San Francisco: Still the Startup Mecca in 2024?

San Francisco’s AI startup boom is so big, even international founders who don’t run AI startups are relocating there to help their companies grow, according to several founders who recently moved. 

This is largely because the tech talent and investor money is still overwhelmingly concentrated there, according to new data that VC firm SignalFire exclusively shared.

The SF Bay Area remains by far the largest share of all tech employees in the U.S., with 49% of all Big Tech engineers and 27% of startup engineers, data from SignalFire’s Beacon platform shows. SignalFire, which prides itself on big data-driven analysis, also sees that the Bay Area’s share of tech engineers has been increasing since 2022 (not declining) and its share of this talent pool is more than 4x those of runner-up Seattle. The area is home to 12% of all the biggest VC-backed founders and 52% of startup employees, more than any other region.

The analysis by SignalFire partner Josh Constine led him to declare in a recent blog post, “We found that anecdotes about the decline of tech in San Francisco are overstated. SF still dominates all other U.S. cities when it comes to concentrations of tech talent and capital, and its lead is even larger when it comes to the recent AI boom.”

Unify’s founder relocated from Berlin after raising $8 million

Take London native Daniel Lenton, founder of Unify, originally based in Berlin. Unify, a Y Combinator W23 grad, is building a neural router that automatically sends individual prompts to the best LLM for the task. It says it helps companies control costs while using models from multiple AI sources. 

Lenton, who has raised $8 million for Unify from SignalFire, Microsoft’s M12 Capital, and Ronny Conway’s A.Capital Ventures, had no trouble meeting with Silicon Valley investors when he was in Berlin, he said. He even talked with the giant firms.

“It wasn’t a massive challenge for me to be having conversations with the likes of Andreessen and Sequoia and Accel,” he said. “You’re not locked out of the investment market when you’re not there. You can do a lot of things remotely, even getting introductions to people.”

But he found himself returning to San Francisco after his YC experience, and each time he met clients, potential clients, partners, and collaborators. The clincher for relocating was a month’s visit in June. 

“In just one week, every day that week, I was having lunch at different offices” of other larger AI tech startups, he says. “On the whiteboard, brainstorming together.” 

There are the countless other, more formal events. That’s not just due to “Cerebral” Valley, the San Francisco neighborhood with a collection of AI startups and a burgeoning social scene for the many young 20-somethings who work for them, although that’s part of the draw. It’s also investor dinners and events, such as a recent Andreessen Horowitz event for AI founders that Lenton attended. “It’s just very, very useful.”

While Lenton has relocated himself and made San Francisco the official headquarters for his startup, he hasn’t required his eight-person team, who all live in different cities, to come with him.

Lago moved to SF instead of New York

Anh-Tho Chuong, co-founder and CEO of open source billing platform Lago, has a similar opinion. She’s relocating herself and her company headquarters from Paris to San Francisco — even though Paris is a European hub of AI startup activity with breakout startups like Mistral. Because Lago is also a YC grad (S21) and incorporated in the U.S., moving to the U.S. was always her plan, she says. But the plan was to go to New York, for ease-of-travel and time-zone reasons. 

“A year ago, everybody was moving from SF to New York and they were saying SF was dead,” she said. But then she spent the month of May in San Francisco for business, “and I see everybody is back.” 

She’s not the only one noticing and saying this. Jason Lemkin, founder of SaaStr, a community for business software startups known for its events, this week posted on X, “So I’m back full time-ish to the SF Bay Area. As, often quietly, are so many leaders and execs I’ve known for years.”

Lemkin explains that the area is “clearly the center of the AI boom even if many are based outside of it, in Paris and elsewhere.” Like others, he credits YC and other accelerators for bringing startups to town. “The SF Bay Area is back.”

For Chuong, the choice of San Francisco came down to just how much easier it was for her to build her company there. Lago is not an AI company, but it counts AI companies as customers. It offers what it’s calling an open source alternative to Stripe and is focused on metering and usage-based billing. Lago has raised $22 million total so far, she says, from a host of angels and VCs like SignalFire and FirstMark.

Lago’s customers are largely cloud startups, including many AI startups. She’s been growing the company through word of mouth and inbound requests, much of them from Bay Area companies. As she looks for her first marketing hires, “we feel like the talent pool is better. Also the customer pool is better” in San Francisco than anywhere else, she said.

Manufactured luck

Chuong also credited YC for making San Francisco such a hub, specifically for hosting an ongoing array of events from alumni gatherings to AI founder happy hours. That’s in addition to the formal events it has with current cohorts and its alumni-only social network, Bookface.

But every city has plenty of events, meetups, and hireable people. Both these founders, and the SignalFire data, point to something else that the Bay Area — especially San Francisco — offers: serendipitous connections. 

When so many people in the same industry are concentrated in tighter confines, bumping into someone useful becomes the norm, not the rarity. Chuong says she met three other YC founders working on similar companies in the SoMa San Francisco neighborhood building where she was temporarily living. “We just started collaborating on what we’re building, on our challenges, and everything was super organic. And I felt like there’s so much of a support system here that it makes no sense to go to New York.”

This is not to say that startups built elsewhere in the country or world can’t succeed. Many do. But as Y Combinator partner Diana Hu described it on a recent podcast, people choose to relocate because they feel that “San Francisco is the place in the world where you can manufacture luck.”