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Can Harris’s Economic Plans Sway Small Business Owners to Vote Democratic?

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Kamala Harris has leaned in with promises to aid start-ups, but proprietors are often more focused on taxes and regulations.Presidential campaigns often use the backdrop of small businesses — record stores, diners, machine shops — to emphasize their candidates’ authenticity and hometown values. But this election cycle has taken those businesses a bit more seriously.In speeches and ads, Vice President Kamala Harris has sought to infuse entrepreneurship into her brand — an avowed capitalist, but for the little guy. Her economic policy platform mentions “small business” 77 times, including a section aimed at addressing owners’ needs, such as easing licensing requirements and funneling more federal contracts their way.It’s not hard to see why a candidate might lean in on Main Street: Small businesses are collectively the most respected institution in American life, according to research from Gallup and Pew. Ms. Harris’s messaging might also help counter former President Donald J. Trump’s reputation as a successful business owner, which continues to bolster his economic credentials among voters despite his many bankruptcies and sometimes fraudulent practices.Ms. Harris’s focus on small business isn’t completely new. She also took on the issue as vice president, visiting businesses to hand out billions of dollars in loans funded by the American Rescue Plan Act. She often talks about her “second mother,” Regina Shelton — who ran a nursery school in Berkeley, Calif. — as a small-business owner and an integral part of the community.“Kamala’s economic plans are designed to help people like Mrs. Shelton, so that they have enough in the bank to start a business or pass something on to their kids,” said Felicia Wong, who runs Roosevelt Forward, a progressive advocacy group.Ms. Harris has sought to portray herself as an avowed capitalist, but for the little guy.Kenny Holston/The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    With $32 Billion in Aid, Native Americans Push Against History of Neglect

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    Cortez, a Colorado town of about 9,000 people tucked near the San Juan Mountains, has the trappings of a humble but healthy small-town economy: bustling businesses, congenial single-family homes, a park with grassy fields, a public pool, playgrounds, a pond and skate ramps.A couple of hours southwest is Tuba City, Ariz., the largest community on Navajo Nation tribal lands. It has roughly the same population as Cortez, and it is surrounded by the same sandstone and mesa-filled terrain. But despite the area’s rich history of trade, and its proximity to thriving cities like Flagstaff and tourist sites like the Grand Canyon, widespread poverty and a lack of public services are notably entrenched — the stark reality across many reservations throughout the country.Gas stations, dollar stores and fast-food chains fill most of the skinny commercial strips. R.V. trailers and other mobile homes make up much of the housing stock. One in three Navajo households has income below the federal poverty line. Red dust whiffling in from desert winds tends to be more common than the dust stirred up by builders.Gas stations, dollar stores and fast-food chains fill most of Tuba City’s skinny commercial strips. Sharon Chischilly for The New York TimesAt the town’s center, though, is a recent exception: the construction of a 5,500-square-foot senior center, whose $5 million cost is partly financed with about $1 million from the American Rescue Plan Act, passed in 2021.That package, primarily meant to address the economic and public health crises caused by Covid-19, included $32 billion in short- and longer-term assistance for tribes and reservations: aid for households and tribal government coffers, community development grants, health services and infrastructure; as well as access to the $10 billion State Small Business Credit Initiative program, which previously excluded tribal nations.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    The Pandemic Small Business Boom Is Still Helping to Fuel the Economy

