San Francisco is becoming a tech hub again, Y Combinator CEO says

They say it’s harder to get into than Harvard: Y Combinator, YC for short, is “startup school” for tech founders. It takes applications twice a year. Being among the 230 startups accepted out of 24,000 means getting a half-million-dollar investment and access to mentors who’ve already made it.

Airbnb, Reddit and DoorDash are on the alumni list. For most of its 18-year history, Y Combinator has been based in Mountain View, California, the heart of Silicon Valley. Recently, though, its center of gravity has moved about 40 miles north to San Francisco.

YC opened a new office in June and now considers the city its headquarters. Garry Tan took over last year in a role once held by OpenAI CEO Sam Altman. Tan wants founders to be nearby, at least during the first three months they’re in the program. He told Marketplace’s Lily Jamali why during a walk through the city. The following is an edited transcript of their conversation.

Garry Tan: If you leave the center of all of the action, a lot of those companies end up dying. And you need to be around lots and lots of people in order to be successful. And that’s extra true right now, because AI is such a brand-new field, like literally, the large language models and the biggest and the best companies that are creating the platforms right now, like OpenAI, Anthropic, they’re right here. And so San Francisco is mecca.

Lily Jamali: So you call this “Cerebral Valley,” is that right?

Tan: Yeah, a lot of startup founders just coined it; actually, I think a YC company coined it. They threw a conference called Cerebral Valley and it stuck. I think they’re doing their second annual this year.

Jamali: Got it. What does that mean, that term?

Tan: Well, I think it’s a play on really the brain, at the end of the day, and what’s happening now with AI: literally computer silicon, we sort of infused it with electricity and now these things can reason, they can talk. We have talking rocks. And that’s sort of the play, that literally we have electronic brains that can reason in a way that really has never happened before. Like, you can speak to it. It can search large datasets as if it were a human being. That’s wild.

Jamali: Well, what is it about AI and the development of that technology that makes it matter for you to be around people?

Tan: Well, I think just as Seattle had Boeing, and it basically attracted all of the smart people who cared about airplanes, or even Silicon Valley, they call it a Silicon Valley back when semiconductors were relatively new technology. And literally, they invented the idea of Moore’s law there. So I think the same thing is happening here. There are brand-new techniques on how to get the most out of this new technology that literally was not really something that people had access to until the middle of last year even. I think ChatGPT really broke it open. And now what’s happening is that people can create, frankly, thousands of startups, of which maybe a few dozen of them will go on to be worth billions of dollars, because they will create sort of the next Microsoft, the next Google, the next Meta, like the next great startup. There isn’t just going to be one, there might be dozens of them here. I think this is the great frontier. And it’s crazy enough, I think, something that will touch billions of people on the planet, like, the software people build in the city will radiate out to every part of the world, as well.

Jamali: What does it feel like to live in San Francisco right now and work here?

Tan: Personally, I think I’m really torn. I mean, I think that we create, and tech people, and the opportunity that we see, we’re creating incredible amounts of wealth. And then, at the same time, we need to find ways to make our city as vibrant as possible. And that means government. Like, I’m the last person to say, “Hey, like, we want less taxes.” I’m the first person to say, “Actually, let’s take that money, take that wealth, spread it around, but then have effective governance, effective government that actually makes this a truly awesome place to live, not just for tech people, not just for the wealthy, but for everyone.

Jamali: Well, this is like the perennial issue in San Francisco. So first time I lived here was right after the dot-com bubble burst. Then I was here in 2015, when there were the shuttle bus protests, people were very upset. I mean, there’s always this concern about gentrification being driven by the tech industry here.

Tan: Yeah. And I think tech sort of stood back and sort of took it and said, “You know what? Like, we have no response.” And I think we have a response now, which is tech people need to get politically active and demand that we get great government, that we want services that work, that policies have to work. And so that’s the matched pair. And I think it’s happening as we refill the office towers, as we bring vibrancy back to the city, we also want the government to help everyone.

Jamali: So what do you think when you read all these stories in the national press about San Francisco being a mess and being very dangerous? There’s a very clear narrative coming out of certain national outlets about this city right now.

Tan: Yeah, I mean, I think it’s all correct. And it’s the result of government that doesn’t work for the people. And I think it’s not just tech, like it’s the Asian American community, like my elders are being stabbed in the streets. Our children can’t get good educations. And we’ve just allowed it. And I think that ultimately, it’s about people being educated on what’s happening and how we got here, but I think we can turn it back. And it’s more important than ever that San Francisco do that because we want this to be a place that’s welcoming to immigrants, to the smartest people in the world, to all come in one place and create these things that are of incredible value.

Jamali: So you say that those headlines, there’s truth to them, that that negative narrative. That’s how it feels to you living here?

Tan: But we are not doomed to just sit here and take it. I mean, the laws are not being actually enforced here. And when you trace it back, there are real policy issues in San Francisco where, for instance, the police are run by a commission that drown police officers in paperwork. And so that’s one of sort of hundreds of different things that I’ve discovered as I’ve sort of gotten involved in politics. And the thing is, we want this place to be a great place to live. And basic things like traffic enforcement matter a lot.

Jamali: It’s kind of interesting — so that narrative is there, but are you saying at the same time that there is this comeback happening, that maybe a lot of people outside of San Francisco haven’t appreciated? A comeback that’s being driven by the tech industry?

Tan: Yeah, at the end of the day, what we want is prosperity. And the coolest thing in the world is that at Y Combinator, we get to see two or three people come together from any background, from any country in the world, and they have a fair shot here. They get half a million dollars, and they can go and try to create something that touches a billion people. And that’s really what we try to do every day. And if they succeed, they’ll have thousands of employees, and these are good, high-paying jobs in tech. And that will actually create so much prosperity for the whole community, that that’s actually why San Francisco is so awesome.

Jamali: Well, let me ask you this: If your goal seems to be to try to drive tech back to this area, doesn’t that kind of end up with a lot of the same issues that drove a wedge between locals and the tech community 10 years ago, before that, 25 years ago? How do we make sure we don’t repeat the same mistakes?

Tan: I think ultimately, honestly, when you talk about that, we’re talking about housing. And this is the most expensive housing market possibly in the world. And you know what, our policies are absolutely derelict. We’ve abdicated our responsibility to the people as a government in both California and in San Francisco.

More on this

Garry’s concerns about housing are widely shared and grumbled about throughout the Bay Area. In July, David Brancaccio spoke with San Francisco Mayor London Breed for “Marketplace Morning Report.” David noted, at the time, that the median listing price for a home there was $1.3 million. Average rent: $3,600 a month.

On building new housing, Breed told him with process, policy and procedure, “we need to get out of our own way.” Last month, she signed legislation she said will streamline housing construction there. It comes as California mandates the city to build more than 80,000 homes, half of them affordable, over the next eight years.

And here’s an article on Cerebral Valley, which the online outlet The San Francisco Standard calls the city’s “Nerdiest New Neighborhood.” Hacker houses are apparently all the rage again. The Standard likens one of them to a “glorified babysitting service for techies.”