As a native Ohioan, I’m always delighted when people want to talk about my home region. (I have a lot of feelings about Steak ’n Shake and the “pop” vs. “soda” debate.) But in this case, I think some additional explanation is in order.
There are basically three things I can imagine Silicon Valley investors doing in the Midwest in the near term:
1. Investing in companies based there.
2. Encouraging Silicon Valley-based portfolio companies to relocate some percentage of their employees there.
3. Moving there themselves.
My guess is that No. 3 is, if not impossible, at least several years away from being realistic for most venture capitalists, many of whom have their roots planted in the Bay Area and benefit from being near dense clusters of start-ups. But Nos. 1 and 2 seem completely plausible — and, in fact, are already happening.
Several regional start-up success stories have persuaded investors to add the Midwest to their scouting itineraries. And many large tech companies have already moved a significant number of jobs out of the Bay Area — Google just opened a huge office in Boulder, Colo., and Facebook is building one in Boston — and that trend seems likely to continue, given the insane cost of living in Silicon Valley for anyone who isn’t a billionaire.
On the bus, I heard a lot of talk about “mid-tech” jobs — jobs at tech companies that aren’t hard-core engineering, but require some technical expertise. (Think sales, growth, design.) While executives and engineers get positive network effects from being near clusters of other executives and engineers in San Francisco, there’s no real reason that mid-tech employees can’t just as easily be in Bend, Ore., or South Bend.
I saw some skepticism about this kind of thinking from people like Adam Nash, an entrepreneur in residence at Greylock Partners. He said on Twitter that the move-away-from-the-Bay phenomenon is cyclical, and that in lean times tech employees tend to stay close to their headquarters, where they are assigned to more critical projects and are less likely to be cut in a round of layoffs.
But I’m not so sure. Tools like Slack and GitHub now allow tech employees to work remotely in a way that previous generations weren’t able to, and the cost-of-living differential between the Bay Area and every other city (with the exceptions of New York and L.A.) is so great these days that many employees might be willing to exchange some job security for the benefits of living elsewhere.
If I had to guess, I’d predict that unless Bay Area housing costs miraculously come down in the next year or two, Silicon Valley will undergo a big shake-up. Companies will feel increasingly compelled to move as many jobs as possible out of the Bay Area, and in time, the states between the coasts could effectively become Silicon Valley’s back and middle office, in much the way that Wall Street banks now have thousands of employees in cities like Columbus, Ohio, and Salt Lake City.
That kind of geographic balancing would be great for cities in the Midwest, where an influx of high-paying mid-tech jobs could transform local economies. And it would arguably be good for San Francisco, which is straining to accommodate its current population and would be well served by a modest exodus.
But don’t expect the same to happen with venture capital — a highly face-to-face business in which proximity and start-up density still matter. As much as the venture capitalists on the bus may have loved the Midwest, they’re probably going to remain tourists for the time being.