Item — HN Reader

Most of the relevant factors for startups are due to people and culture of the valley, not the California government, but there are some which are actually due to the state government:

California has a few big advantages due to the state: * Non-competes invalid * Well-understood legal system for startups

And big startup-relevant disadvantages: * High taxes on income and especially capital gains (taxed at the 10.3% rate!!!) which force out some angel investors, and potentially reduce capital formation for new angels. * High cost of living (which makes engineers expensive, and hurts during bootstrapping) -- some of this IS due to California government decisions.

Employment law, minimum wage, etc. don't really affect startups directly.

"Uncertainty due to the state being bankrupt" is a major new negative factor, however. Even though the current situation still leaves SFBA as the top startup location in the world, I could see a dying California enacting new policies which change this.

3 comments

People will be arguing over it forever (especially since people on different parts of the political spectrum want different answers to be true), but it's hard to say exactly what impact the high-tax/high-benefits regime had on Silicon Valley. As you imply, the taxes themselves are a negative, but some were spent on things directly relevant to Silicon Valley. One of the biggest was tons of university funding, especially up through the late-80s/early-90s (and especially compared to other states). In addition to the state generously funding UC Berkeley, Cal Poly, SJSU, etc. directly, Cal Grants used to pay full tuition for even private universities for CA high-school students above a certain academic threshhold, who chose to attend college within CA. That funneled lots of poor and lower-middle-class smart kids to in-state private universities, and indirectly subsidized the universities as well by having the state take on most of the need-based aid burden.

Unless and until there's another state makes non-competes invalid (or California reverses this century plus old public policy) it's hard to say just how important it is, but I think it's very important, at times clearly overwhelmingly important.

The beginning of the silicon era of Silicon Valley simply wouldn't have happened without the exodus of the Traitorous Eight from Shockley Semiconductor followed by the exodus from Fairchild Semiconductor, and following that we've heard a lot about how cross-fertilization helped the industry move so quickly.

On the other hand, I've personally experienced several startups that never got off the ground in Massachusetts and Virginia because one or more of the potential founders were restricted by a non-compete. In one case, a bunch of us just all did something else before getting back together.

Since technology companies are a major cause of the high cost of living in Silicon Valley (by increasing the demand for housing by people who can well afford to pay), it's hard to see how you can reduce the cost of living without making Silicon Valley less attractive to entrepreneurs.

It's easy in principle if you focus on the supply side of the equation instead of just the demand side. Instead of decreasing the number of people looking for affordable housing, increase the supply of it.

In reality, so many people have a stake in the current level of housing prices that doing this will probably be impossible in practice, even if you have some stern court decisions backing such a push.

Supply is fixed by the amount of land, the consensus that remaining open spaces should be protected, and zoning laws in desirable communities that prevent higher density.

Of course this could be relaxed but that only buys us a few years before the new housing fills up and we're back where we started, but with a more crowded community, one step closer to Manhattan. The steady state in a built-up place like the bay area is zero growth in housing.

I think there are a lot of ways to in-fill housing in SFBA without affecting open space. Allowing tall skyscraper condos in downtown SF makes a lot of sense (and has been one of the major changes from 1995 onward); the continued replacement of light industrial with lofts (from the 1980s), and subdividing victorians into apartments (1920s?).

Most of this has been focused on SF itself. I'd be happy to see more apartment complexes in the 2-5 story range replacing single family homes in parts of the peninsula. Improving transit can also make the east bay and San Jose itself more viable. HSR will arguably make Stockton/Modesto an option for a lot of people.

Actual home space isn't the limiting factor I think. I'd like to see the supporting infrastructure be more dense and efficient (roads/transit, schools, utilities).

Of course, once I bank my first $250mm, I'd like a $20mm house in Palo Alto as it is right now, and a $10mm loft and $10mm house up in SF. :)