The coronavirus is accelerating a significant tech exodus out of California, with Oracle (ORCL) announcing Friday that it has moved its headquarters from Redwood City to Austin, Texas. The move came just days after Tesla (TSLA) CEO Elon Musk announced he’d be moving from Los Angeles to Austin.
Other tech giants that have recently left California include Silicon Valley pioneer Hewlett-Packard Enterprise (HPE) and newly public software giant Palantir (PLTR).
The coronavirus pandemic and the new work from home reality for many tech workers have been a catalyst for many business leaders to leave the world’s most populous state, which might not be worth the sky-high real estate prices and taxes.
But this is an exodus that began even before the pandemic. Last year, a study by consulting firm Spectrum Location Solutions found 660 California companies moved 765 facilities out of state in 2018 and 2019.
‘The drive was soul crushing’
Jonathan Greechan, co-founder of the Founder Institute, the world’s largest pre-seed startup accelerator, relocated from San Francisco to Aspen, Colorado in May 2019, noted that entrepreneurs and venture capitalists have been decamping for places like Austin, Portland and Denver for years now because of the high cost of doing business in Silicon Valley.
“I got tired of spending almost three hours in the car every day commuting from San Francisco to Palo Alto. The drive was soul crushing but if I tried to take public transportation it would have taken even longer and cost the same. [My wife and I] are both outdoorsy people and one the biggest benefits of living in the Bay Area is the close access to so many beautiful places like Sonoma and Tahoe. However, it just seemed like traffic was getting worse with every passing day, so after spending every weekday in traffic it became harder to get myself to do it on the weekends too,” Greechan added.
There are other reasons for ditching Silicon Valley. In an interview with The Wall Street Journal this week, Musk attributed his move to a bevy of reasons, including what he views as California’s unfriendly business environment and the fact that Tesla’s newest factory is being built in Travis County, Texas.
The world’s second richest person hinted at the potential move earlier this year in May as he publicly criticized and rejected California’s stay-at-home orders, to which California Governor Gavin Newsom had responded by brushing off the threat, claiming he was “not worried about Elon leaving anytime soon.”
Indeed, California comes in dead last when it comes to the most burdensome regulatory structures for business, according to a 2015 report from Pacific Research Institute. California’s relatively high personal income and capital gains tax rates as well as the congestion and sky-high real estate prices may not be worth it without the in-person opportunities to hobnob and collaborate, which is why the coronavirus pandemic might be accelerating this trend as more people work remotely.
Founders Fund partner Keith Rabois announced his move to Miami from San Francisco’s Bay Area last month. “I think San Francisco is just so massively improperly run and managed that it’s impossible to stay here...COVID sort of masks this stuff. It’s not quite as obvious where people are moving to and if they’ve actually moved since everybody’s working remotely,” Rabois said at the Meridian conference.
“America’s entrepreneurial and tech power is dispersing beyond Silicon Valley...next wave of cool innovations will unfold in cities...a lot of talent will head there...this could spark a realignment of influence and politics.” @JimVandeHei https://t.co/ILEaYe8abx #RiseOfRest pic.twitter.com/tKUHLrFD0S— Steve Case (@SteveCase) December 9, 2020
Steve Case, one of the pioneers of the internet, has been trying to chip away at Silicon Valley’s elitist status quo since leaving AOL in 2003. Seventy nine percent of all venture capital investment dollars go to California, New York, and Boston, and as cities try to brand themselves as innovation hubs with monikers like Silicon Mountain (Denver/Boulder), Silicon Prairie (Dallas/Austin), Silicon Peach (Atlanta) and Silicon Slopes (Salt Lake City). His mission seams to be gaining traction, with the pandemic as a reason to work from anywhere.
Native Texan Gust Kepler, who runs a fintech company called BlackBoxStocks, said he’s seen a steady stream of Silicon Valley transplants, but predicts increased momentum as high-profile individuals bring a megaphone to the movement.
“The work from anywhere trend that started with the COVID lockdowns created a major paradigm shift in corporate norms, and definitely influenced some companies to move to Texas. Employers learned that expensive office spaces or campuses were not necessary for a large percentage of their workforce. Further, employees of these companies learned that they did not have to commute 2 hours a day from their affordable housing in the neighboring communities, to ultra-expensive urban centers of commerce. The technology for a remote workforce already existed. COVID was the beta test,” he told Yahoo Finance.
The future of California
California’s elected officials for their part argue that the exodus is massively overblown.
For every company that’s leaving California, many more companies say they have no intention of leaving, California Lieutenant Governor Eleni Kounalakis told Yahoo Finance in an interview this week. And “Bond king” Jeffrey Gundlach, who calls Los Angeles home, argues that the popular destinations may not be the best alternatives to California.
“The problems with these destination states like Texas...Nevada...is their infrastructure is based upon a much lower population. They may have a need to impose income taxes. I would prefer to move to a state that’s not one of the darlings of the migration crowd,” he said during a webcast for his DoubleLine Total Return Bond Fund.
While proud Texan entrepreneur Kepler hopes Texas continues to be a top destination for innovators, he’s skeptical Silicon Valley will completely lose its luster.
“I don't think Silicon Valley will be completely dismantled, but it may suffer significant contraction, as will many other business meccas in the United States,” he said. “Unless you have to be onsite at a shipyard or an oilfield to conduct business, the need for proximity has been forever changed by technology.”