“Oh my god, this is so cute!”
Robin Li, an investor at San Francisco venture capital firm GGV Capital, was standing in the lobby of the Madison building in downtown Detroit. Built in 1917 as a theater and renovated several years ago as a tech co-working space, Madison checks all the aesthetic boxes of hipsterdom: reclaimed wood, exposed brick walls, coffee served by tattooed baristas.
“This is nicer than San Francisco,” Ms. Lee concluded.
Last month, I accompanied Ms. Li and about a dozen other venture capitalists on a three-day bus trip through the Midwest, with stops in Youngstown and Akron, Ohio. Detroit and Flint, Mich. and South Bend, Ind. The trip, which took place in a luxury bus equipped with a supply of vegan donuts and charcoal-infused kombucha, was known as the “Comeback Cities Tour.”
It was billed as a kind of Rust Belt safari — a chance for Silicon Valley investors to meet local officials and seek out promising startups in neglected parts of the country.
But a funny thing happened: By the end of the tour, the coastal elites had caught the heart bug. Several used Zillow, the real estate app, to track the availability of affordable housing in cities like Detroit and South Bend and imagine relocating there. They marveled at how even old industrial towns now offer a convincing simulation of coastal life, complete with handmade soap shops and farm-to-table restaurants.
“If it wasn't for my kids, I would totally move,” said Cyan Banister, a partner at Founders Fund. “This could be a really powerful ecosystem.”
These investors are not alone. In recent months, a growing number of tech leaders have flirted with the idea of leaving Silicon Valley. Some cite the exorbitant cost of living in San Francisco and its suburbs, where even a million-dollar salary can seem middle class. Others complain about local criticism of the tech industry and a left-wing echo chamber that stifles dissenting views. And yet others believe that better innovation happens elsewhere.
“I'm just over San Francisco,” said Patrick McKenna, the founder of High Ridge Venture Partners who was also on the bus tour. “It's so expensive, it's so crowded, and frankly, you see opportunities in other places.”
Mr. McKenna, who has a home in Miami in addition to his home in San Francisco, told me that his travels outside the Bay Area opened his eyes to a world beyond the tech bubble.
“Every single person in San Francisco is talking about the same things, whether it's 'I hate Trump' or 'I'm going to do blockchain and Bitcoin,'” he said. “It's the worst part of the social network.”
The Midwest tour was organized by Representative Tim Ryan, a Democrat who represents Northeast Ohio. Representative Ro Khanna, a Democrat who represents Silicon Valley, came along for the ride, as did JD Vance, the author of “Hillbilly Elegy.” (Mr. Vance, a venture capitalist who now seems to magically appear whenever the words “Midwest” and “construction” are spoken aloud, has also led his own tours of the area.)
[Read more here about Mr. Vance scouring the Midwest.]
Recently, Peter Thiel, the billionaire investor who supports President Trump and sits on Facebook's board of directors, became Silicon Valley's leading defector when he reportedly told people close to him that he was moves to Los Angeles full-time and relocating his personal investment funds there. (Founders Fund and Mithril Capital, two other firms started by Mr. Thiel, will remain in the Bay Area.) Mr. Thiel reportedly found San Francisco's progressive culture “toxic” and sought a city with greater intellectual diversity .
Mr. Thiel's criticisms were echoed by Michael Moritz, the billionaire founder of Sequoia Capital. In a recent Financial Times article, Mr. Moritz argued that Silicon Valley had become slow and spoiled by its success, and that “soul-destroying conversations” about politics and social injustice had distracted tech companies from the work of innovation.
Complaints about Silicon Valley's insularity are as old as the Valley itself. Jim Clark, the co-founder of Netscape, famously demobilized for Florida during the first dot-com era, complaining about high taxes and expensive real estate. Steve Case, the founder of AOL, is committed to investing primarily in startups outside the Bay Area, saying that “we've probably reached the top of Silicon Valley.”
But even among those who enjoy life in the Bay Area and can afford to do so comfortably, there's a sense that success has gone to the tech industry's head.
“Some of the engineers in the Valley have the biggest egos known to mankind,” Mr. Khanna, the Silicon Valley congressman, said during a roundtable discussion with officials in Youngstown. “If they don't have coffee and breakfast and dry cleaning, they want to go somewhere else. While here, people are starving.”
This is not yet a full output. But in the last three months of 2017, San Francisco lost more residents to out-migration than any other city in the country, according to data from Redfin, the real estate website. Recent overview by Edelman, the PR firm, found that 49 percent of Bay Area residents and 58 percent of Bay Area millennials were considering moving. And a sharp increase in people moving from the Bay Area has led to a shortage of moving trucks. (According local newsrenting a U-Haul for a one-way trip from San Jose to Las Vegas now costs about $2,000, compared to just $100 for a truck going the other way.)
For both investors and initial workers, one appeal of non-coastal cities is the obvious cost savings. It's increasingly difficult to justify the high salaries and lavish perks demanded by engineers in the Bay Area when developers in other cities can make as little as $50,000 a year. (A startup engineer at Facebook or Google might ask for triple or quadruple that amount.)
When you invest in a San Francisco start-up, “you're basically paying owners, Twilio and Amazon Web Services,” said Ms. Bannister of Founders Fund, referring to the companies that provide messaging and data hosting services to startups. .
Granted, California still has its perks. Venture capital investment is still heavily concentrated on the West Coast, as are the pools of talented computer scientists drawn from prestigious schools like Stanford and the University of California, Berkeley. Despite the existence of tools like Slack that make remote work easier, many tech workers still think it's an advantage to be close to the center of the action.
But the region's advantages may be eroded. Google, Facebook and other big tech companies have recently opened offices in the cities such as Boulder, Colo. and Boston, hoping to attract new talent as well as accommodate requests from existing employees who want to relocate. And strong demand for engineers in fields like artificial intelligence and autonomous vehicles has led companies to expand their presence near research universities, in cities like Pittsburgh and Ann Arbor. Then there's HQ2, Amazon's long-suffering search for a second headquarters, which seems to have convinced some tech executives that intercoastal cities might be viable alternatives.
Venture capitalists, who recognize a deal when they see one, have already started looking in the Midwest. Mr. Case and Mr. Vance recently raised a $150 million fund called “Rise of the Rest.” The fund, which has been backed by tech figures including Amazon's Jeff Bezos and Eric Schmidt, former executive chairman of Alphabet, will invest in startups across the region.
[Read Andrew Ross Sorkin on the Rise of the Rest fund.]
But it's not just about making money. It also has to do with social comfort. Tech companies are more popular in non-coastal states than in their own backyards, where the industry's impact on housing prices and traffic congestion is most pronounced. Most major tech companies still rate high in national polls, but only 62 percent of Californians say they trust the tech industry and just 37 percent trust social media companies, according to the Edelman survey. So you can begin to understand the appeal of a friendlier environment.
During the Akron stop of the bus trip, while Silicon Valley investors mingled with local officials over a dinner of vegan polenta pizza and barbecue, Mr. McKenna, the San Francisco venture capitalist, told me he felt a difference in attitude of people in cities like these, where the success of the tech industry is still seen as something to celebrate.
“People want to be in places where the hero is,” he said.