Every night, San Francisco’s City Hall is transformed from a stately seat of government to an urban canvas. Its Beaux-Arts facade is bathed in orange light to celebrate significant Giants victories, rainbow-striped during Pride Week, and illuminated in red, white, and blue on the Fourth of July.
But on Wednesday, Sept. 16, while City Hall was lit up in red and green to mark Mexican Independence Day, those looking up at the building’s iconic dome may have noticed a more unusual projection above the standard color wash: the logo of a software company, Snowflake, which had held its initial public offering on Wall Street earlier that day.
Snowflake’s place atop City Hall appears to have been an unauthorized gonzo job, but it was, inarguably, a sign of the times.
Even as small businesses close in droves, and unemployment remains at historic highs, many San Francisco startups are doing better than ever. Like their “big tech” peers — whose continued success has kept the stock market humming even as other economic indicators have taken a nosedive — these local startups offer the tools, products, and services that power remote work, online shopping and banking, and home entertainment. With several IPOs imminent, and local startups enjoying eight-figure fundraising rounds on billion dollar valuations, San Francisco may be on the precipice of yet another tech boom.
But this social distancing boom could look different from the Dot Com boom at the turn of the Millenium, or the social media boom after that. It remains to be seen whether the hottest San Francisco-based startups will require their new hires to live and work here, or if newly minted IPO millionaires will spend their money on houses, restaurants, and cryotherapy in the region. A more distributed tech boom could yield lower commercial rents and housing prices, while simultaneously exacerbating the plight of small businesses that have already been devastated by the pandemic.
Whatever happens, one thing’s for sure: San Francisco continues to be the epicenter of America’s winner-take-all economy, where the world’s most creative and sophisticated companies thrive, and the poor bear the brunt of disruption after disruption.
It’s been easy to overlook as we’ve grappled with COVID-19, a reckoning over racial injustice, devastating wildfires, and political turmoil, but after a brief lull in activity at the beginning of shelter-in-place, much of the region’s tech economy is booming.
Apple, Google, and Facebook have all seen their stock prices increase by double digit percentages since March, while Tesla’s stock more than doubled. Just a year after hitting its $1 trillion valuation, Apple briefly broke the $2 trillion mark last month — higher than the GDP of all but the 10 or so richest countries in the world.
Meanwhile, Oracle is about to become the American “technology partner” and part-owner of the world’s hottest social media app, TikTok. Following Snowflake’s epic Wall Street debut, the largest ever for a software company, at least two other Peninsula software unicorns, Sumo Logic and Palantir, are right on its heels.
Numerous San Francisco-based tech titans are also looking to raise money on Wall Street before the economic uncertainty posed by the November election. Airbnb, Doordash, Instacart, and Unity Technologies all have IPOs in the works, and Asana’s first day shares were climbing as of this writing.
While it’s no surprise that delivery startups Doordash and Instacart are having a banner year, Airbnb has managed to defy expectations: Spending on the app this August was 75 percent higher than the same time last year, and revenues have exceeded those of Marriott hotels for the first time ever, according to a recent report from Edison trends. Younger startups based in the city, like Discord, Patreon, Carta, Airtable, and Brex have collectively raised hundreds of millions of dollars since the beginning of the pandemic.
“It’s bonanza time in Silicon Valley and on Wall Street,” read the lead sentence of a recent New York Times article on Snowflake’s uber-successful IPO and those expected to follow. Just over a year out from WeWork’s aborted plan to go public — a flop so spectacular it had industry analysts revisiting the lessons of the Dot-Com bubble and questioning the wisdom of big money IPOs altogether — 2020 is on track to be the biggest year for IPOs ever, according to the Wall Street Journal. “The fortunes of the IPO market have never been more divergent with the state of the U.S. economy,” Journal reporter Corrie Driebusch wrote in an article entitled “IPO Markets Party Like It’s 1999.”
If you’ve never heard of Snowflake, or many of the other hot tech companies listed above, you’re not alone. San Francisco’s tech ecosystem is increasingly defined by FinTech companies, business-to-business services, and gaming and content management companies that “don’t necessarily show up” in popular culture, explains Kevin Klowden, executive director of the Center for Regional Economics at the Milken Institute. “A number of these companies have been doing very well during the pandemic,” he notes.
These companies provide the tools to keep business going now that everything is being done online; they enable people to seamlessly shop or bank without leaving the house, and keep them entertained while stuck there.
Patreon, which artists use to crowdsource funds for their projects, just raised $90 million in venture capital. The company has seen “exponential growth” in the number of creators listed on its platform since the beginning of the pandemic, according to Katie Uhlman, the company’s head of communications. The number of musicians alone listed on the platform tripled between April and May, as live performers sought alternative forms of income. Discord, a gaming communications platform that is quickly becoming a mainstream social media site, raised $100 million in July after seeing a 47 percent increase in users since February.
