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On July 17, local time, due to dissatisfaction with the new public school laws passed by California,Tesla founder and CEO Elon Musk said he would move the headquarters of his social media platform X and space transportation company SpaceX to Texas as well.

As early as 2021, Musk moved Tesla's headquarters to Austin, the capital of Texas. At that time, technology companies and billionaires were moving out of Silicon Valley. Oracle, HP, Apple, telecommunications company DZS, and real estate investment company CBRE all moved their headquarters to Texas or established new campuses.

However, a few years later, many technology companies that moved to Texas because of lower housing prices and tax rates reported that they were not able to adapt to the local environment, while the Silicon Valley area is also regaining vitality with the rise of artificial intelligence (AI).

Why is it not suitable for Texas?

During the pandemic, Texas has attracted many investors and start-ups thanks to a more affordable housing market and a business environment without state income tax. In addition to Musk, Drew Houston, CEO of cloud storage and file sharing service company Dropbox, and Douglas Merritt, CEO of data analysis company Splunk, also bought houses and settled in Austin.

With the influx of technology companies, Austin's economic growth rate has reached twice the national average and ranked among the tenth largest cities in the United States. The arrival of Silicon Valley people with high annual salaries has also driven a surge in local housing demand, and bidding wars have occurred frequently. According to MSCI Real Estate data, investors purchased a record $9.4 billion worth of apartments in Austin in 2021, and rents rose 20% that year. From 2020 to spring 2022, Austin's housing prices soared by more than 60%.

According to Moody's Analytics, between 2020 and 2022, Austin's per capita income grew 23%, but home prices more than tripled. Even with recent home price declines of more than 11% from their peak, housing affordability is at a four-decade low. Home prices in the city are 35% higher than what would be expected if underlying economic trends matched them.

Subsequently, the amount of funds attracted by the area is also decreasing. According to data from PitchBook, a company that provides transaction data, the total venture capital funds in Austin will be $6.75 billion in 2021, $5.5 billion in 2022, and only $4 billion in 2023. By 2024, the weakening of Austin's attractiveness will be more obvious. In the first quarter of this year, the Bay Area attracted $14.6 billion in venture capital transactions, while Austin only attracted $700 million.

Paul O'Brien, CEO of venture capital firm MediaTech, said that the barometer of a healthy startup ecosystem is whether big companies such as banks and venture capital provide funding for the ecosystem, but the problem is that Austin does not have such support. In his opinion, the reason why entrepreneurs are disgusted with Austin may be related to the city's information and publicity "not being consistent with the value provided to the market."

Joah Spearman, founder of travel recommendation service Localeur, moved back to Sacramento, California from Austin in early 2024. He believes that Austin's weaknesses restrict its development. "The cost of living, especially housing costs, makes it more difficult for middle-class professionals (especially people of color) to enter the market, which hurts startups that have to compete with Google and Tesla for talent," Spearman said. "This monoculture is more reflected in the income gap, and musicians, artists and hotel service staff are squeezed out of the market."

O'Brien also said that many people heard that Austin is "the next Silicon Valley," "the best place for startups," or "the live music capital of the world," and moved to Texas because of these aspirations, but in the end "expectations exceeded reality."

Silicon Valley is revitalized

Around 2020, California's attractiveness to technology companies began to decline. According to data compiled by PitchBook, in early 2014, the Bay Area, where technology companies are concentrated, attracted four times the amount of venture capital as New York. By the end of 2020, the area attracted only 2.5 times the amount of funds as New York. At the same time, as crime and tax rates in the San Francisco area rose, other cities such as Austin and Miami were given the expectation of being the "next Silicon Valley."

During the pandemic, Silicon Valley's appeal has further declined. The popularity of remote work allows technology workers to live in areas with more cost-effective rents. As the Federal Reserve began to raise interest rates, the growth rate of technology companies' valuations slowed significantly. According to the Venture Capital Barometer compiled by Fenwick & West, a well-known Silicon Valley law firm, in the first quarter of 2022, the average percentage change in the stock price of venture capital companies between different financing rounds reached 253%, which fell to 122% in the third quarter and only 87% in the fourth quarter.

However, with the rise of the AI ​​boom, the convergence of venture capital and human capital has once again given Silicon Valley a new lease of life. PitchBook data shows that although the venture capital funding for San Francisco startups fell by half between 2021 and 2022, it has recovered to two-thirds of its peak in 2023. In contrast, the funding for Miami startups in 2023 was only a quarter of that in 2021.

According to the Brookings Institution's Metropolitan Research Project, San Francisco will have nearly one-tenth of the nation's AI job openings in 2023, more than anywhere else. New York has four times as many residents as San Francisco, but ranks second in job openings. Stanford University and the University of California, Berkeley, both located in the region, have long been exporting AI talent, and data from job search platform LinkedIn shows that one-fifth of OpenAI's engineering and technical staff in the United States have studied at Berkeley or Stanford University.

A study by Columbia Business School found that if a startup moves to Silicon Valley, its chances of achieving equity growth through an initial public offering (IPO) or acquisition will increase by 277% compared to if it does not move to Silicon Valley. In addition, its probability of obtaining venture capital also increases by about 218%, and the probability of obtaining a patent increases by 60%.