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    Hector Xu was on track for a career in academia when the pandemic upended his plans.Tired of endless Zoom meetings and feeling cooped up in his Boston apartment, Mr. Xu decamped for New Hampshire, where he began taking lessons to fly helicopters. That led to a business idea, converting traditional helicopters into remotely piloted drones.Mr. Xu’s company, Rotor Technologies, now has nearly 40 employees — including his former flying instructor — and about $1 million in revenue this year, a figure it expects to increase twentyfold next year. Gov. Chris Sununu was present for the first test flight of one of its drones.“Covid hit, and it really changed my perspective,” Mr. Xu said. “You ended up spending most of your time in front of your computer rather than in the lab, rather than interacting with people, going to conferences. And I think it made me really yearn to do something that was more impactful in the real world.”Mr. Xu, 30, is part of what may be one of the pandemic’s most unexpected economic legacies: an entrepreneurial boom. Stuck at home with time — and, in many cases, cash — to burn, Americans started businesses at the fastest rate in decades.Piloting a test flight of a Rotor drone.Ian MacLellan for The New York TimesThe company now has nearly 40 employees.Ian MacLellan for The New York TimesWhat happened next might be even less expected: Those businesses thrived, overcoming supply chain disruptions, labor shortages, rapid inflation and the highest interest rates in decades.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    A.I. Is Helping to Launch New Businesses

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    Entrepreneurs say use of artificial intelligence for a variety of tasks is accelerating the path to hiring and, ideally, profitability.Sean Ammirati has been teaching a class on entrepreneurship for more than a decade.A professor at Carnegie Mellon University, Mr. Ammirati has groups of mostly graduate students start businesses from scratch over the course of the spring semester. Some of the start-ups that his 49 students created this year were classic examples of the form: a dating app for couples in long-distance relationships, a personalized fitness app.But Mr. Ammirati also noticed something unusual.“I have a pretty good sense how fast the progress that students should make in a semester should be,” he said. “In 14 years, I’ve never seen students make the kind of progress that they made this year.”And he knew exactly why that was the case. For the first time, Mr. Ammirati had encouraged his students to use generative artificial intelligence as part of their process — “think of generative A.I as your co-founder,” he recalled telling them.The students began sharing their ideas for use cases on a dedicated Slack channel. They used generative A.I. tools such ChatGPT, GitHub Copilot and FlowiseAI to help them with tasks including marketing, coding, product development and recruitment of early customers.By the end of the class in May, venture capitalists were descending on Carnegie Mellon’s campus in Pittsburgh.“It felt to me like what I felt like in the mid-2000s, when cloud and mobile happened at the same time,” said Mr. Ammirati, who is himself an entrepreneur. Generative A.I., he believed, could similarly change innovation “by an order of magnitude.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Start-Up Founder Sentenced to 18 Months in Prison for Fraud

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    Manish Lachwani, who founded the software start-up HeadSpin, is the latest tech entrepreneur to face time in prison in recent years.Another start-up founder is going to prison for overstating his company’s performance to investors.Manish Lachwani, who last year pleaded guilty to three counts of defrauding investors at his software start-up, HeadSpin, was sentenced to one and a half years in prison on Friday. He will also pay a fine of $1 million.Government prosecutors said Mr. Lachwani, 48, deceived investors by inflating HeadSpin’s revenue nearly fourfold, making false claims about its customers and creating fake invoices to cover it up. His misrepresentations allowed him to raise $117 million in funding from top investment firms, valuing his start-up at $1.1 billion.When HeadSpin’s board members found out about the behavior in 2020, they pushed Mr. Lachwani to resign and slashed the company’s valuation by two-thirds.Mr. Lachwani is at least the fourth start-up founder in recent years to face serious consequences after taking Silicon Valley’s culture of hype too far. Other founders currently in prison for fraud include Sam Bankman-Fried of the cryptocurrency exchange FTX and Elizabeth Holmes and Ramesh Balwani of the blood testing start-up Theranos.Trevor Milton, a founder of the electric vehicle company Nikola, was sentenced to prison in December for fraud. Michael Rothenberg, a venture capital investor who was recently convicted of 12 counts of fraud and money laundering, is set to be sentenced in June. And Changpeng Zhao, who founded the cryptocurrency exchange Binance and pleaded guilty to money laundering last year, is scheduled to be sentenced later this month.Carlos Watson, the founder of the digital media outlet Ozy Media, and Charlie Javice, founder of the financial aid start-up Frank, have pleaded not guilty to fraud charges and face trials later this year.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    From Unicorns to Zombies: Tech Start-Ups Run Out of Time and Money

