Los Angeles and New York.
In a blog post Thursday, Ben Horowitz—who himself has moved to Las Vegas—positioned the move as a direct indictment of the once-unassailable dominance of the Bay Area tech scene. The rise of remote work, he said, is “profoundly weakening the Silicon Valley network effect.” The inimitable magic that once made Northern California feel like the only viable destination for serious tech startups, in other words, is gone.
Since the start of the pandemic, Andreessen Horowitz is hardly the first VC firm to expand outside the Bay Area. Founders Fund, General Catalyst and Index Ventures have all opened new offices or built out existing locations to the east or south. Sequoia Capital set up a London office in 2021, and is considering opening another in New York. VCs like Marc Andreessen and Peter Thiel bought fancy homes in Southern California. Meanwhile, VC Keith Rabois has become a Miami superfan.
Still, Andreessen Horowitz’s latest vote of no confidence in Silicon Valley is notable because of the firm’s history as a bellwether for the industry. Nicknamed a16z, the firm launched in 2009 with a Netscape co-founder at its helm, and championed a new, maximalist model for venture capital that was soon widely mimicked. Following a16z’s lead, many VC firms have expanded in size, offering more services to their portfolio companies, and sought to elevate the profile of their partners, emulating the highly visible Andreessen.
As it grew, a16z was willing to spend serious money to get into the deals it wanted. Its fame and fortunes climbed during the past decade as it minted myriad unicorns, many of which were located within a short drive of a16z’s nondescript offices on Sand Hill Road.
Today, the San Hill Road-adjacent tech scene looks different. Office vacancy rates in San Francisco were 18% in the second quarter, according to data compiled by Newmark Group Inc., and 15% in the larger Silicon Valley area. That compares with 11% in Manhattan and 15% in Miami. Rent for a one bedroom in San Francisco has edged up only 15% over the last year, compared with a 46% increase in New York and 39% in Miami. Meanwhile, the number of people entering San Francisco area office buildings this spring was less than one-third of pre-pandemic levels, according to building security provider Kastle Systems.
But even as tech workers disperse and VCs spurn San Francisco, actual venture dollars are still clearly concentrated in Northern California.
The Bay Area attracted $52.3 billion in VC cash in the first half of the year, according to Pitchbook’s NVCA Data Monitor. That’s 36% of the nation’s total. New York was a distant second with $19.8 billion, or 27%, and Los Angeles third, with 17%.
Fast-growing Austin, which has attracted high-profile startups including Elon Musk’s Boring Company, won just $3.4 billion during the same period. And Miami took in $2.5 billion. That’s a paltry 2.6% and 1.7% of the total, respectively.
For some founders, especially younger ones still forging connections, real-life offices in the Bay Area maintain their allure. “There’s a lot of folks that we talk to that are extremely ready to go in office,” said Dalton Caldwell, a group partner at Y Combinator, in a recent video update on the startup accelerator. Michael Seibel, Y Combinator’s chief executive, added, “We’re also seeing a lot more interest in San Francisco.” Seibel said that some tech workers who left the city for buzzy destinations like Miami and Austin have quietly returned.
Of course, for many startups minted during Covid lockdowns, there’s no going back to pricey Silicon Valley offices. Linda Lian, an Amazon Web Services veteran, founded enterprise software startup Common Room from her bedroom in San Francisco at the beginning of the pandemic. She didn’t meet her first 10 employees in person until nearly a year after hiring them.
Now, Lian’s startup employs more than 50 people, and she has raised more than $50 million from investors including Index Ventures, all via Zoom from her bedroom.
The company signed a small lease in Seattle were Lian now lives, but it’s currently working to get out of it because Lian doesn’t think it’s necessary or even smart. In his post, Horowitz noted, “It turns out that running a technology company remotely works pretty darned well.”
Common Room is embracing the remote office. “Why have a physical form?” Lian says. “It makes you stuck. Home is where the Slack is.”