SAN FRANCISCO, July 8 (Reuters) – Venture capital firm Headline used to be in one of San Francisco’s most eye-catching skyscrapers: the pyramidal Transamerica building that has defined the skyline for decades. Employees enjoyed the views from the 43rd floor and the convenience of being downtown.

Then came the pandemic.

As the tech industry shifted to work-from-home or downsized, a city center that was already struggling with drugs and homelessness slipped further into urban decay. Businesses closed and visitors were scared off, creating a vicious cycle that coincided with changes already happening in the city’s real estate market.

With Headline’s lease ending, the company decided to look elsewhere. The executives considered building an office on a boat or moving to a residential house. Eventually, they took their operation managing $4 billion to the bucolic – and secure – Presidio, a former military base-turned-national park next to the landmark Golden Gate Bridge.

And they are not alone. Venture capital firms are increasingly joining retailers and other businesses in finding homes outside downtown San Francisco. Westfield, for example, said last month it was giving up its downtown shopping mall after 20 years, as foot traffic fell by 43% from 2019.

Where venture capital firms end up could have implications for the broader tech industry, as such companies usually help form a gravity center for startup founders and communities.

“Presidio really represented what we thought the future of work should be,” said Mathias Schilling, Managing Partner at Headline, on a recent sunny afternoon. Nearby, a dozen employees were sitting at a long wooden communal table in the bright kitchen, eating lunch against a backdrop of lush greenery, palm trees and panoramic views of San Francisco Bay.

“It’s a very calm and quiet space, something that I think instills creativity and stimulates people,” said Schilling. “We take meetings outside and we walk around the big lawn here.”

Other venture capitalists – including Felicis Ventures, which backed Shopify and Fitbit, as well as Forerunner Ventures and venture studio Atomic, have filled the directories in the Letterman Building, one of the biggest office complexes in the Presidio.

Converted from a former military base, the Presidio is located at the tip of San Francisco’s peninsula, several miles west of the financial district. As a national park, it is patrolled by federal police.

“It 100% feels safer than downtown. There’s no open drug use in the Presidio. There are no homeless encampments. There are very few homeless wandering around and that is because it’s the federal land and the federal police is a big part of it,” said Rex Salisbury, who runs VC firm Cambrian Venture and has been living and working from the Presidio since 2017.

SHIFTS IN TECH ECOSYSTEM

Venture capital firms play an integral part in the tech ecosystem in the San Francisco Bay Area, where startups captured about 35% of all U.S. venture capital funding in 2022.

Since the 1990s internet boom, the VCs have physically clustered in hotspots that are close to the startup founders – including Sand Hill Road in Silicon Valley and South Park in downtown San Francisco.

[1/5]People enjoy the afternoon in Presidio, a former military base-turned-national park in San Francisco California, U.S., July 7, 2023. REUTERS/Carlos Barria

Now some firms say they feel less obligated to stay downtown because startup founders have become more scattered since the pandemic, while the Presidio is a convenient location for firm partners who live in the northern part of the city or Marin, the county across the Golden Gate Bridge from San Francisco.

“Presidio was too far, before COVID, for any founders to want to really come. Founders are not in downtown anymore, so we don’t have to be there anymore. We felt like it wasn’t going to be a burden for our founders to come here. They’re actually really excited,” said Eurie Kim, whose venture firm Forerunner left downtown for the Presidio in early 2022.

Although there are no statistics on the locations of VC firms by neighborhood, the Presidio vacancy rate is about 5%, compared to an overall commercial real estate vacancy rate in San Francisco of 35%, up from 4% pre-pandemic, according to real estate firm CBRE and the Presidio Trust, the federal agency that manages the area.

That is despite commercial real estate in the Presidio being on average 20% more expensive than downtown, according to CBRE data.

Lisa Petrie, a spokesperson at Presidio Trust, said there had been broad interest in moving from downtown since 2020. “They all cite the amenities and the beautiful surroundings of this urban national park as the number one reason for locating here,” she added.

The Presidio has long attracted non-profit organizations and entertainment firms. Lucasfilm has had its headquarters here since 2005, and the Walt Disney Family Museum opened in the park in 2009.