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    After staving off collapse by cutting costs, many young tech companies are out of options, fueling a cash bonfire.WeWork raised more than $11 billion in funding as a private company. Olive AI, a health care start-up, gathered $852 million. Convoy, a freight start-up, raised $900 million. And Veev, a home construction start-up, amassed $647 million.In the last six weeks, they all filed for bankruptcy or shut down. They are the most recent failures in a tech start-up collapse that investors say is only beginning.After staving off mass failure by cutting costs over the past two years, many once-promising tech companies are now on the verge of running out of time and money. They face a harsh reality: Investors are no longer interested in promises. Rather, venture capital firms are deciding which young companies are worth saving and urging others to shut down or sell.It has fueled an astonishing cash bonfire. In August, Hopin, a start-up that raised more than $1.6 billion and was once valued at $7.6 billion, sold its main business for just $15 million. Last month, Zeus Living, a real estate start-up that raised $150 million, said it was shutting down. Plastiq, a financial technology start-up that raised $226 million, went bankrupt in May. In September, Bird, a scooter company that raised $776 million, was delisted from the New York Stock Exchange because of its low stock price. Its $7 million market capitalization is less than the value of the $22 million Miami mansion that its founder, Travis VanderZanden, bought in 2021.“As an industry we should all be braced to hear about a lot more failures,” said Jenny Lefcourt, an investor at Freestyle Capital. “The more money people got before the party ended, the longer the hangover.”Getting a full picture of the losses is difficult since private tech companies are not required to disclose when they go out of business or sell. The industry’s gloom has also been masked by a boom in companies focused on artificial intelligence, which has attracted hype and funding over the last year.But approximately 3,200 private venture-backed U.S. companies have gone out of business this year, according to data compiled for The New York Times by PitchBook, which tracks start-ups. Those companies had raised $27.2 billion in venture funding. PitchBook said the data was not comprehensive and probably undercounts the total because many companies go out of business quietly. It also excluded many of the largest failures that went public, such as WeWork, or that found buyers, like Hopin.Carta, a company that provides financial services for many Silicon Valley start-ups, said 87 of the start-ups on its platform that raised at least $10 million had shut down this year as of October, twice the number for all of 2022.This year has been “the most difficult year for start-ups in at least a decade,” Peter Walker, Carta’s head of insights, wrote on LinkedIn.Venture investors say that failure is normal and that for every company that goes out of business, there is an outsize success like Facebook or Google. But as many companies that have languished for years now show signs of collapse, investors expect the losses to be more drastic because of how much cash was invested over the last decade.From 2012 to 2022, investment in private U.S. start-ups ballooned eightfold to $344 billion. The flood of money was driven by low interest rates and successes in social media and mobile apps, propelling venture capital from a cottage financial industry that operated largely on one road in a Silicon Valley town to a formidable global asset class akin to hedge funds or private equity.During that period, venture capital investing became trendy — even 7-Eleven and “Sesame Street” launched venture funds — and the number of private “unicorn” companies worth $1 billion or more exploded from a few dozen to more than 1,000.But the advertising profits gushing from the likes of Facebook and Google proved elusive for the next wave of start-ups, which have tried untested business models like gig work, the metaverse, micromobility and cryptocurrencies.Now some companies are choosing to shut down before they run out of cash, returning what remains to investors. Others are stuck in “zombie” mode — surviving but unable to grow. They can muddle along like that for years, investors said, but will most likely struggle to raise more money.Convoy, the freight start-up that investors valued at $3.8 billion, spent the last 18 months cutting costs, laying off staff and otherwise adapting to the difficult market. It wasn’t enough.As the company’s money ran low this year, it lined up three potential buyers, all of whom backed out. Coming so close, said Dan Lewis, Convoy’s co-founder and