Spirit of optimism returns to San Francisco with AI growth

SAN FRANCISCO –
Far from the palm trees of Miami or Austin's taco trucks, Catalin Voss has set up his literacy startup headquarters between a cannabis club and a pawn shop in the heart of the Mission District.
Voss rents a nondescript office building in one of San Francisco's busiest neighborhoods as a home for Ello, a company he co-founded in 2020 that uses artificial intelligence-based speech recognition technology to help struggling students develop their reading skills. The office is within walking distance of his home in Noe Valley and just steps from some of the city's best taquerias and cocktail bars. And those are just a few of the benefits he cited when explaining why his headquarters are in San Francisco.
Damn the doom loop.
Voss is part of a sizable cohort of San Francisco loyalists – old and new – who say they are baffled by the “all is lost” narrative promoted by conservative media anchors and, more recently, a vocal contingent of tech leaders which also includes billionaire entrepreneurs. Agitator Elon Musk.
The naysayers portray San Francisco as a city in decline – in Musk's words, “a decrepit zombie apocalypse” – ruined by liberal policies that have allowed street crime and illegal drug use to fester. In a November debate with Gov. Gavin Newsom, Republican presidential candidate and governor of Florida, Ron DeSantis repeatedly cited the city's poor reputation and once held up a “poop map” of human feces littering the streets of San Francisco.
In contrast, Voss 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 SF,” said Voss, sitting 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 best in the world in finance, move to New York. If you want to be the best in the world at acting, you move to LA. If you want to be the best in the world in technology, you move to San Francisco,” said Voss, a native of Germany.
San Francisco supporters say the city remains a vibrant hub for tech startups, 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 that San Francisco and the broader Bay Area continue to be a thriving nerve center of talent, institutional knowledge and abundant venture capital. They say emerging tech hubs — think Nashville, Miami, Austin — don't really compare.
Rather, they argue, alternating between upswings and downswings is simply a natural part of San Francisco's rhythm. And while they acknowledge the economic impact of the COVID-19 pandemic as tech companies traded downtown offices for remote work, they see the next boom in the industry built on artificial intelligence.
“It actually feels like this really optimistic and exciting moment,” said Angela Hoover, who recently moved her AI search chatbot company Andi from Miami to San Francisco. “People want to be in San Francisco, and the people on my team who live here are falling in love with the city.”
Moving from the East Coast to the West Coast was like “rocket fuel” for Andi, Hoover said. She has discovered a wealth of leaders in the AI space who are willing to provide feedback and collaborate on ideas.
Some key data points also contradict the narrative of a region in decline. According to an October report from Ernst and Young, the Bay Area maintained its top spot nationally for venture capital investment last year, followed by Boston and New York, thanks in part to investments in artificial intelligence.
And while California as a whole has lost about 37,200 people since July 2022, San Francisco and other Bay Area counties have seen a net gain of thousands of residents, according to the state Department of Revenue. And San Francisco's unaffordable real estate prices have fallen over the last year, a trend that is expected to continue in 2024.
“I've seen over the last six months a gradual — a gradual — mood of optimism returning,” said Homa Bahrami, a lecturer at UC Berkeley's Haas School of Business. “Every day you hear about another layoff, another layoff, another layoff. But at the same time, you also see that this new start-up has been founded, this new start-up has been acquired and venture capital has flowed into this area.”
Bahrami attributes the Bay Area's importance in the tech industry to its tangible resources, including education, mentorship and funding, which “make it difficult for other places to replicate.”
The region's many elite schools, including Berkeley and Stanford, are nurturing the next generation of startups and executives. Many retired CEOs are available to mentor younger executives, and venture capital funding is more readily available than in many of the newer tech hubs.
“The Bay Area is a global ecosystem,” Bahrami said. “It’s not just an American ecosystem.”
Nevertheless, Bahrami urged caution not to interpret the first signs of the next “boom” too much.
“I would use the word 'paradox,'” Bahrami said. “I think we're kind of in a transition from the pandemic world to the post-pandemic world. But we’re not quite there yet.”
And Bahrami noted that “dark clouds” are still looming, including inflation, geopolitical challenges and the difficulties San Francisco faces in revitalizing its downtown after the pandemic.
According to the city's chief economist Ted Egan, San Francisco's office vacancy rate is now over 30%. The number of workers coming into the office is just 43% of pre-COVID levels, and that's bad news for restaurants and retail.
“Downtown was a pretty rich ecosystem before the pandemic. But at its core, it was about people coming to work in offices,” Egan said. “Until you get that back, it will be difficult to get a positive dynamic going again in the city center.”
Even San Francisco's defenders admit the pandemic exodus was a blow. In recent years, tech giants had taken over swathes of the downtown core, building shiny new towers that employed thousands of workers who needed places to eat and drink, shop and live.
After the coronavirus crisis and tech companies allowing people to work from home, it was only a matter of time before “home” became another city and then another state, with cheaper rent, less Homeless camps and less property crime. Many tech leaders followed suit and realized they could raise money and run a business in states with lower tax rates.
It's not that Voss doesn't see any problems. He believes San Francisco is still thriving.
“I perceive it as background noise,” he said.
Voss said Ello employs about 35 people with offices in New York and Nairobi. The company recently raised $15 million in Series A funding, and Voss said he convinced a well-known machine learning engineer to move from China to San Francisco.
“If you are the person who is so ambitious and wants to be the best in the world at what you do, I don't think you will not consider San Francisco again because of what Fox News says. Voss said.
Russell Hancock, president and chief executive of 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 appeal.
“San Francisco is alive. “It’s a great city,” Hancock said. “There’s a reason it’s attractive. And part of the appeal, let’s never forget, is that it’s kind of quirky and crazy and progressive.”
Hancock doesn't think other cities becoming tech hubs is a bad thing, arguing that the changing dynamics could ease pressure on the Bay Area's infrastructure and drive down real estate prices.
But as artificial intelligence takes hold, San Francisco has a “head start” over other regions, Hancock said.
“That’s what Silicon Valley is like,” he said. “These things come in waves. And this appears to be the next wave. And it seems real.”
A big part of San Francisco's enduring appeal for technology is that it's in the city's DNA to be a “tolerant place,” added Peter Leyden, a Bay Area entrepreneur and most recently founder of Reinvent Futures, a Company that helps bring together top talent leaders in artificial intelligence.
In Silicon Valley, Leyden said, failing at one company is pretty much a requirement to gain the capital and skills needed to succeed at another company. While the right-wing and libertarian “crypto crew” fled to red states during the pandemic, the old guard remained there, confident that San Francisco would rise again, he said.
“The point is, every place has its problems, and so do we, but the narrative out there is just wrong,” Leyden said. “Because there’s really nothing like San Francisco.”