Despite being in the heart of Silicon Valley, Vasili Triant couldn’t keep his midsize cloud-computing company, LiveOps Cloud, staffed. Jobs would open, but not enough qualified applicants would apply. Those hired often wouldn’t last a year before being poached by bigger firms that promised higher salaries and more lavish perks.
In September, after more than a decade in the Bay Area, the company relocated its headquarters to a suburb of Austin, Texas — a move growing common among its peers.
Along with household names like Google, Apple, Dropbox and Oracle — which all recently built or expanded major campuses in Austin — nearly two dozen Bay Area tech companies also reportedly relocated to Texas or opened outposts there since 2014. Thousands of residents made a similar trek throughout the 2000s, taking roughly $1 billion in taxable income out of California and into the Lone Star State, according to a Chronicle analysis of Internal Revenue Service data.
Texas’ growing tech sector doesn’t mean the Bay Area’s is faltering; Silicon Valley is still the heart of the industry. It also doesn’t mean the state’s economy is hurting; most forecasts show strong job growth and shrinking unemployment in California. The expansion of Bay Area firms into Texas does, however, reveal a strong business pipeline between the two regions, particularly for companies trying to escape California’s high taxes and the Bay Area’s soaring cost of living.
For Triant, one of the biggest perks was a more stable workforce. Unlike those in Silicon Valley, the employees he found in Austin were more likely to stay put. The headquarters now has a staff of 40 — some of whom relocated with the company — and Triant hopes it will nearly double in size by year’s end.
“The Bay Area is littered with cloud startups, so you have this race to an IPO, race to excessive wealth, and you get people trying to quickly hop from here to there,” said Triant, CEO of LiveOps Cloud. “When you’re training people and they get poached six months later, you’re not really moving your own company forward. ... You don’t have that problem in Austin.”
Texas-Bay Area connection
Between 1997 and 2000, during the peak of the dot-com boom, the Bay Area was a net importer of Texans: About 1,500 more households moved into the region from Texas than vice versa, bringing an additional $191 million (2015 dollars) in taxable income into the region, according to IRS data, which tracks the movement of taxpaying residents.
The trend changed in the early 2000s, and Texas has been a net importer of Bay Area households ever since. Between 2009 and 2012, as the recession was winding down and the second tech boom was revving up, the region lost about 1,430 households to Texas, and nearly $390 million in taxable income.
While IRS data aren’t available beyond 2012, census statistics show that 24,600 more people moved from California to Texas in 2014 than the other way around. Some believe the flow of Bay Area transplants continues — albeit at a slower pace.
“It has been that way for a while, and it may slow down, but I don’t think it will reverse,” said former Assemblyman Chuck DeVore, R-Irvine, who is now vice president at the Texas Public Policy Foundation. “The Texas economy is very diverse, you have job creation occurring across the spectrum.”
Tech companies look south
The Bay Area isn’t the only place losing residents to Texas.
Despite a recent dip in energy-sector jobs, the state boasted three of the country’s five fastest-growing cities in 2014, and Austin — a landing spot for many Bay Area tech firms looking to expand — grew more than any other big city in the United States, according to census data. (Florida, however, became the nation’s top spot for interstate migrants in 2014.)
“If you want to attract people in their 30s who either have a family, want a family or want to buy a house, Texas is looking pretty good,” said Joel Kotkin, an urban studies fellow at Orange County’s Chapman University. “In the Bay Area, there isn’t a place you can easily go to and live decently. ... It’s evolving into this gigantic gated community.”
Some Bay Area residents are following jobs. Last year, at least three dozen companies either expanded from or moved out of Santa Clara, San Francisco and San Mateo counties, 10 of them to Texas, according to a recent report by Spectrum Location Solutions, an Irvine business consulting firm that tracks corporate “divestment” from California covered by the media.
There were the big names. Charles Schwab continued to relocate workers from San Francisco to Texas (and other states) last year, reportedly to cut costs. Oracle is building an Austin campus, almost 10 football fields in size, that will increase its workforce in the city by 50 percent. And in July, Facebook broke ground on a $1 billion data center in Fort Worth, Texas, drawn in part by the low cost of land and energy.