chief executive, “was one of the hardest parts.” The company ceased operations in October. In a memo to employees, Mr. Lewis called the situation “the perfect storm.”Such port-mortem assessments, where founders announce their company is closing and reflect on lessons learned, have become common.One entrepreneur, Ishita Arora, wrote this week that she had to “confront reality” that Dayslice, her scheduling software start-up, was not attracting enough customers to satisfy investors. She returned some of the cash she had raised. Gabor Cselle, a founder of Pebble, a social media start-up, wrote last month that despite feeling that he had let the community down, trying and failing was worth it. Pebble is returning to investors a small portion of the money it had raised, Mr. Cselle said. “It felt like the right thing to do.”Amanda Peyton was surprised by the reaction to her blog post in October about the “dread and loneliness” of shutting down her payments start-up, Braid. More than 100,000 people read it, and she was flooded with messages of encouragement and gratitude from fellow entrepreneurs.Ms. Peyton said she had once felt that the opportunity and potential for growth in software was infinite. “It’s become clear that that’s not true,” she said. “The market has a ceiling.”Venture capital investors have taken to gently urging some founders to consider walking away from doomed companies, rather than waste years grinding away.“It might be better to accept reality and throw in the towel,” Elad Gil, a venture capital investor, wrote in a blog post this year. He did not respond to a request for comment.Ms. Lefcourt of Freestyle Ventures said that so far, two of her firm’s start-ups had done exactly that, returning 50 cents on the dollar to investors. “We’re trying to point out to founders, ‘Hey, you don’t want to be caught in no man’s land,’” she said.One area that is thriving? Companies in the business of failure.SimpleClosure, a start-up that helps other start-ups wind down their operations, has barely been able to keep up with demand since it opened in September, said Dori Yona, the founder. Its offerings include helping prepare legal paperwork and settling obligations to investors, vendors, customers and employees.It was sad to see so many start-ups shutting down, Mr. Yona said, but it felt special to help founders find closure — both literally and figuratively — in a difficult time. And, he added, it is all part of Silicon Valley’s circle of life.“A lot of them are already working on their next companies,” he said.Kirsten Noyes More

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    In Biden’s Climate Law, a Boon for Green Energy, and Wall Street

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    The law has effectively created a new marketplace that helps smaller companies gain access to funding, with banks taking a cut.The 2022 climate law has accelerated investments in clean-energy projects across the United States. It has also delivered financial windfalls for big banks, lawyers, insurance companies and start-up financial firms by creating an expansive new market in green tax credits.The law, signed by President Biden, effectively created a financial trading marketplace that helps smaller companies gain access to funding, with Wall Street taking a cut. Analysts said it could soon facilitate as much as $80 billion a year in transactions that drive investments in technologies meant to reduce fossil fuel emissions and fight climate change.The law created a wide range of tax incentives to encourage companies to produce and install solar, wind and other low-emission energy technologies. But the Democrats who drafted it knew those incentives, including tax credits, wouldn’t help companies that were too small — or not profitable enough — to owe enough in taxes to benefit.So lawmakers have invented a workaround that has rarely been employed in federal tax policy: They have allowed the companies making clean-energy investments to sell their tax credits to companies that do have a big tax liability.That market is already supporting large and small transactions. Clean-energy companies are receiving cash to invest in their projects, but they’re getting less than the value of the tax credits for which they qualify, after various financial partners take a slice of the deal.Clean-energy and financial analysts and major players in the marketplace say big corporations with significant tax liability are currently paying between 75 and 95 cents on the dollar to reduce their federal tax bills. For example, a buyer in the middle of that range might spend $850,000 to purchase a credit that would knock $1 million off its federal taxes.The cost of those tax credits depends on several factors, including risk and size. Larger projects command a higher percentage. The seller of a tax credit will see its value diluted