RENO, Nev.—Nevada Gov. Brian Sandoval had reason to beam and boast at a tech show here recently.
The city of 300,000 he affectionately calls “Silicon Bridge” for its proximity to San Francisco—about 218 miles—has emerged as a capital of big tech investments. From Tesla’s (ticker: TSLA) 5.8-million-square-foot Gigafactory and Apple’s (AAPL) sprawling new $4 million warehouse downtown, to Amazon.com’s(AMZN) 630,000-square-foot fulfillment center on the north end of town and Alphabet’s (GOOGL) Google expansion efforts, Reno is a case study of tech sprouting outside the two coasts.
“I’m extremely proud of our success story,” Sandoval told Barron’s, reveling in a region that has emerged from recession and is now revitalized. “Tesla and the state of Nevada continue to have a very successful relationship, one that I think is a model for how companies and states can work together for the public good.”
Gigafactory, a lithium-ion battery factory, has created thousands of jobs and brought billions of dollars of investment to Reno, says Ira Ehrenpreis, a longtime Tesla board member and managing partner at DBL Partners, a venture-capital firm known for shrewd investments and social consciousness.
The type of partnership that has bloomed in Nevada increasingly is in vogue in the heartland—a theme of the recent Blueprint conference, at which Sandoval spoke, and a cause that AOL co-founder Steve Case has tirelessly promoted through his Rise of the Rest fund, a nationwide effort to work closely with entrepreneurs in emerging start-up ecosystems.
So-called flyover states have become valuable go-to territory for tech’s royalty in search of tax incentives, inexpensive land, and enough talent to fill thousands of jobs. Most of all, they offer a respite from clogged roadways, skyrocketing housing costs, and round-the-clock work schedules that have dogged workers in Silicon Valley and portions of the East Coast.
Software company Breadware relocated from Santa Barbara, Calif., to Reno to get closer to Silicon Valley and a thriving early-stage investment community while achieving work-life balance for its employees, says Chief Executive Officer David Price, who also considered Boulder, Colo., and Seattle as possible destinations.
Heather Goldman, CEO of Capstak, moved cross-country from New York. Her commercial real estate tech company is part of what she calls “the movement” to Reno. “We are living at San Francisco’s backdoor,” she said, pointing out the window at the spectacular sight of Slide Mountain. “Why not enjoy its benefits with this beautiful scenery as home?”
A Nationwide Wakeup Call
What changed? Consider it a confluence of business decisions based on economics, simple demographics, and political considerations.
Most glaringly, the 2016 presidential election amounted to a protest vote and clarion call to institutions like Big Tech from the disaffected masses who voted Donald Trump into the White House. A growing national resentment toward Silicon Valley for being aloof and in an insulated bubble has prompted some of the biggest names in tech and venture capital to move or expand operations in the Midwest and South, where infrastructure is advantageous and tools such as Slack and GitHub allow tech employees to work remotely.
Cases in point: Apple’s new $1.375 billion data center in Waukee, Iowa, and Foxconn Technology’s(2354.Taiwan) $10 billion factory complex in Mount Pleasant, Wisc., which could produce as many as 13,000 jobs. Apple is also considering a second major campus outside of California and Texas, and Google recently opened a $131 million complex in Boulder.
Meanwhile, 11 cities in the Midwest and South are among 20 finalists for Amazon’s second headquarters, a $5 billion project that could employ up to 50,000.
An influx of high-paying tech jobs can transform local economies, which explains why Sandoval’s comments to kick off the Blueprint conference were carefully parsed by representatives from about 40 states in attendance.
“We came here to recruit people and investors,” says Charlie Brock, Chief Executive Officer of Launch Tennessee, an economic development agency.
Tennessee’s twin appeals of robust infrastructure—broadband speeds of up to 10 gigabytes per second—and available commercial space have proven irresistible to a pair of San Francisco-based companies. Since it opened a customer-service center in Nashville in 2016, on-demand delivery service Postmates has hired 250 people; EventBrite, an event technology platform, has added 150 employees across multiple departments the past four years, also in Nashville.
Kristy Campbell, Chief Operations Officer at Rev1 Ventures in Columbus, Ohio, was also in Reno, pitching Columbus’ close proximity to 60 Fortune 1000 companies. The five-year average growth rate of VC investment in Columbus, at 141%, trailed only Miami among metropolitan areas, according to the Kauffman Foundation.
Woes by the Bay
Of course, Silicon Valley’s woes have made the jobs of Campbell and Brock easier. You might say their battle cry is, “Go East, young entrepreneurs.”
To be sure, venture capital continues to flow into the region and start-ups sprout like weeds in the San Francisco Bay Area and tech hubs in New York and Boston. Three-fourths of all VC funding goes to California, New York, and Massachusetts, says Case.
Yet an annual salary of $150,000 barely passes muster in the pricey Bay Area. Escalating housing costs, choked freeways, a high-stress work environment, and a costly standard of living make it a hard place to live in for all but the wealthy. Add it all up, and it explains a nation-leading negative population outflow from the area in the last three months of 2017, according to real estate firm Redfin.
Start with the insanely costly housing. A median 20% down payment in San Jose last year was equal to the full median price of a home in the U.S., according to Zillow, an online real estate database company. Average rent for a one-bedroom apartment in San Francisco in December, at $3,253, was the highest in the nation. San Jose ($2,397) was third, says apartment listing site Abodo.
Indeed, in aspiring to be the next tech hub, cities might eventually face the same problems that bedevil Silicon Valley.
In landing Tesla, Apple, Amazon, and Google, Reno’s economic growth is fueling a housing crunch as well as some of the highest rent increases in the country. For now, city and state officials are willing to take the tradeoff.
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