“The Bay Area is a superb place to start a company, but it may not be a great place to grow one into maturity,” said Loren Kaye, president of the California Federation of Commerce and Education, a think tank affiliated with the state’s Chamber of Commerce. “When you’re growing a business that requires a lot of energy, a lot of space, and a lot of employees, the advantages of location may be outweighed by cost of energy, cost of rent, inability to get housing, high wages and litigation costs.”
Smaller firms leave, too
Smaller firms have also headed south. The streaming media company Roku expanded from Silicon Valley to Austin in 2014. Its vice president of hardware engineering, Scott de Haas, told the Austin American-Statesman : “We have had difficulty hiring as many people as we want to hire in the Bay Area.”
The software firm Seven Networks relocated from San Carlos to Marshal, Texas, in December, partially because of the lower cost of living and relatively large talent pool, according to theLongview News Journal.
“If you’re in an industry where being in California isn’t important, then California probably isn’t a good place to operate,” said Alan Auerbach, a law and economics professor at UC Berkeley. “One reason the state’s economy does well is because of the strong (geographic) advantages some industries have.”
State’s economy booming
One of those industries is technology. Silicon Valley attracts top talent from around the world — and it remains the global home of venture capital. While some companies leave the region due to the high cost of doing business, others flow in to try to strike gold.
No one comprehensively tracks firms moving into the Bay Area from other states, although the Public Policy Institute of California issued a report in 2010. It showed that, from 1992 to 2006, 16,000 jobs moved into the Golden State each year, and 25,000 moved out. Despite the net loss, the institute found the impact on the economy was insignificant.
“Our advice to governors and Employment Development people is to tune out interstate job relocation because they’re rounding errors, they’re pocket lint in the scheme of things,” said Greg Leroy, executive director of Good Jobs First, a policy center promoting corporate and government accountability. “It’s nothing compared to startups and expansions.”
Other metrics suggest California’s economy is booming.
Recent Bureau of Labor stats show that the nonfarm employment rate grew faster in California than in Texas: 2.6 percent over the past 12 months versus 1.5 percent. Economic growth is even more impressive in the Bay Area, where startups sprout daily, and some major Silicon Valley firms are growing rapidly. Apple, along with the move to Austin, is in the midst of a sprawling Bay Area expansion, and overall job growth in the region has been more robust than anywhere else in the country, according to independent economist Jed Kolko.
“The (region) wouldn’t have the tech scene it does without the benefits: A huge amount of venture capital, Stanford and other research universities, brain power coming from graduate studies, a large executive talent pool,” Leroy said. “Companies that try to advocate for reducing taxes or regulations want to just talk about the cost of doing business here, not the benefits.”
‘Night and day’ after move
Despite the perks of operating in Silicon Valley, LiveOps Cloud decided to move in September. The company looked at Denver, Omaha and Phoenix — all cities with budding tech sectors and significantly lower business costs — but the firm of 150 ultimately settled on Cedar Park, about 20 miles north of Austin.
One pull was the incentives. LiveOps Cloud receives a check from both the city and state for each person hired, and employees get a $5,000 rebate if they purchase a home in the city. The low cost of living in an area with a talented workforce was also a draw. According to Bankrate’s cost-of-living calculator, a $100,000-per-year salary in the San Francisco-Redwood City metro area is worth about $186,000 in the Austin-Round Rock metro area.
‘Struggling’ on $200,000
“I had a guy working for me (in the Bay Area) making $200,000 a year, struggling to pay his bills,” company CEO Triant said. “In lots of places in the country you’re living high on the hog on $200,000. ... As far as work life balance and employee morale, we have absolutely seen a remarkable increase since moving here; it’s night and day.”
The firm still keeps a small Bay Area office, and Triant speaks fondly of his hometown of San Diego and California in general.
But when it comes to building a company and running a business, he has found a new home in Texas. “I want my employees to be able to have a good quality of life, live in a city with low crime rates, good schools,” he said. “And that’s what we’re doing here.”