further by fees for lawyers, banks and other financial intermediaries that help broker the sale. Buyers are also increasingly insisting that sellers buy insurance in case the project does not work out and fails to deliver its promised tax benefits to the buyer.The prospect of a booming market and the chance to snag a piece of those transaction costs have raised excitement for the Inflation Reduction Act, or I.R.A., in finance circles. A new cottage industry of online start-up platforms that seeks to link buyers and sellers of the tax credits has quickly blossomed. An annual renewable energy tax credit conference hosted by Novogradac, a financial firm, drew a record number of attendees to a hotel ballroom in Washington this month, with multiple panels devoted to the intricacies of the new marketplace. The entrepreneurs behind the online buyer-seller exchanges include a former Biden Treasury official and some people in the tech industry with no clean-energy or tax credit experience.After President Biden signed the climate law last year, it effectively created a new financial marketplace.Doug Mills/The New York TimesTax professionals and clean-energy groups say the marketplace has widely expanded financing abilities for companies working on emissions-reducing technologies and added private-sector scrutiny to climate investments.But those transactions are also enriching players in an industry that Mr. Biden has at times criticized, while allowing big companies to reduce their tax bills in a way that runs counter to his promise to make corporate America pay more.“I wouldn’t call it irony. I would call it, sort of, this unexpected brilliance,” said Jessie Robbins, a principal of structured finance at the financial firm Generate Capital. “While it may be full of friction and transaction costs, it does bring sophisticated financial interests, investors” and corporations into the world of funding green energy, she said.Biden administration officials say many clean-tech companies will save money by selling their tax credits to raise capital, instead of borrowing at high interest rates. “The alternative for many of these companies was to take a loan, and taking that loan was going to be far more costly” than using the credit marketplace, Wally Adeyemo, the deputy Treasury secretary, said in an interview.Some backers of the climate law wanted an even more direct alternative for those companies: government checks equivalent to the tax benefits their projects would have qualified for if they had enough tax liability to make the credits usable. It was rejected by Senator Joe Manchin III of West Virginia, a moderate Democrat who was the swing vote on the law. A modest federal marketplace of certain tax credits, like those for affordable housing, existed before the climate law passed. But acquiring those credits was complicated and indirect, so annual transactions were less than $20 billion — and large banks dominated the space. The climate law expanded the market and attracted new players by making it much easier for a company with tax liability to buy another company’s tax credit.“There weren’t brokers in this space, you know, a year ago or 14 months ago before the I.R.A. came out,” said Amish Shah, a tax lawyer at Holland & Knight. “There are lots of brokers in this space now.” Mr. Shah said he expected his firm to be involved in $1 billion worth of tax credits this year.Mr. Biden’s signature climate law has spawned a growth industry on Wall Street and across corporate America.Gabby Jones for The New York Times“The discussion goes like this,” said Courtney Sandifer, a senior executive in the renewable energy tax credit monetization practice at the investment bank BDO. “‘Are you aware that you can buy tax credits at a discount, as a central feature of the I.R.A.? And how would that work for you? Like, is this something that you’d be interested in doing?’”Financial advisers say they have had interest from corporate buyers as varied as retailers, oil and gas companies, and others that see an opportunity to reduce their tax bills while making good on public promises to help the environment.Experts say large banks are still dominating the biggest transactions, where projects are larger and tax credits are more expensive to buy. For the rest of the market, entrepreneurs are working to create online exchanges, which effectively work as a Match.com for tax credits. Companies lay out the specification of their projects and tax credits, including whether they are likely to qualify for bonus tax breaks based on location, what wages they will pay and how much of their content is made in America. Buyers bid for credits.In order to sell tax benefits under the law, companies have to register their credits with the Treasury Department, which created a pilot registry website for those projects this month. The online platforms to connect buyers and sellers of the credits are not regulated by the government.Alfred Johnson, who previously worked as deputy chief of staff under Treasury Secretary Janet L. Yellen, co-founded Crux, one of the online exchanges, in January. The company has raised $8.85 million through two rounds of funding.Mr. Johnson said his business helped replace the “low-margin” administrative work that happens to facilitate deals. Lawyers and advisers will still be brought in for the more complicated parts of the deal.