Archived: Austin was ‘the biggest winner’ of COVID tech migration. What happens to Silicon Valley?

AUSTIN, Texas — Texas’ capital has long been a tech pioneer, starting in the 1960s with IBM and Texas Instruments. In 1984, a University of Texas at Austin student named Michael Dell launched his PC company, which would become one of the largest computer manufacturers. But the rise of social media and mobile phones was concentrated in Silicon Valley, cementing the West Coast as the world’s biggest tech hub.

Now, Austin is striving to win the next era of tech.

A year after the pandemic canceled its signature tech and arts conference, SXSW, the city has gone from a harbinger of the crisis to one of its biggest winners, according to local businesses and economic data.

Austin has regained 97% of its lost jobs from spring 2020, according to the Austin Chamber of Commerce. Unemployment was a seasonally adjusted 4.6% in May, down from a pandemic peak of around 12% in April 2020. Company relocations added 12,421 new jobs last year, a record high. The housing market is one of the hottest in the country, with demand soaring from out-of-state arrivals. Studies show there wasn’t a California exodus to Texas, but Austin has benefited from company expansions and tech migration.

As Austin gained, the Bay Area lost. LinkedIn user data shows Austin had the highest net inflow of tech workers of any major U.S. city from May 2020 to April 2021, gaining 217 people for every 10,000 users. The Bay Area saw the biggest drop, losing 80 tech workers for every 10,000 users.

“I didn’t think it could have grown any faster. And then somehow it did,” said Joshua Baer, CEO of Austin tech incubator Capital Factory. “COVID-19 broke a dam that was holding back thousands of even more people who were thinking about moving but held back by their job or other obligations.”

“There were some big winners and some big losers in the COVID migration, and Austin was the biggest winner,” he said.

Capital Factory works with about 120 new startups each year, and more than 20% of them are founded by ex-Californians, a percentage that’s growing, Baer said.

As they did in the Bay Area, tech giants are transforming Austin’s cityscape. Google leased a giant sail-shaped tower under construction on the banks of the Colorado River, designed by the same architect as Salesforce Tower in San Francisco. Apple is building a second campus in North Austin. After sparring with Alameda County health officials during the pandemic, Tesla announced its next Gigafactory east of Austin with 5,000 workers, which is rising swiftly.

Veterans of California tech are finding success in Austin. Tinder co-founder Whitney Wolfe Herd moved from Southern California to Austin in 2014 and started the female-focused dating app Bumble, which went public in February and is now valued at $6.8 billion.

One of the pandemic’s biggest relocations came in December, when Silicon Valley stalwart Oracle moved its headquarters from Redwood City to a new campus in Austin after 44 years in the Bay Area. After a year of deserted streets and quiet offices across San Francisco and Silicon Valley, it was seen as another sign of the region’s slipping tech dominance.

“Anyone who doesn’t believe that this latest departure isn’t a threat to California’s economy is a business climate denier,” Jim Wunderman, CEO of the Bay Area Council, a business group, said in a statement in December. “California for too long has willfully ignored our awful business climate, even as we’ve enjoyed incredible success and prosperity.”

As downtown San Francisco hopes for recovery, partying is back in Austin. About half of office workers have returned in buildings managed by security firm Kastle Systems, compared with about a fifth in San Francisco, and they’re filling bars and barbecue joints. At the start of summer, live music was blasting and young residents zipping around on scooters — another California import from startups such as Lime and Bird.

Austin is also dangling tax incentives to lure growth. Companies including Tesla, Apple and Samsung have packages from the city and Travis County worth up to tens of millions of dollars in property and payroll tax reimbursements. In contrast, the Bay Area rarely offers tax breaks to major projects and often adds fees to fund nearby transportation and affordable housing.

Veronica Briseño, Austin’s economic development director, said the deals are structured to push companies to give community benefits. The city offers more incentive points for companies that adopt policies such as paid sick leave and working with minority-owned and women-owned vendors. Briseño also noted that the city has fewer incentive agreements compared with other Texas cities.

The City Council, which signs off on deals, doesn’t “just offer anything to any company. They want to make sure if the company is embracing our community values,” she said.

For all of Austin’s wins, few think it will eclipse Silicon Valley. “It’s not a zero-sum game, at least not for us,” Baer said. “Silicon Valley is not going to go away, either.”

California’s economy has defied the doomsday scenarios at the beginning of the pandemic. A projected $54 billion budget deficit in May 2020 has flipped into a $75.7 billion surplus, with an additional $27 billion in federal aid to spend.

A key part has been the boom of the tech industry, which has seen Silicon Valley’s biggest tech giants top $1 trillion market capitalization. Blockbuster initial public offerings from San Francisco’s Airbnb and DoorDash also swelled the state’s coffers.

Even as tech giants Google and Apple expand with new Austin campuses, they’re investing more on the West Coast, too. Google plans to invest $1 billion in California real estate this year, and Apple signed the biggest Bay Area lease of the pandemic in May with a Sunnyvale expansion.

As investors hunt for the next unicorn, Austin lagged behind seven other regions for venture capital deals in 2020. Deal activity totaled $2.3 billion compared with the Bay Area’s top spot of $61.5 billion and Los Angeles’ $19.3 billion, according to PitchBook, a research firm.

But for someone trying to start a new company, Austin is becoming more attractive, said Ryan Broderick, an early executive at DoorDash. He left the Bay Area for Austin in 2018, becoming co-founder of real estate startup Darwin Homes, which focuses on single-family rental housing. The move made sense geographically, because the company wanted to focus on more affordable housing markets.

Back in 2018, hiring was a challenge in Austin.

“In the early days, it was not on par with the Bay Area, to be very honest. But I think that is now quickly changing.” he said. “There’s more talent moving every day.”

The widespread adoption of remote work has also enabled Darwin to hire more broadly. About a third of the company’s 60 employees are in Austin, while the others are remote.

In the past six months, about 10 of Broderick’s former DoorDash colleagues have also moved to Austin. The lack of state income tax was a plus, but the vibrant startup culture was also a big draw, Broderick said.

The advantage of being in Silicon Valley near venture capital firms is also fading, he said.

“Almost all of our capital has come from the Bay Area. We just tapped our network. They didn’t really care where we were starting our business or where we were,” he said.

“I can imagine if you were starting a business in Austin with no network two years ago, it might have been a little more challenging, but today I don’t see that as an issue at all,” he said. “I think a lot of deals are getting done here by West Coast firms.”

Previously, Broderick had resisted leaving California because he believed it would limit his opportunities.

“I always thought there was a trade-off on my career. And I was never willing to make that, so I was tied to the Bay Area,” he said. “I don’t feel like those trade-offs exist now. And that’s the biggest thing that’s unlocking these other places. I can still pursue the same career path. And I don’t need to be tied to the Bay Area. That has changed the calculus. And I think Austin is the No. 1 benefiter of that kind of change.

“I would not say that someone’s going to replace the Bay Area,” he said. “I think you’re just going to see more and more success stories coming out of new cities.”