What The AI 'Gold Rush' In San Francisco Means For Investors
- by Forbes
- Jun 17, 2024
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For the first time since the pandemic, San Francisco’s population is growing amid the latest “Gold Rush”: artificial intelligence. Startups, investors, founders, developers and dreamers are moving back to the city.
Real estate is rebounding on the back of the demand of AI startups seeking office space. Citing data from JLL, Bloomberg reported that in 2016, these companies held around 500,000 square feet of office space. By the end of 2023, that footprint ballooned to more than 3.4 million square feet. This increase is driven by emerging AI companies, such as Anthropic, Hive, Hayden AI, Tome and many others. Real estate agents have even coined the term “Area AI” for the AI hot spot in the northeast Mission and Potrero Hill neighborhood.
Many AI companies are hiring fast and using the massive influx of capital they’ve generated. In February alone, the AI sector attracted $4.7 billion in funding—more than doubling the amount raised the previous month. In 2023, more than 50% of all global venture funding for AI startups flowed to companies based in the San Francisco area, Crunchbase reported. Huge deals, like the $10 billion investment Microsoft made into OpenAI, helped drive growing AI funding in the area, Crunchbase also said. This momentum has solidified San Francisco as the global epicenter for AI, earning it the nickname “Cerebral Valley.”
What This Means For Investors
From my perspective, the AI boom shows no signs of slowing down as advances in technology continue to accelerate. It’s changing the way work is done around the planet, opening up new competition arenas for massive global brands and helping democratize access to previously unattainable knowledge, skill sets and products.
All of this momentum is attracting talent, similar to how gold panning did almost 200 years ago. As someone who has spent the past decade meeting with founders, assessing startups and making investments, the latest batch of startup founders and innovators is the highest quality I’ve ever seen. From my observations, other investors seem to agree. Venture investors are warming back up, and I’m finding competition for deals is hotter than it has been since the pandemic.
The old saying “those who fail to learn from history are doomed to repeat it” seems to ring truer than ever as we watch San Francisco reinvent itself, yet again, with another Gold Rush cycle. As always, there’s plenty of room for healthy skepticism, but with each passing day, it becomes harder and harder to doubt that history is repeating itself.
As an investor and a long-time resident of San Francisco, this current cycle represents the same cycle that most venture investors build their business on: Buy low and sell high. As I see it, investing during the doom-and-gloom periods of San Francisco can be a winning strategy if you’re investing on a long time horizon. Today, the hype of AI is real, and the competition for investing in AI darlings is stiff. However, it’s important that investors still spend time on the fundamentals of due diligence. Don’t sacrifice detailed focus for speed. It’s not an easy thing to do, but I believe this is how legacies are established. I’ve been a proponent of this mindset for years.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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