March 2014

Southside Neighborhoods Center of New Venture Capital Investment

Sachiko Yoshitsugu

Southside San Francisco is Mecca for technology companies and the investors that fund them. Showplace Square and South-of-Market is home to Zynga, Github, Dropbox, and many younger startups. Last year, the 94107 zip code—which includes Potrero Hill, Dogpatch, Mission Bay, South Park and South Beach—led the Bay Area in total venture capital investment. The 134 companies headquartered in the area captured more than $1.1 billion dollars in 153 deals, according to CBInsights, a New York-based venture capital research firm.

“Some people say South Park was the genesis of the tech industry in the late ‘90s,” said Julia Georgules, San Francisco market research manager at Jones Lang LaSalle. “It was where the first startups opened up shop, and has really blossomed and expanded from there as the next wave of companies continues to locate in that area.”

The fierce competition for software and computer engineers — who want to live in San Francisco rather than Silicon Valley and work close to home—has drawn many startups to the City’s Southside neighborhoods. “Companies are locating there because it’s centrally located between Caltrain and BART, with good Muni routes allowing companies to attract talent from throughout the Bay Area,” said Alex Niehenke, a principal of Scale Venture Partners and six-year SOMA resident.

“Until the last two years, it was also reasonably priced because it was predominantly old warehouses renovated for an urban, loft-like experience,” Niehenke said. “Rents have subsequently increased due to demand, but a lot of startups still like this style of open office, since they believe it fosters creativity and communication.”

That’s why Patrick White decided in 2012 to found Synata near his SOMA apartment. Synata is a cloud-based search engine for businesses that enables employees to look for information across Gmail, BOX, Dropbox and Salesforce, among other applications. The startup’s nine employees commute from the Financial District, Mission Distict, East Bay and South Bay to office space in the Hatchery, a co-working site at Second and Townsend. “It’s such a central location for all parts of the Bay, but still has this great San Francisco feel to it,” said White.

The company’s location is benefitting from another trend. Silicon Valley VCs are moving to San Francisco and opening up satellite offices in SOMA to be closer to their target markets.

“Traditionally, for an entrepreneur like me your life is kind of defined by driving down to Palo Alto when you’re fundraising,” said White. “There is a three-month period where literally every other day you get in your car and drive down to Palo Alto to go to Sandhill Road. It’s brutal.”

White, who is seeking seed funding to grow his company, recently met with True Ventures and Shasta Ventures at their offices overlooking South Park, just a two-minute walk from the Hatchery.

Internet companies based in 94107 received 56 percent of VC funding in the zip code, followed by 22 percent for mobile and telecom, according to CBInsights. In the Bay Area as a whole, Internet companies took 40 percent of VC funds; mobile and telecom received 15 percent. The top three VC investment industries nationally were software, biotechnology and Internet, according to the MoneyTree Report released by the National Venture Capital Association.

Non-technology companies’—in healthcare and energy—funding share in the Bay Area has steadily declined since 2009. Still, the healthcare sector ranked third in the 94107 zip code for both VC dollars and deals last year. Healthcare companies—like medical technology firm Channel Medsystems, located at 101 Mississippi Street—received eight percent of total dollars and deal share in the zip code, with Medsystems securing $9.8 million in a series B round of funding led by Andreessen Horowitz.

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