Are startups finally finding their way to San Jose?

In May 2010, I wrote a critical column with the headline: “Start-ups still don’t know the way to San Jose.”

The key points:

“Among the region’s municipalities, San Jose ranked 11th in venture capital invested in startups in 2009, behind not just Palo Alto but also San Carlos.”

And:

“First, let’s look at the numbers. According to PricewaterhouseCoopers, 43 companies in San Jose received $262.5 million in venture funding last year.
Compare that to San Francisco, which sits at the top of the list with $1.01 billion invested in 173 companies in 2009, and Sunnyvale, which was No. 2 with $662.9 million. It’s even less than the $290.8 million for San Carlos and the $266.5 million raised in Menlo Park.”

For a city that fancies itself the “capitol” of Silicon Valley, this seemed like a shocking deficiency. I disagreed with Mayor Chuck Reid’s assessment that this wasn’t such a big deal, that San Jose has traditionally been more focused on luring companies down the Peninsula as they grow.

In any case, while putting together a column about San Francisco’s reputation for being hostile to start-ups for this past weekend, I found some good news for San Jose.

In 2011, according to PricewaterhouseCoopers, startups in San Jose raised $784.2 million, putting San Jose at number four among Bay Area cities. The top three:

  1. San Francisco: $2.87 billion
  2. Palo Alto: $1.3 billion
  3. Mountain View: $1.03 billion

Of course, in terms of scale, San Francisco continued to grow at about the same rate as San Jose. At the end of the day, San Jose, a city that’s larger than San Francisco, still only attracts about 25 percent of the venture capital of its rival to the north.

Still, it seems San Jose is making some progress in being more attractive to startups. And the last two years have only convinced me that’s more essential than ever for a couple of reasons.

First, those startups aren’t just launching in San Francisco, they’re increasingly staying there. Salesforce.com has big expansion plans in SF; Zynga bought a big chunk of real estate; Twitter famously is retrofitting a big ole building in mid-Market; and Dropbox this week is unveiling a new headquarters there. That means that rather than migrating south, they’re planting deeper roots in San Francisco.

Second, companies are increasingly expanding outside of Silicon Valley. Once they get past the initial startup phase, they’re looking at other regions of the U.S. or overseas. The salaries they pay this next tier of employees don’t make sense for people living in pricey Silicon Valley. This is not entirely true, of course. Facebook has made big plans to expand locally, and Google continues to gobble up every free square foot of commercial real estate in Mountain View.

But such mega expansions are going to be few and far between. And because San Jose didn’t land either of these companies early, it never really had a shot at landing their expansions either.

This all leads to another question: Has something fundamentally shifted in terms of San Jose appeal to startups? Hard to say at this point. But the signs the last couple of years are certainly encouraging. Whatever the city is doing, it needs to keep it up.

 

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  • The City is not doing much. Land basically is becoming more scarce. SJ has much more than any other city in the Bay Area. Chuck Reed has failed to turn the self proclaimed title “Capitol of Silicon Valley” into fact. SJ is falling behind SF where it counts most, National Media Spotlights. every week a new national news media story refers to SF as SIlicon Valley, most do not even mention SJ. If the story is about Cupertino, then it is said to be “outside SF” why? just look at our Airports Name, if any one thing should be named after SIlicon Valley this is it, Yet the Mayors office cant even do this. FAILURE!

  • jack

    I bet if San Jose had bart stations downtown, it would change everything. Haha…no foresight, 20 years late, who can wait?

 
 
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