“It just requires more companies coming into the market and participating,” he said. “And if that doesn’t happen, the law will not work.”Seth Feuerstein created Atheva, a transferable credit exchange, last year. He has no clean-tech experience, but he has brought in green-energy experts to help get the exchange started.Atheva already has tens of millions of dollars in projects available for tax-credit buyers to peruse on the site, with hundreds of millions more in the pipeline, he said. On the site, buyers can browse credits by their estimated value and download documentation to help assess whether the projects will actually pay off. Mr. Feuerstein said that transparency helped to assure taxpayers that they were supporting valid clean-energy investments.“It’s a new market,” Mr. Feuerstein said. “And it’s growing every day.” More

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    A Silver Lining From the Pandemic: A Surge in Start-ups

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    New research suggests that big shifts in consumer and company behavior — and maybe federal stimulus dollars — have fueled entrepreneurship.The Covid-19 pandemic hurt the U.S. economy in a lot of ways. It choked global supply chains, sent consumer prices soaring and briefly knocked millions of people out of work. But it might have also broken America out of a decades-long entrepreneurial slump.New research from economists at the University of Maryland and the Federal Reserve, set to be presented on Friday at the Brookings Institution, a think tank in Washington, documents a new and potentially durable surge in Americans starting businesses during and after the pandemic. The new companies range from restaurants and dry cleaners to high-tech start-ups.That surge appears to be a direct response to how the fallout of the virus quickly but permanently changed how many Americans live and work.Those changes opened doors for entrepreneurs, who, economists often contend, are best able to respond to sudden business opportunities. The opportunities came when the federal government was showering Americans with trillions of dollars in pandemic assistance, which may have given many people the capital needed to start a company and hire workers.Federal statistics showed early signs of the business-creation burst. Some economists dismissed it initially as a fluke of the pandemic — one likely to quickly fade.That hesitancy was based in part on studies showing that start-up activity had been declining for several decades. A paper this month by economists at the University of Chicago and the Fed showed that start-up activity and employment, as a share of the economy, had fallen since the 1980s. A handful of large firms increasingly dominate industries.But the new paper by John Haltiwanger of the University of Maryland and Ryan Decker of the Fed, two of the nation’s leading researchers in the study of economic dynamism, suggests that the pandemic may have broken those trends.“We find early hints of a revival of business dynamism,” Mr. Decker and Mr. Haltiwanger wrote.They cautioned that “in many respects it is too early to ascertain whether a durable reversal of prepandemic trends is occurring,” in part because the revival is still so young.Champions of policies to increase dynamism were less restrained. “This is evidence of a genuine resurgence of economic dynamism led by a spike in start-up activity unlike anything we’ve seen in the post-Great Recession era,” said John Lettieri, the president and chief executive of the Economic Innovation Group, a think tank in Washington.Mr. Haltiwanger and Mr. Decker drew evidence from a wide variety of publicly available sources on new and existing businesses. They found evidence of a sustained increase in new-business activity — and job creation from those businesses.The maps of that entrepreneurship track closely with the new realities of an economy in which more Americans work from home, with fewer start-ups in downtowns and a large increase of them in suburban areas.Monthly applications for new businesses that are likely to create jobs are 30 percent higher than they were in 2019, on the eve of the pandemic, the economists report. Those applications spiked shortly after the pandemic hit, when Congress first pumped stimulus into the economy. They fell briefly and then jumped again around the