Some VCs say they are still committed to downtown, however. When General Catalyst outgrew its office in South Park in San Francisco earlier this year, they moved to another downtown building a few blocks away.

“We found a convenient location that’s close to public transportation, downtown hotels, and restaurants,” said Jon Rehagen, chief technology officer at General Catalyst, adding that the firm was partnering with local restaurants and service providers. “Hopefully, that will help to revive the downtown tech corridor that is still recovering after the pandemic.”

Employees in Presidio also hoped for downtown’s recovery – but said for now they were happy they no longer needed to commute there.

“That part of town just hasn’t evolved in so long,” said Molly Martell, vice president of Brand at Headline. She said she hoped the attention being focused on its problems would be a catalyst for change. “It’s just tragic to see what’s happening,” she added.

A spokesperson for the office of San Francisco Mayor London Breed said the government wanted to support businesses of all types in all neighborhoods in the city.

“Mayor Breed continues to implement strategic initiatives to help stabilize existing businesses and recruit new ones as part of her Roadmap to Downtown San Francisco’s Future plan. We will continue to emphasize efforts to support the revitalization of Downtown, but we also welcome investments in all parts of our City,” the spokesperson said in an email.

Colin Yasukochi, executive director of CBRE’s Tech Insight, compared the Presidio to Sand Hill Road, the historic address for VCs in Silicon Valley.

“We do have this phenomenon that we call ‘flight to quality’ in real estate here,” he said. “The Presidio has evolved as the Sand Hill Road of San Francisco.”

Reporting by Krystal Hu; editing by Peter Henderson and Rosalba O’Brien

Our Standards: The Thomson Reuters Trust Principles.

Krystal reports on venture capital and startups for Reuters. She covers Silicon Valley and beyond through the lens of money and characters, with a focus on growth-stage startups, tech investments and AI. She has previously covered M&A for Reuters, breaking stories on Trump’s SPAC and Elon Musk’s Twitter financing. Previously, she reported on Amazon for Yahoo Finance, and her investigation of the company’s retail practice was cited by lawmakers in Congress. Krystal started a career in journalism by writing about tech and politics in China. She has a master’s degree from New York University, and enjoys a scoop of Matcha ice cream as much as getting a scoop at work.

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Recent reports from health officials in California have indicated that the state is experiencing a sixth wave of the COVID-19 pandemic with an exceptionally high positivity rate in the San Francisco Bay Area. The state’s health department revealed that, as of May 28, the top three counties include Contra Costa, with 12.3 percent, and Marin and Solano, both with 10.9 percent. Experts warn that gatherings associated with the Memorial Day weekend will exacerbate the situation, leading to further infections and hospitalizations.

According to the San Francisco Chronicle, the San Francisco Bay Area reported a COVID-19 incidence of 54 per 100,000 residents on May 20, an 80 percent increase from the previous week’s 30, while hospitalizations nearly doubled over the last month to a total of 1,708 .

Teachers protest for stronger COVID-19 safety protocols outside Oakland Unified School District headquarters on Jan. 7, 2022, in Oakland, Calif. (AP Photo/Noah Berger)

This significant upsurge has emerged as part of the pandemic’s sixth wave under conditions in which, as the Centers for Disease Control and Prevention (CDC) reported on May 20, the United States’ seven-day moving average daily case rate increased by 18.8 percent relative to the previous week, along with the 24.2 percent rise in hospitalizations, both largely driven by the highly infectious and immune-evading BA.2 and BA.2.12.1 Omicron subvariants.

The official numbers put out by the CDC, however, are likely to underestimate the infection rate, as they fail to account for asymptomatic infections or sick individuals who do not get tested. dr Bob Wachter, chair of medicine at University of California, San Francisco (UCSF), recently told the New York Times that as many as one in 20 people are asymptomatic but infectious with COVID-19.

Recent data has pointed out that even infected individuals who feel fine can later suffer from long-term complications caused by COVID.

Rather than stimulating calls for the immediate closure of schools and nonessential workplaces or even the reinstatement of mask mandates—necessary measures that effectively curtail transmission—state and local officials have largely responded to this latest surge with feckless recommendations for indoor masking, in line with the Biden administration’s adamant opposition to any collective strategy to elminate SARS-CoV-2 in favor of forcing individuals to learn to “live with the virus” that has already killed at least one million Americans.

