[ARothfusz]

I've always imagined it was because the VCs bought the buildings they rent out to the startups, and probably the apartments as well. That makes the bay area a big money laundering machine where cash is guaranteed to flow from the investors through the VCs to the startups and back to the VCs again. Cha-ching!

[lucisferre]

I don't believe that is what money laundering means.

[logfromblammo]

That's not laundering. That's selling shovels (and jeans and beans and baths and beds) to the gold miners.

There may be a laundering component to it, though. If you're a fund manager, and you can't steal the principal directly, you might be able to invest it in a company that you can then require to set up headquarters in a place where you personally own rental property and service businesses. Chances are that some of the money you give to the company in your capacity as fund manager will come back to you in your capacity as landlord/business owner. Then you can turn around and invest that in your own employer, if you feel like it, so you can also buy in to all their outstanding lottery tickets.

This is just possible. It is not guaranteed to be happening.

[dwighttk]

I feel like if you own property in the valley, there's no reason to "launder" money in that way, just rent it out to whomever and get some money.

[bunderbunder]

Sure there is.

If I give you $10, tied to an agreement that you both mvoe to town, and will eventually pay me back (in expectation) $11, and I also own property and suchlike that cause me to (in expectation) get another $7 from you in living costs, then my ROI is 80%.

If I just rent to whomever, I'm not getting the profits from the initial investment, but I'm also not driving up the rents by getting people to move to town. My expected ROI is at least a little bit lower, and possibly quite a bit lower.

Not saying it would actually work out in practice, or that this is something that's being deliberately engineered, but it at least seems plausible.

[logfromblammo]

Why are sales and rental prices so high? Because demand is rising faster than available stock is increasing.

Why is demand rising so fast? Because people are moving there.

Why are people moving there? Because that's where their employers want them to work.

Why are employers locating there? For some, prestige address. For others, proximity to investment capital.

What does proximity have to do with investment? Couldn't a VC gain competitive advantage by locating in some other city that doesn't have such vicious competition for unicorns?

I don't have an answer to that. It doesn't make sense to me as a strategy, because I have incomplete information.

[Nasrudith]

It isn't for a lack of trying. Attempts to go too cheap have ended in failure typically - people don't want to move to the middle of nowhere for a one company job when they have a nice well of employment already. The network effect is very real in a that critical mass of workforce talent can provide concrete advantages. That said moving to the fringe of the network seems to be a good move to get the best of both worlds if possible - Palo Alto was once the cheap option.

It probably is inflated due to ego - Juicero certainly didn't need significant talent (or have it for that matter) but if you are developing something that needs complexity like say self driving cars or their parts it could pay off.

[jamie_ca]

> Why are employers locating there?

Also, proximity to talent. If all the other game developers are in the same area, it's easier to recruit employees with "come work for us, we're 2 blocks east" than it is with "come work for us, we'll pay relocation expenses".

For developers in general, remote work is an option, but specifically for the highly-collaborative creative work that goes on in game dev (and especially the genre Telltale was running) a remote culture is a _lot_ harder to get right.

[logfromblammo]

Workers follow the jobs. Where do you think all the L1s, H1Bs, O1s, TNs, and the people from other US cities come from?

About 50% of the people I meet moved here from somewhere else. It's easy to recruit people with "Come work for us. We can't give you more money, but we can offer more purchasing power, which is better. The homes within a 15 minute drive of the office--even at rush hour--are less than $1500/month."

For their story-heavy games, it seems like Telltale might have done okay with a location near the Georgia film industry, especially with the Walking Dead television show operating out of Riverwood Studios in Senoia, south of Atlanta.

[ARothfusz]

I meant that I've wondered how much goes from the investors to the VCs (but then not back to the investors) via property rentals. I used "laundering" in the sense of "covering up where the money came from."

In my imaginary property model, the VCs make money regardless of whether the companies they back succeed, while the investors only win 1 out of 7 times, upon company successful exit. To the investors, it _looks_ like they've put a lot of money in the startups, but a significant portion of that goes back to property rental companies via salaries and office rentals. Which would be lower anywhere else, which is why I suspect the VCs are disincentivized to move companies elsewhere (or invest elsewhere). They make the most rent here.

But I don't actually know anything factual, like how many VC people privately hold heavy investments in bay area REITs. Even a well-intentioned (dedicated to making their client companies successful) VC would be a fool to not invest in REITs, now that the cycle is here, but after a few years of that and seeing where their money really comes from, I wonder if they can keep their good intentions.