In 2024, the proverbial “startup garage” has become a $10,000/month Airbnb in San Francisco. Even then, your rent won’t go very far: in a typical San Francisco group house of four bachelors and three bedrooms, the curtains don’t work, the stove is broken, and there is very often an ant problem. But more would-be entrepreneurs keep coming to the Bay, eager to make a name for themselves. San Francisco is infamously inhospitable as a city, and has little interest in changing that fact. Why, then, can’t San Francisco keep newcomers away?
Counterintuitively, San Francisco’s dysfunction is actually a feature, not bugs, in the city’s continued success as a hub for ambitious entrepreneurs.
In 2020, San Francisco appeared, to some, to be on its way out. Leading up to and during the COVID-19 pandemic, bureaucratic incompetence in San Francisco reached new heights with never-ending mask mandates, rampant crime, and growing homeless encampments. Many in the technology industry wanted to flee their home and establish a new tech hub in a pleasant, well-governed city that actually appreciated their presence. By 2021, this increase in inhospitality coincided with a zero-interest rate fueled crypto boom that emphasized decentralization and made San Francisco feel irrelevant. Suddenly, it seemed possible to have tech incomes without the Bay area baggage. For a short, glorious window.
At least… as long as business was conducted over Zoom. Tech spread out across the country. Miami and Austin in particular rose in prominence as fun, safe “alt-cities” with no state income taxes and no masks. But in a few years, tech has gone from the Bay, to the Bahamas, and back again. FTX gave way to OpenAI as one Sam passed the baton to the other. Now, engineers are moving back to the city and rediscovering the joys of (not) drinking with friends who also read arXiv. Despite what seemingly everyone in San Francisco, including myself, said during the pandemic, it has re-emerged as the global center of technology. Maybe it never changed.
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The city is home to the world’s biggest AI startups including OpenAI, Anthropic, and Perplexity––of course, all of the Big Tech companies are right down the road, like Google, Meta, and NVIDIA, with their cutting-edge research teams and massive compute power. While other cities might offer more amenities––new housing, nightlife, and public safety––San Francisco’s no-frills social scene and high density of engineering talent makes it the perfect place to build technology. The city sends new arrivals a clear message: come here to build the future; if you can’t figure it out, go home.
Many of the COVID-era criticisms of the Bay Area, and San Francisco in particular, are still true today. While the masks are gone, crime and homelessness are still here, and San Francisco’s effective tax rate is still over 50% for high-earners. Given the complete lack of services in the city, one could wonder what San Francisco’s government actually does with all of that money. Answer: they set it on fire.
But ironically, San Francisco’s dysfunctional, overly bureaucratic government makes it a perfect canvas for a kind of guerilla libertarian action. Here, the state cannot be expected to govern, so private companies and citizens will have to take action if anything is going to improve in the city Take the SFMTA’s plans to expand San Francisco’s Central Subway to Fisherman’s Wharf, one of the city’s most popular tourist spots. The project began nine years ago, but has yet to make it past the “planning stage,” and even then, it will still need to go through environmental review before the subway can be designed and constructed. In the meantime, Waymo has deployed robotaxis across the city and doubled its ridership to 100,000 rides a week in three months. While the city government struggles to deploy a nineteenth century technology, the private sector is on track to make San Francisco the first city to offer safe and affordable self-driving cars to its residents.
The city is so obviously inept that few residents look to it to solve problems. For ambitious, engineer-minded residents, that dysfunctional setting is actually an opportunity for creativity. When Joe Gebbia and Brian Chesky couldn’t afford their rent, and knew that hotel space in the city would be limited due to an upcoming design conference, they did not become political activists advocating for policies that would make it easier to construct new buildings. Instead, they founded Airbnb. When Apoorva Mehta noticed that he was always running low on groceries, he did not demand that the city change its zoning such that every resident lived within walking distance from a grocery store. Instead, he founded Instacart. San Francisco is essentially a poorly-run minarchy where half your income is taxed. But while government sclerosis is, on the whole, bad for the city’s residents, it primes individuals to put their faith in the market to move society forward rather than the state.