Several smaller startups based in San Francisco are capitalizing on the same trends as their more established counterparts. Coil, a content monetization platform, told SF Weekly that revenue has roughly doubled since April. Groove, an online sales engagement platform, has seen consistent month-over-month revenue growth “as more traditional enterprises accelerate their digital transformation plans as a result of the pandemic,” CEO Chris Rothstein wrote in an email. Bond, a company that helps consumer brands access banking technologies, has hired 15 people since the beginning of the pandemic, and plans to hire about 20 more by the end of the year. All job interviews were carried out over Zoom, of course.
Last spring, as several large tech firms prepared to go public, some speculated that a huge influx of IPO cash would trigger a massive jump in San Francisco’s already cavernous income gap, as newly monied tech workers would snap up houses, drive up rents, and further squeeze mom and pop business owners and locals of moderate means.
Those fears didn’t exactly pan out. Uber, Lyft, Slack, and Pinterest didn’t perform as well on the stock market as expected (the two ride hailing companies are struggling on multiple fronts right now, from a huge decrease in riders to an existential legal challenge in California that will be decided in the November election.)
Now, discussion of how greater tech wealth might affect the city is overshadowed by much more urgent news, and obscured behind a less recognizable batch of Wall Street darlings. But this time, the biggest variable around these IPOs is not how much money companies can raise, but how much of that money will remain in the region.
Many of the startups that have been so successful over the past several months while working remotely are currently weighing how, or even whether, to go back to in-person operations. Groove plans to join larger tech companies like Twitter and Slack in letting all employees work from home. Instead of leasing its own office, in the future the company will probably rent coworking space. During its recent hiring spree, Bond has brought on new employees based in New York and Salt Lake City. Local delivery startup OnFleet, on the other hand, plans to remain in its office and make most new hires in the Bay Area. Several of the companies contacted for this story said they are still evaluating their long term remote work policies.
That remote work policies could have a big impact on the local economy became clear when Pinterest cancelled its half million square foot lease for the yet-to-be constructed building at 88 Bluxome in SoMa, citing the viability of remote work. The developers won’t say if that project — which also includes a public pool, a park, and a land donation for affordable housing — is still viable after Pinterest pulled out. Multiply Pinterest’s decision by half a dozen major companies, and San Francisco would be a city transformed. If Airbnb dropped all its office leases and transitioned to a fully remote model, with employees living and working in Airbnbs all around the world, that could have a much more significant effect on the city’s economy than an explosive Airbnb IPO.
Transformation or Repetition?
Mario Muzzi, a professor of economics at the University of San Francisco, thinks that while more tech workers will work from home, those who do come to the office will expect more space per person than most employers currently provide, so they don’t have to breathe one another’s germs. “I predict that demand for office space will decline in the Bay Area but only marginally because the home office effect will be significantly offset by the social distancing effect,” he wrote in an email.
Muzzi thinks the increase in remote work could continue to lower housing prices in the city, but is skeptical about the extent of that effect as well. As prices decrease, people crammed into apartments with multiple roommates might seek out more spacious digs in the city (as your humble narrator recently did). Plus, San Francisco isn’t just a place people come to work, it’s also a bedroom community for companies located in Silicon Valley. The city might become even more attractive for tech workers if they know they don’t have to spend two hours a day on a tech bus shuffling up and down Highway 101. Said workers might even spend more money at businesses in their San Francisco neighborhood, Muzzi speculates.
Klowden foresees more dramatic prospects for San Francisco’s housing and office markets, and small businesses. This moment is going to force companies to look at their expenditures, and ask whether their San Francisco rents are worth it, he says. “For a number of them, it actually makes a lot more sense for us to pare back their office space or just move out of the city.” That, in turn, will have a significant impact on small businesses, especially those serving downtown office workers, and lead to decreased demand for housing.
The latter possibility is where these changes could actually help those who aren’t pulling in a hearty tech salary.
“The loss of the working class and middle class families out of the city will slow down,” Klowden forecasts. “You’re going to see a number of people who suddenly can say, ‘Hey, I can actually afford a house again, or I can afford an apartment and I don’t have to do a two hour commute to work.’ That’s a big deal.”
While there remains much uncertainty about how the continued growth of the tech economy will affect the city, the prospect of another boom is now a familiar story. Despite all the things that have been predicted to drive people and business away from San Francisco — the city’s high taxes, expensive housing, a painfully visible epidemic of homelessness, and, now, the pandemic and “density” — those familiar with the long arc of San Francisco history know why the phoenix is emblazoned on the city’s flag.