Spirit of optimism returns to San Francisco with AI boom

Far from the palm trees of Miami or Austin’s taco trucks, Catalin Voss has headquartered his literacy start-up between a cannabis club and pawn shop in the heart of the Mission District.

Voss rents a nondescript office building in one of San Francisco’s most vibrant neighborhoods as a home base for Ello, a company he co-founded in 2020 that uses speech recognition technology, powered by artificial intelligence, to help struggling students develop their reading skills. The office is within walking distance of his Noe Valley apartment and only steps away from some of the city’s best taquerias and cocktail bars. And those are just a few of the perks he recited in explaining why he is headquartered in San Francisco.

Doom loop be damned.

Voss is part of a sizable cohort of San Francisco loyalists — old and new — who say they are flummoxed by the “all is lost” narrative propagated by conservative media hosts and more recently a vocal contingent of tech leaders that includes billionaire entrepreneur-turned-agitator Elon Musk.

The naysayers depict San Francisco as a city in decline — in Musk’s words, “a derelict zombie apocalypse” — ruined by liberal policies that allowed street crime and illicit drug use to fester. In a November debate with Gov. Gavin Newsom, GOP presidential hopeful and Florida Gov. Ron DeSantis invoked the city’s notoriety multiple times, at one point holding up a “poop map” of human feces soiling San Francisco streets.

Voss, in contrast, says San Francisco is still the “it” city for innovation and opportunity in the tech industry.

“There’s no better place to do it than S.F.,” Voss said, seated in a small conference room in Ello’s apartment-style office, just around the corner from OpenAI’s headquarters.

“If you want to be the world’s best at finance, you move to New York. If you want to be the world’s best at acting, you move to L.A. If you want to be the world’s best at tech, you move to San Francisco,” said Voss, a native of Germany.

San Francisco loyalists say the city remains a vibrant hub for technology start-ups, talent and funding.

(Luis Sinco / Los Angeles Times)

Several tech leaders interviewed — some have spent decades in Silicon Valley, others are newcomers to the region — argue San Francisco and the Bay Area more broadly remain a thriving nerve center of talent, institutional knowledge and bountiful venture capital. They say emerging tech hubs — think Nashville, Miami, Austin — can’t really compare.

Instead, they argue, cycling through booms and busts is just a natural part of San Francisco’s rhythms. And while they acknowledge the economic hit the COVID-19 pandemic wrought as tech companies traded downtown offices for remote work, they see the next boom ahead in the industry building around artificial intelligence.

“It does feel like this really optimistic and exciting moment in time,” said Angela Hoover, who recently relocated her AI search chatbot company, Andi, from Miami to San Francisco. “People are wanting to be in San Francisco, and the folks that are on my team who live here are falling in love with the city.”

The move from East Coast to West Coast has been like “rocket fuel” for Andi, Hoover said. She’s found an abundance of leaders in the AI field eager to provide feedback and collaborate on ideas.

Some key data points also defy the depiction of a region in the throes of decline. The Bay Area last year maintained its top national ranking for venture capital investment, followed by Boston and New York, according to an October report by Ernst and Young, buoyed in part by investments in artificial intelligence.

And while California as a whole has lost roughly 37,200 people since July 2022, according to the state Department of Finance, San Francisco and other Bay Area counties recorded a net gain of thousands of residents. And San Francisco’s prohibitive housing prices have dropped over the last year, a trend that is expected to continue in 2024.

“I have seen in the last six months, a gradual — a gradual — spirit of optimism come back,” said Homa Bahrami, a senior lecturer at UC Berkeley’s Haas School of Business. “Every day you hear about yet another layoff, yet another layoff, yet another layoff. But at the same time you also see this new start-up got formed, this new start-up got acquired, venture money went into this space.”

Bahrami credits the Bay Area’s stature in the tech industry to its tangible resources, including education, mentorship and financing, which make it “difficult for other places to emulate.”

The region’s many elite schools, including Berkeley and Stanford, feed the next generation of start-ups and executives. Scores of retired CEOs are readily available to mentor younger leaders, and venture capital funding is easier to access than in many of the newer tech hubs.

“The Bay Area is a global ecosystem,” Bahrami said. “It’s not just an American ecosystem.”

Still, Bahrami urged caution in reading too much into early signs of the next “boom.”

“I would use the word ‘paradox,’” Bahrami said. “I think we’re just sort of transitioning from the pandemic-era world to the post-pandemic era. But we haven’t quite got there yet.”

And Bahrami noted that “dark clouds” are still looming, including inflation, geopolitical challenges and the struggles San Francisco faces in revitalizing its post-pandemic downtown.

San Francisco’s office vacancy rate now tops 30%, according to the city’s chief economist, Ted Egan. Workers are coming into the office at only 43% of pre-COVID levels, and that’s bad news for restaurants and retail.

“Downtown before the pandemic was a pretty rich ecosystem. But at the core of it was people coming to work in offices,” Egan said. “Until you get that back, it’s going to be hard to restart a positive dynamic flywheel downtown.”

Even San Francisco’s defenders acknowledge the pandemic exodus has been a blow. In recent years, tech giants had taken over lengthy stretches of the downtown core, raising gleaming new towers that employed thousands of workers who needed places to eat and drink and shop and live.

After COVID hit and tech companies allowed people to work from home, it was only a matter of time before “home” became another city and then another state, with cheaper rents, fewer homeless camps and less property crime. Many tech leaders followed suit, realizing they could raise money and run a business from states with lower tax rates.

It’s not that Voss doesn’t see any problems. It’s that he thinks San Francisco is thriving despite them.

“I perceive it as noise in the background,” he said.

Voss said Ello employs about 35 people, with satellite offices in New York and Nairobi. The company recently raised $15 million in Series A funding, and Voss said he persuaded a well-known machine-learning engineer to move to San Francisco from China.

“If you are that person who is that ambitious and wants to be the best in the world at the thing you do, I don’t think you’re not going to give San Francisco a second look because of what Fox News says,” Voss said.

Russell Hancock, president and chief executive of the think tank Joint Venture Silicon Valley, agreed, saying most people in the tech world disagree with the narrative that San Francisco has somehow lost its allure.

“San Francisco is vibrant. It’s a magnificent city,” Hancock said. “There’s a reason it has appeal. And part of the appeal, let’s never forget, is it’s kind of quirky and kooky and progressive.”

Hancock doesn’t see other cities developing into tech centers as a bad thing, arguing that the shifting dynamics could relieve pressure on the Bay Area’s infrastructure and temper the housing prices.

But as artificial intelligence takes hold, San Francisco has a “leg up” on other regions, Hancock said.

“That’s how Silicon Valley goes,” he said. “These things come in waves. And this appears to be the next wave. And it appears to be real.”

A big part of San Francisco’s enduring appeal for tech is that it’s in the city’s DNA to be a “tolerant place,” added Peter Leyden, a Bay Area entrepreneur and, most recently, the founder of Reinvent Futures, a company that helps convene top leaders in artificial intelligence.

In Silicon Valley, Leyden said, it’s pretty much a requirement to fail with one company to get access to the capital and credentials needed to gain success with another. While the right-wing and libertarian “crypto crew” fled for red states during the pandemic, he said, the old guard stayed put, confident that San Francisco would rise again.

“The point is every place has its issues, and we do, too, but the narrative that’s out there is just wrong,” Leyden said. “Because there really is nothing like San Francisco.”

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