end of 2020 and start of 2021, when lawmakers sent more money to people and companies. In that time, relatively young companies have grown to account for a larger share of employment and total firms in the economy.The paper suggests those trends might be an overlooked reason that businesses spent the past several years complaining of a labor shortage in the United States, even as workers returned to the labor force faster and in greater numbers than after any other recession this century. Put simply, existing companies may have suddenly found themselves competing for workers with many more start-ups than they were used to.One question the study does not address directly is whether President Biden can rightfully claim any credit for those developments, as he has repeatedly tried to do.“A record 10.5 million new business applications were filed in my first two years, the largest number ever on record in a two-year period,” Mr. Biden said this spring.White House officials said on Thursday that they were encouraged by the study and continued to believe that the $1.9 trillion American Rescue Plan, which Mr. Biden signed into law in early 2021, helped support an entrepreneurial surge. It sent money to people, businesses, and state and local governments.“In the spirit of crisis equals opportunity, we’ve long believed that measures in the Rescue Plan helped create a supportive backdrop for entrepreneurs, especially small and minority-owned businesses,” Jared Bernstein, the chairman of Mr. Biden’s Council of Economic Advisers, said in an email. “This work shows extremely welcomed progress in that space, and credibly connects it to the strong job gains we’ve seen over the president’s watch.” More

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    The AI Boom Is Pulling Tech Entrepreneurs Back to San Francisco

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    Doug Fulop’s and Jessie Fischer’s lives in Bend, Ore., were idyllic. The couple moved there last year, working remotely in a 2,400-square-foot house surrounded by trees, with easy access to skiing, mountain biking and breweries. It was an upgrade from their former apartments in San Francisco, where a stranger once entered Mr. Fulop’s home after his lock didn’t properly latch.But the pair of tech entrepreneurs are now on their way back to the Bay Area, driven by a key development: the artificial intelligence boom.Mr. Fulop and Ms. Fischer are both starting companies that use A.I. technology and are looking for co-founders. They tried to make it work in Bend, but after too many eight-hour drives to San Francisco for hackathons, networking events and meetings, they decided to move back when their lease ends in August.“The A.I. boom has brought the energy back into the Bay that was lost during Covid,” said Mr. Fulop, 34.The couple are part of a growing group of boomerang entrepreneurs who see opportunity in San Francisco’s predicted demise. The tech industry is more than a year into its worst slump in a decade, with layoffs and a glut of empty offices. The pandemic also spurred a wave of migration to places with lower taxes, fewer Covid restrictions, safer streets and more space. And tech workers have been among the most vocal groups to criticize the city for its worsening problems with drugs, housing and crime.But such busts are almost always followed by another boom. And with the latest wave of A.I. technology — known as generative A.I., which produces text, images and video in response to prompts — there’s too much at stake to miss out.Investors have already announced $10.7 billion in funding for generative A.I. start-ups within the first three months of this year, a thirteenfold increase from a year earlier, according to PitchBook, which tracks start-ups. Tens of thousands of tech workers recently laid off by big tech companies are now eager to join the next big thing. On top of that, much of the A.I. technology is open source, meaning companies share their work and allow anyone to build on it, which encourages a sense of community.“Hacker houses,” where people create start-ups, are springing up in San Francisco’s Hayes Valley neighborhood, known as “Cerebral Valley” because it is the center of the A.I. scene. And every night someone is hosting a hackathon, meet-up or demo focused on the technology.In March, days after the prominent start-up OpenAI unveiled a new version of its A.I. technology, an “emergency hackathon” organized by a pair of entrepreneurs drew 200 participants, with almost as many on the waiting list. That same month, a networking event hastily organized over Twitter by Clement Delangue, the chief executive of the A.I. start-up Hugging Face, attracted more than 5,000 people and two alpacas to San Francisco’s Exploratorium museum, earning it the nickname “Woodstock of A.I.”More than 5,000 people attended the so-called Woodstock of A.I. in San Francisco in March.Alexy KhrabrovMadisen Taylor, who runs operations for Hugging Face and organized the event alongside Mr. Delangue, said its communal vibe had mirrored that of Woodstock. “Peace, love, building cool A.I.,” she said.Taken together, the activity is enough to draw back people like Ms. Fischer, who is starting a company that uses A.I. in the hospitality industry. She and Mr. Fulop got involved in the 350-person tech scene in Bend, but they missed the inspiration, hustle and connections in San Francisco.