In a report from last week, Fintech Unison was highlighted as considering an exit from the tech startup epicenter of San Francisco. According to SF Business Times, Texas, Idaho, and other states are looking to lure companies away from the Bay Area as the cost of housing shoots through the roof. The sky-high cost of living is being compounded by city streets littered with dirty needles and feces as politicians fail to deal with a homeless/drug crisis.
Unison is a unique Fintech that provides financing for home purchases. The long term capital commitment allows Unison to participate in any home value appreciation while the home purchaser can purchase a larger residence. In the Bay area, well known for outlandish rents and expensive properties, using Unison may make a lot of sense so being located in the city aligns with the mission of the platform. But as the report outlines, as San Francisco declines other cities see opportunity from the dimming luster of the Northern California city.
Thomas Sponholtz, CEO of Unison, says that Utah, Colorado, and Idaho have each courted his company. Texas came knocking too. Sponholtz says the Lone Star State has been the most aggressive and the state is already home to a growing number of promising tech startups. While Sponholtz has made no decision to move his company he says you have to consider it.
And it is not just drugs and excrement scaring away companies. Taxes are playing a larger role too as states with high-income tax rates have found that salaried workers are reconsidering where they work following the Trump tax plan that eliminated most state income tax deductions. This is a phenomenon that is not just impacting San Francisco.
A recent report in BI said that wealthy New Yorkers, including financial service executives, are leaving the state and heading to Miami in “droves.” Florida is a state that not only has plenty of sunshine but zero state income taxes.
For an early-stage firm, setting up shop in San Francisco holds a lot of allure. Much of Bay Area is built off a youth culture that is more tolerant of the quirks of SF. But once you start to have kids, things start to look a bit different.
The Chron reported earlier this year that “San Francisco has more drug addicts than it has students enrolled in its public high schools.” The numbers are shocking:
“There are about 24,500 injection drug users in San Francisco — that’s about 8,500 more people than the nearly 16,000 students enrolled in San Francisco Unified School District’s 15 high schools and illustrates the scope of the problem on the city’s streets.”
In the long run, both individuals and companies tend to vote with their feet when things get challenging.
Publicly traded Fintech LendingClub (NYSE:LC) made the decision in 2018 to locate some of its workforce in business-friendly Utah.
Utah’s Governor’s Office of Economic Development (GOED) said that SF based LendingClub would be creating up to 860 jobs, $22 million in new state revenue, and an estimated $17.85 million in capital investment over the next 10 years.
At the time of the announcement, Val Hale, executive director of GOED, said that LendingClub will benefit from a great work culture and growing tech talent.
“Utah’s financial-tech industry continues to grow and LendingClub’s entry into the state will continue to strengthen the industry,” said Hale.
Scott Sanborn, CEO of LendingClub, said the move to Utah was about operating efficiency and resiliency. What he did not say, but really meant, it was a heck of a lot less expensive to operate in the state – something that is very important for a company attempting to turn the corner and achieve a positive net income.