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An 85-minute flight from the traffic snarls and frenzied house prices of the Bay Area of Silicon Valley can land you in one of the sunniest and fastest growing cities in the U.S., increasingly eyed as an attractive alternative for engineers and venture capitalists (VCs) alike: San Diego.
For years VCs resisted the idea of a plane ride to board meetings in a city where one in three is now a millennial, the highest rate in California and second in the U.S. only to Austin. No longer. As more Americans leave the Valley than move to it and VCs look elsewhere to invest, the coastal tech hotbed of San Diego is poised to go heavyweight. Here’s why:
It’s no fledgling
San Diego is already one of the top 10 leading tech hubs by number of deals, which together accounted for nearly 70 percent of all first financings in 2016-17, according to data from The Center for American Entrepreneurship. While early-stage VC investment has been falling elsewhere, since 2009 the concentration of first financings among the leading hubs has risen, with San Diego benefiting from the biggest relative gains over time along with LA and Chicago. The number of local companies in San Diego attracting funding more than doubled to 134, in 2016/17, compared to 2009/10. San Diego startups raised the largest amount of venture capital in the third quarter of 2018 since 1995: $907 million.
Engineers: no shortage
The University of California San Diego (UCSD) has more engineering undergraduates than Stanford and Berkeley combined. While Stanford produces the most VC-backed entrepreneurs in the U.S., 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. Notable alumni include Facebook’s first full-time employee, Taner Halicioglu, who donated $75 million to his alma mater last year.
No overnight success
San Diego has deep roots in data and analytics. Qualcomm – the world’s largest maker of smartphone chips and one of the biggest employers in the city – was founded in a San Diego living room. The pixel for data collection was invented here. Household names that emerged from the city include Urchin Software, which became Google Analytics, and WebSideStory, which became Adobe Analytics. Tech giants are moving in: Amazon last month announced a new 85,000 square foot office and plans to create 300 new high-tech jobs in software development, machine learning, cloud computing, and digital entertainment. Meanwhile, Walmart Labs – the retailer’s technology arm – has announced plans to triple its San Diego headcount and move into a modern, 30,000 square foot office space, signalling its investment in the area.
Millennials may be the fuel for tech companies, and it’s not only the pristine beaches and 261 days of sunshine a year that are attracting them in droves: San Diego recorded the highest growth in personal income in the U.S. in 2017, according to the Census Bureau, with a median household income of $76,207. Sure, that’s less than in San Jose, where the median wage is $117,474, but housing is less of a stretch in San Diego: $618,000 is the median home value, according to Zillow, versus a whopping $1,089,500 in San Jose.
For years, Silicon Valley and its brash bigger neighbor, Los Angeles, have overshadowed San Diego. Next month, a new airline will make it even easier for VCs and engineers to get to San Diego from San Jose, when California Pacific starts two round trip flights a day. Expect to see a lot more one-way traffic.
Mike Anderson is founder and Chief Technical Officer of Tealium. He previously worked at WebSideStory (Adobe Systems), where he oversaw analytics tag implementations for Disney, Best Buy, Target, Cisco, Citi, FedEx, and more.
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