“There’s just nowhere else like the Bay,” Ms. Fischer, 32, said.Jen Yip, who has been organizing events for tech workers over the past six years, said that what had been a quiet San Francisco tech scene during the pandemic began changing last year in tandem with the A.I. boom. At nightly hackathons and demo days, she watched people meet their co-founders, secure investments, win over customers and network with potential hires.“I’ve seen people come to an event with an idea they want to test and pitch it to 30 different people in the course of one night,” she said.Ms. Yip, 42, runs a secret group of 800 people focused on A.I. and robotics called Society of Artificers. Its monthly events have become a hot ticket, often selling out within an hour. “People definitely try to crash,” she said.Her other speaker series, Founders You Should Know, features leaders of A.I. companies speaking to an audience of mostly engineers looking for their next gig. The last event had more than 2,000 applicants for 120 spots, Ms. Yip said.In Founders You Should Know, a series run by Jen Yip, leaders of A.I. companies speak to an audience of mostly engineers looking for their next gig.Ximena NateraBernardo Aceituno moved his company, Stack AI, to San Francisco in January to be part of the start-up accelerator Y Combinator. He and his co-founders had planned to base the company in New York after the three-month program ended, but decided to stay in San Francisco. The community of fellow entrepreneurs, investors and tech talent that they found was too valuable, he said.“If we move out, it’s going to be very hard to re-create in any other city,” Mr. Aceituno, 27, said. “Whatever you’re looking for is already here.”After operating remotely for several years, Y Combinator has started encouraging start-ups in its program to move to San Francisco. Out of a recent batch of 270 start-ups, 86 percent participated locally, the company said.“Hayes Valley truly became Cerebral Valley this year,” Gary Tan, Y Combinator’s chief executive, said at a demo day in April.The A.I. boom is also luring back founders of other kinds of tech companies. Brex, a financial technology start-up, declared itself “remote first” early in the pandemic, closing its 250-person office in San Francisco’s SoMa neighborhood. The company’s founders, Henrique Dubugras and Pedro Franceschi, decamped for Los Angeles.Henrique Dubugras, a co-founder of Brex, in 2019. After decamping to Los Angeles, he recently returned to the Bay Area.Arsenii Vaselenko for The New York TimesBut when generative A.I. began taking off last year, Mr. Dubugras, 27, was eager to see how Brex could adopt the technology. He quickly realized that he was missing out on the coffees, casual conversations and community happening around A.I. in San Francisco, he said.In May, Mr. Dubugras moved to Palo Alto, Calif., and began working from a new, pared-down office a few blocks from Brex’s old one. San Francisco’s high office vacancy rate meant the company paid a quarter of what it had been paying in rent before the pandemic.Seated under a neon sign in Brex’s office that read “Growth Mindset,” Mr. Dubugras said he had been on a steady schedule of coffee meetings with people working on A.I. since his return. He has hired a Stanford Ph.D. student to tutor him on the topic.“Knowledge is concentrated at the bleeding edge,” he said.Ms. Fischer and Ms. Fulop said they would miss Bend but craved the Bay Area’s sense of urgency and focus.Will Matsuda for The New York TimesMr. Fulop and Ms. Fischer said they would miss their lives in Bend, where they could ski or mountain bike on their lunch breaks. But getting two start-ups off the ground requires an intense blend of urgency and focus.In the Bay Area, Ms. Fischer attends multiday events where people stay up all night working on their projects. And Mr. Fulop runs into engineers and investors he knows every time he walks by a coffee shop. They are considering living in suburbs like Palo Alto and Woodside, which has easy access to nature, in addition to San Francisco.“I’m willing to sacrifice the amazing tranquillity of this place for being around that ambition, being inspired, knowing there are a ton of awesome people to work with that I can bump into,” Mr. Fulop said. Living in Bend, he added, “honestly just felt like early retirement.” More