Almost two weeks ago, parroting Biden’s rhetoric, California’s Chief Epidemiologist and Deputy Director of the Center for Infectious Diseases Dr. Erica Pan intimated that residents ought to resign themselves to “learning how to live with this virus,” despite that it “continues to throw curveballs” and could develop into variants capable of evading “our immunity to an extent that we really have a much larger one impact on our infrastructure.” Pan further dismissed even limited measures such as broad mask requirements and stated that a mask mandate would be considered only if there is an “increase in deaths that is really unusual severely.”

In response to last week’s discovery in local wastewater of the BA.4 and BA.5 Omicron subvariants—which are even more transmissible than BA.2 and BA.2.12.1—Santa Clara County Deputy Health Officer Dr. George Han threw his hands up, stating that the continual introduction of “more and more subvariants” into his jurisdiction “is to be expected.”

Amid rampant spread of COVID-19 in the county, San Jose Mayor Sam Liccardo has admitted to becoming infected with the virus. On May 23 Liccardo tweeted that he is “thankful that my vaccination has prevented any serious symptoms” and encouraged “everyone to get vaccinated, mask up indoors, and utilize free covid tests.” This was not followed by any endorsement of future lockdowns or even mask mandates, measures that would have prevented his own infection.

San Jose, which has a population of just under 2 million, is the largest city by population in the Bay Area and the tenth largest city in the US.

Despite walkouts of students in the Bay Area last January to demand adequate masking and outdoor seating, May spokespeople for the San Francisco Unified School District and Oakland Unified School District rejected any changes to their mask-optional policies.

On May 19, the Chronicle reached out to several public school officials in the region, including spokespeople for the San Francisco and Oakland school districts, who “uniformly” rejected any changes to their mask-optional policies. Representing the former, Laura Dudnick, seeking to assume students’ and parents’ concerns, said that the district is “following public health guidance and strongly encouraging vaccines and… masking.” Most Bay Area school districts are taking their lead.

Exemplifying the bankruptcy of this policy, in early April about 90 out of 600 attendees at San Mateo High School’s prom event, held at the Asian Art Museum in San Francisco, tested positive for COVID. As the Mercury News reported, although students “were strongly recommended” to wear masks, many “chose not to.”

While many officials openly downplayed the mounting threat of the current surge, some schools have been forced to implement stricter—though still limited—measures to appeal to their constituents.

Berkeley Unified School District (BUSD) reinstated its mask mandates last Monday, which were lifted following Newsom’s mid-March ending of the statewide mandates, for the remaining two weeks of the school year. According to the district’s public information officer Trish McDermott, this decision was made at the recommendation of a city public health officer in the face of rising infections, often involving “at least three or more. .. occurring in the classroom, sometimes as many as five or six.”

As early as late April, the Bay Area Rapid Transit (BART) system, which serves 50 stations throughout the region, began requiring riders to mask up until at least mid-July. To encourage compliance, BART police is providing masks to unmasked riders and imposing $75 citations on those who violate the mandate.

Regional health experts largely concur on the causes of the upsurge. UCSF infectious disease specialists Dr. George Rutherford and Dr. Peter Chin-Hong point to BA.2 and BA.2.12.1, which are 30-50 percent and 25 percent more transmissible than the parent Omicron virus, respectively. Further factors, notes Dr. Wachter, include the region’s high proportion of both residents who have been able to work remotely during the pandemic and—due to loosened restrictions—suddenly being exposed to the virus, and of those who have never become infected.

The evidence is a damning indictment of the response to the pandemic by both Democratic and Republican officials at the federal, state, and local levels, who march in lockstep with each other imposing the same unscientific, expressly anti-working-class policies in the interests of the financial elites. The purpose of these policies is not to protect the broad masses of American workers but, on the contrary, to ensure the unimpeded generation of profits from their labor, whatever the cost in lives and livelihoods.

To defend its own interests against the ruling class’ rapacious policy of mass death, it is vital for workers in California to form rank-and-file safety committees, independent of the trade unions and the Democratic Party, in workplaces and schools throughout the state . We urge all who agree with this perspective to contact the World Socialist Web Site today and help build and expand the West Coast Educators Rank-and-File Safety Committees.

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