Skip to main content
 

Startup economics in San Francisco

4 min read

According to the Department of Housing and Urban Development, a family of four earning $117,000 in San Francisco now qualifies as "low income". (In NYC, it's $83,450; Los Angeles, $77,500.) It's insanely expensive to live here. And it means that the people who found and fund new technology businesses are predominantly upper to upper middle class.

I was able to co-found my first startup because I lived in Edinburgh, a city with very low living costs (there "low income" is the equivalent of around $20,000), socialized healthcare and adequate public transit. Had I been based in the Bay Area, it's highly likely that I would have followed a traditional engineering path, taken a reasonable salary, and rode out my career as an employee. Nothing else would have been possible for me - and I'm very lucky that I would have had that option.

There's one exception: I might have worked on a startup or other project in my spare time until it became viable. That's not a given: I would have needed to break my Proprietary Information and Inventions Agreement with an employer in order to do so, which could result in me losing my job or, in a worst case scenario, being sued by that employer further down the line.

The trouble is, most investors see not having quit your day job yet as a sign of lack of commitment. In their minds, you're hedging your bets - when in fact, you may just be trying to financially survive. Sure, one could argue that it's riskier to invest in someone for whom financial survival is an issue; but if we accept that, we accept that we should only really invest in rich people. That signficantly limits our pool of potential investments, and would have precluded people like Steve Jobs from ever having found support.

To be fair, I might also have saved money for years in order to build up a year of personal runway - but this likely isn't enough time or money, and frankly, I would have been much smarter to use it for a downpayment on a home, or for a pension, or both. A lot of people just don't have that option.

And I'm hardly who we should be worrying about. Honestly, who cares whether past Ben could found a startup in San Francisco or not? I have a lot of comparative privilege. Women and people of color in tech are still paid less on average, and the average wealth for families of color is one seventh that of white families, which means that their financial opportunity to found something here are even slimmer. And we need their voices; we need their insights; and frankly, we need their businesses. As the Center for Global Policy Solutions reported in 2016:

Although the number of minority-owned businesses is increasing dramatically, America is currently forgoing an estimated 1.1 million businesses owned by people of color because of past and present discrimination in American society. These missing businesses could produce an estimated 9 million more jobs and boost our national income by $300 billion. Thus, expanding entrepreneurship among people of color is an essential strategy for moving the country toward full employment for all.

If we care about inclusion in the technology industry - and we should, for both social and financial reasons - we can't limit our investments to people who don't have to worry about their own financial viability. That means we can't penalize people who create their startups in their spare time, and won't go full-time without financial backing. It means we can't penalize people who choose to build their businesses in cheaper parts of the world (i.e., literally anywhere else). It also means that we have to stop pattern matching for previous success. Otherwise we build ourselves an ever smaller pool of people with the freedom to innovate, and dramatically shrink the gene pool of ideas. For an industry that's supposed to be building the future, that would be suicide.