San Diego has long been regarded as a sleepy seaside city, home to defense contractors, military bases, and the legendary zoo. Our 262 sunshine days and heavy attention on our thriving tourist industry has done little to combat this. While Silicon Valley has historically overlooked the startup community in America’s Finest City there are signs of a change in dynamics as the cost of living, and doing business in San Francisco and Oakland become unpalatable. In fact, San Diego has more entrepreneurs per capita than San Francisco and San Jose according to Inc. Magazine which ranked San Diego as one of the top 5 cities for entrepreneurs. So why should companies and capitalists consider San Diego the next tech hub? Here are our top five reasons to ditch the Valley for the beach.
The Talent
San Diego has a number of higher learning institutions which produce thousands of savvy, innovative graduates. UCSD is an extremely competitive school who’s average applicant has a 4.0 GPA. Currently ranked 41st overall in the 2019 edition of Best Colleges in the nation, UCSD is ranked 19th for computer science. Roughly 50% of their graduates are trained in biology & engineering. More VC-backed entrepreneurs are emerging from UCSD than from Boston University: UCSD produced 349 entrepreneurs who founded 330 companies and raised $5.73 billion from the start of 2006 through to the end of June 2018, according to research by PitchBook
Major collaborators with the university include companies like Glaxo Smith Klein and CIRM. San Diego State University is ranked 5th for information technology and 19th in California for computer science. The entrepreneurial community at SDSU is very active and its Lavin Entrepreneurship Center was recently awarded the Nasdaq Center of Entrepreneurial Excellence award by the Global Consortium of Entrepreneurial Centers (GCEC). University of San Diego is currently ranked 90th (US News & world Report) in the nation and its Shirley-Marcos School of Engineering is currently ranked 12th in the country. Clearly San Diego is home to many talented young minds equipped with skills in the industries of tomorrow and the entrepreneurial spirit.
Why is this important? The recruiting war for talent, engineering, sales, customer success, business development, marketing, etc., is far less competitive in San Diego than in San Francisco. In a recent article, 44% of San Diego millennial workforce was considering leaving the region due to a lack of career advancement and wage growth. The median household income in San Diego is $80,000, far less than San Jose or San Francisco.
The Cost of Doing Business
California is well-known for its tech regions in the San Francisco Bay Area (San Francisco, the outer Bay Area regions, and Silicon Valley) and Los Angeles (Silicon Beach and growing presence in Culver City); however, the cost of running businesses there (facility costs and labor) far outpaces San Diego. Renting commercial office space in both San Francisco and Los Angeles comes at a premium when compared to San Diego (May 2019, Costar) when comparing similar product across all classes. According to a December 2018 report by Brex, San Diego startups spend about $207,000 per month, which is far less than the $369,000 per month spent by startups in San Francisco.
From Brex: 2018 State of Spend, written by Chris Read
While a higher burn rate for a startup may be tied to areas with greater access to top-tier venture capital, it certainly doesn’t correlate to a stronger business model. Hiring talent in San Diego will cost employers less than the next two tech regions in California, and the workforce in San Diego expects fewer additional financial perks than their counterparts. Venture capital is choosing San Diego tech startups over life science/biotech investments as they require less money and have a lower valuation. San Diego startups raised the largest amount of venture capital in the third quarter of 2018 since 1995: $907 million. (Venture Beat )
When considering their capital allocation and future reinvestment, many angels/funds will choose early stage tech companies. Once the next round (enter Private Equity or Softbank) is secured this provides greater liquidity.
Why is this important? San Diego’s superior cost of doing business means your company will experience greater growth over the same period by securing A players at a lower price tag. Even with the desire for higher wages from the San Diego millennial workforce, the cost of obtaining the best-of-the-best is an improvement over San Francisco.
The Growing Tech Community
San Diego has long been known the backyard for companies like Qualcomm and Illumnia. While large companies like these do employ a significant part of the tech/biotech community, they also inspire new businesses in the region. A number of startup companies founded by ex-Qualcomm employees have successfully grown over the years and spread the tech community footprint. San Diego’s tech community is split geographically into three regions; Carlsbad, Sorrento Valley/UTC, and Downtown. While these regions currently don’t interact as cohesively as The San Francisco Bay Area, semi-annual events like Startup Week and events held by San Diego Venture Group, Foundrs, ThinkTank, and Tech Coast Angels have incredible turnouts. Larger companies like Apple, Amazon and Dropbox have recently increased their presence in the region. Amazon expanded into an 85,000 SF facility and is developing a facility near the US/Mexico border on a 2 Million SF facility. Apple leased 97,000 SF (UTC) announcing it plans to hire 1,200 employees in the region over the next three years. In addition to this, incubators with backing from giants like GSK have increasingly played a role in the growing startup community. The increase of large co-working operators in all three tech regions continues to drive community as small businesses within leverage each other through their early stages. Co-working operators similar to Wolf, who watch their tenant’s grow may invest in them becoming a capital source in the angel round.
The Future
The relocation of companies like Bizness Apps, Wrike, and others have real estate developers launching speculative projects to court tech businesses. Stockdale Capital Partners recently won approval to convert downtown San Diego’s Horton Plaza into a 772,000 SF high tech campus. The project is estimated to create 4,000 jobs and build on the existing tech community in the area which already boasts 140 startups. Projects like Superblock, Makers Quarter and UCSD (which has a new campus underway downtown) are increasing the infrastructure needed to attract more tech companies and investment dollars. San Diego has all the necessary components to become the next west coast tech hub. The question is no longer ‘if’ but when.
Jamal Brown is the CEO of The Ocean Company, an exclusive tenant representation firm with offices in San Diego, Orange County and Los Angeles focusing on the leasing and acquisition of commercial real estate.
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