Government dysfunction can be fixed. But San Franscio has other “flaws” that make it an ideal place to build. The sky is constantly overcast and the air has a biting summer chill; as a result, the weather is never bad enough to justify not working (no snow days here), but it also does not encourage casual days laying in the sun. The hills make a casual stroll through the streets feel like an intense cardio session against a wind that always seems to be blowing against you; all the more reason to stay inside and code. The city is not particularly dense, either. Its neighborhoods are too spread out and susceptible to traffic.
As a result, social life in San Francisco is built around building. Walking through downtown on a weeknight feels like COVID in Manhattan: the city is abandoned, with most of its residents inside. The “action” here (to the exent you can call it “action”) happens in multi-person group houses, where groups of engineers live together with a shared whiteboard. Whereas New York social life bounced back with singles running clubs and pickleball, San Francisco’s new favorite recreational activity is rock climbing, a sport where you struggle alone against a wall. The same could be said of San Francisco’s dating scene––the spartan atmosphere does not attract the world’s most eligible singles, to say the least. It is common to hear young male founders lament that they need to move to New York to find a girlfriend. But if New York and Miami are where you go to take your foot off the gas and celebrate an exit, San Francisco is where you go to focus, and work to make that exit happen in the first place. Obviously, tech workers still find time for fun in San Franciscio, but their preferred activities––hackathons, EA polycules, and AI reading groups––would not necessarily be considered “fun” elsewhere. Engineers run the social scene here: as a result, the city attracts the world’s best engineers.
Entrepreneurs in San Francisco also benefit from living in a city where the median job is at a technology company. The Big Tech branding of buildings, parks, t-shirts, baseball, and hospitals stand as a testament to the disruptors of old, while the incessant B2B SaaS billboards call on you to quit your 9-5 job and come join the pantheon (with the help of their new payroll software, of course). No other city is so centered on the particular activity of building technology startups. The odds you succeed are small, but unlike on the East Coast, failure is not necessarily seen as defeat: many of your peers here will also be working on long-shot projects for speculative upside. There is a mutual understanding that not everything may work out.
At the same time, the avid hatred of technology that is common in the Bay makes this possible for even the most successful founder to view themself as a as an underdog, while actively reshaping the world in their image. Despite being the center of most new , San Franscio has a partiuclar hatred of technology. In San Franciscio, protestors have blocked Google buses in San Francisco over housing price increases; the San Francisco Chronicle runs pieces lamenting the carbon footprint of AI and Bitcoin;and street vandals regularly beat, burn, and cone Waymos for “taking jobs” and “threatening public safety.” These anti-tech views are not popular in any other cities: because they are not popular, period. But being immersed in such a hostile milieu makes a young entrepreneur want to fight back and redeem their own industry; which can be done best by solving important problems and actually making the world a better place. But even if you think you’re building God, San Francisco will keep you humble.
Prior to 2020, the dominant narrative about San Francisco’s dominance was that the city had become locked in as a tech hub because of intractable “network effects.” Move the network, and you can have Silicon Valley on the beach. But alt-city advocates forgot about one kind of network that can’t be moved: universities. It is difficult to understate the value of having Stanford and Berkeley less than an hour away from San Francisco. Not only do the both two schools provide a constant influx of hyper-focused, hyper-ambitious young founders and engineers, the schools also house many of the researchers pushing the limits of the deep learning era. Cutting-edge AI research is almost exclusively conducted in large, legacy institutions, like universities and massive corporations, like Google and Meta––almost all of which are headquartered in the Bay Area. Startups in the city, from OpenAI to seed-stage GPT-wrappers, have an easy time recruiting and exchanging ideas with researchers pushing the theoretical limits of computation. By contrast, cryptocurrency research was exceptionally decentralized by nature, providing a false model of how the future of tech might look. When tech moved off-chain and into model-building, the focus shifted back to the Valley.
San Francisco is still a hard place to live. It likely always will be. As a result, the population of the city is constantly turning over, with new arrivals filtering in and out every month: a microcosm of the process of creative destruction that has created so much good for the rest of the world. But this maelstrom is what makes the city work. San Francisco’s idiosyncrasies select for those who truly want to be here; offering few comforts but the promise of opportunity. And once these transplants arrive, the city reminds them every day that the status quo is unacceptable.
Ironically, the rampant dysfunction of America’s most left-wing major city has made it the nation’s best canvas for capitalism. Expect more entrepreneurs to notice over time, and come to join the fun.
