Wednesday, April 12, 2017
The new season of HBO’s “Silicon Valley” premieres this month, but the Bay Area tech scene depicted on that show is no longer the only game in town for America’s tech elite.
Los Angeles has its own tech hub, dubbed Silicon Beach, a four-mile stretch of beachfront that encompasses Venice and Santa Monica and is home to Snapchat’s parent company, Snap (SNAP).
While Silicon Beach real-estate prices may be climbing, especially after Snap’s IPO, there are reasons to believe the technorati will continue to move there in droves. For one thing, Los Angeles still costs less than the Bay Area — at least for now. Silicon Beach also arguably provides a more diverse talent pool and isn’t as wrapped up in the tech bubble as Silicon Valley.
“I knew the next thing I was going to build was going to be consumer-focused, and I wanted to get out of the San Francisco echo chamber and be surrounded with lots of different types of creative people and just be in a more mainstream place to build this company,” Joe Fernandez, a serial entrepreneur based in Silicon Beach, told Yahoo Finance.
Fernandez added: “I think it’s really easy to get caught up in San Francisco with what every other tech company is up to. You kind of fall into this trap of only building for early adopters. But I really wanted to build something that ‘normal people,’ with no specific interest in tech, would hopefully find value in.”
According to real estate web site Trulia, the median value of a home in Venice, for instance, where Snap is headquartered, is $1,010 per square foot in 2016 — up sharply from $718 per square foot a decade ago. That’s cheaper than San Francisco, where homes in many desirable neighborhoods easily fetch between $1,100 and $1,300 per square foot. Still, locals have been feeling the pain of rising real estate prices in Silicon Beach and have protested Snapchat’s presence.
Chalk that up to companies like Snap, Google (GOOG, GOOGL), Facebook (FB), and Yahoo (YHOO) which have opened or moved some of their offices to the Silicon Beach area, which stretches from Santa Monica to the south of Venice. Other neighborhoods in Silicon Beach such as Santa Monica, Playa Vista and Mar Vista are significantly cheaper — but also quickly inching upwards year after year, thanks in large part to the influx of wealthy tech workers.
The average tech worker in their mid-20s to early 30s is willing to shell out between $2 million and $3 million on average — sometimes paid upfront in cash — on a new place close to their employer, according to Lee Johnson, a local realtor for Sotheby’s International Realty. Snap billionaire co-founder and CTO Bobby Murphy, for instance, purchased a new $2.1 million home in Venice, Calif., just 11 blocks from Snap’s headquarters.
“I don’t see the young techies wanting to drive anymore,” says Johnson, who has helped employees from Snap, Google and several startups find homes. “These young tech kids want to ride their bikes and skateboards to the office and not have to deal with leaving their own community.”
Despite the increase in costs, advocates like Fernandez, the serial entrepreneur, contend the LA tech scene has much to offer versus Silicon Valley, its larger, even pricier sibling. Fernandez, who sold the social media scoring startup Klout for $200 million in 2014, moved from San Francisco to Los Angeles a year later to launch his new venture Joymode.
The startup rents out different kits of equipment for experiences like “Backyard Movie Night” or “Let’s Go Camping,” for instance. Recruiting and retaining talent, a headache for many Bay Area tech companies, is somewhat less of a challenge in Los Angeles, according to Fernandez. Moreover, he says the pool of employees he can hire from is more diverse, hailing from other industries like entertainment, which has long been the city’s dominant industry.
“There are a million different kinds of reasons why Joymode can fail,” Fernandez acknowledged. “That’s kind of the default outcome for any startup. Access to talent won’t be one of them. I feel like if I wanted to hire 50 more people here, I could hire 50 more people here.”
Fernandez may not be hurting for money, but he has also found his dollar goes further in LA versus San Francisco.
“The amount we made in profit on our SF home almost paid for our LA home,” he said. “Our LA home, including the lot it’s on, is probably four to six times bigger.”
Even better, he argued that because LA remains more affordable, at least for now, entrepreneurs like him have more financial runway to pursue their next big idea.
“San Francisco has all the so-called ‘water’ in the world, but everyone is still ‘thirsty,’” he added. “I can’t imagine actually starting a company now in San Francisco. There’s this entitlement people have and the timelines you have to deal with. There, you literally have one year with employees to make it or not financially. But here, I have longer.”
How much longer tech workers like Fernandez have may also depend on just how large LA’s tech scene becomes. Some local Venice residents are already protesting the gentrification of their neighborhood. And several mid-level tech workers Yahoo Finance spoke to expressed concern their six-figure salaries may be enough to snag them a new, spacious apartment or home now but won’t be enough in the coming years, the way prices are climbing. In which case, they may — god forbid — be forced to move to cheaper areas like downtown Los Angeles or West Hollywood.
“My concern regarding prices would be only if we have another tech bubble pop,” added Johnson.
Another big tech bubble? Doubtful. Like it or not, it seems those highly paid techies are here to stay.