The SF Bay Area Has Become The Undisputed Leader In AI Tech And Funding Dollars

There鈥檚 been much talk of a resurgent San Francisco with the new technology wave of artificial intelligence washing over the software world. Indeed, funding data as well as interviews with startup investors and real estate industry professionals show the San Francisco Bay Area has become the undisputed epicenter of artificial intelligence.

Last year, more than 50% of all global venture funding for AI-related startups went to companies headquartered in the Bay Area, SA国际传媒 data shows, as a cluster of talent congregates in the region.

Beginning in Q1 2023, when 鈥檚 reached 100 million users within months of launching, the amount raised by Bay Area startups in AI started trending up. That accelerated with OpenAI raising $10 billion from 鈥� marking the largest single funding deal ever for an AI foundation model company. In that quarter, more than 75% of AI funding went to San Francisco Bay Area startups.

AI-related companies based in the Bay Area went on to raise more than $27 billion in 2023, up from $14 billion in 2022, when the region鈥檚 companies raised 29% of all AI funding.

From a deal count perspective, Bay Area companies raised 17% of global rounds in this sector in 2023 鈥� making the region the leading metro area in the U.S. That is an increase over 13% in 2022.

The figure also represents more than a third of AI deal counts in the U.S., and means the Bay Area alone had more AI-related startup funding deals than all countries outside of the U.S.

Bay Area footprint

Leading Bay Area-based foundation model companies OpenAI, and have each raised more than $1 billion 鈥斅爋r much more 鈥斕共曰� have established major real estate footprints in San Francisco.

OpenAI has closed on 500,000 square feet of office space in the city鈥檚 Mission Bay district and Anthropic around 230,000 square feet in the Financial District.

鈥淔rom a leasing standpoint, [AI] is the bright spot in San Francisco right now,鈥� said Derek Daniels, a regional director of research in San Francisco for commercial real estate brokerage , who has been following the trends closely.

By contrast, 鈥渂ig tech has been pulling back and reassessing space needs,鈥� he said.

According to Daniels, the city鈥檚 commercial real estate market bottomed out in the second half of 2023. While the San Francisco office space market still faces challenges, there is 鈥渜uality sublet space which is also seeing some demand鈥� for smaller teams, he said. And some larger tenants who have been out of the picture for office space of 100,000 square feet or more are starting to come back.

Center of gravity

that graduated from the prestigious startup accelerator 鈥檚 April batch were AI-focused companies.

鈥淢any of the founders who came to SF for the batch have decided to make SF home 鈥� for themselves, and for their companies,鈥� , president and CEO of Y Combinator, said in .

YC itself has expanded its office space in San Francisco鈥檚 Dogpatch neighborhood adjacent to Mission Bay. 鈥淲e are turning San Francisco鈥檚 doom loop into a boom loop,鈥� Tan added.

Of the batch 34 companies that graduated in March from , another accelerator, 60% are in AI. Its next batch is closer to 80% with an AI focus, said , partner and head of the global accelerator fund.

Around half of the companies in the recently graduated 500 Global batch are from outside the U.S., including Budapest, London and Singapore. But many want to set up shop in the Bay Area for the density of talent, events and know-how from hackathons, dinners and events, he said.

Startup investors also see the Bay Area as the epicenter for AI.

鈥淚n the more recent crop of AI companies there is a real center of gravity in the Bay Area,鈥� said , a partner at , which has been actively investing in AI startups such as , , 听补苍诲 .

鈥淭he Bay Area does not have a lock on good talent. But there’s certainly a nucleus of very strong talent,鈥� he said.

Databricks Ventures, the venture arm of AI-enhanced data analytics unicorn , has made five investments in AI companies in the Bay Area in the past six months. In total, the firm has made around 25 portfolio company investments since the venture arm was founded in 2022, largely in the modern data stack.

Moving back

Freed from in-person office requirements during the pandemic, many young tech workers decamped from the expensive Bay Area to travel or work remotely in less expensive locales. Now, some are moving back to join the San Francisco AI scene.

鈥淢any young founders are just moving back to the Bay Area, even if they were away for the last couple of years, in order to be a part of immersing themselves in the middle of the scene,鈥� said , a partner at . 鈥淚t’s great for networking, for hiring, for learning about what’s going on, what other products people are building.鈥�

Coincidentally, Sequoia Capital subleased space to OpenAI in its early days, in an office above Dandelion Chocolates in San Francisco鈥檚 Mission District.

Zhan presumes that many nascent AI companies aren鈥檛 yet showing up in funding data, as they are still ideating or at pre-seed or seed funding, and will show up in future funding cycles.

Outside the Bay

While the Bay Area dominates for AI funding, it鈥檚 important to note the obvious: Much of that comes from a few massive deals to the large startups based in the region, including OpenAI, Anthropic and Inflection AI.

There is a lot of AI startup and research activity elsewhere as well, Zhan noted, with researchers coming out of universities around the globe, including in Paris, and the and in the U.K., to name a few. Lead researchers from the 聽 and have also fed into generative AI technology in San Francisco and in Canada, Bryan said.

While the U.S. has a strong lead, countries that are leading funding totals for AI-related startups outside of the U.S. are China, the U.K., Germany, Canada and France, according to SA国际传媒 data.

London-based kicked off the generative AI moment before ChatGPT with its text-to-image models in August 2022. Open source model developer , based in Paris, has raised large amounts led by Bay Area-based venture capital firms and .

And in China, foundation model company based in Beijing has raised more than $1 billion.

Back to the Bay

Still, the center of gravity in the Bay Area is driven by teams coming out of Big Tech or and who have a 鈥渉istory of turning those ideas into startups,鈥� said Ferguson.

The unique congregation of Big Tech companies, research, talent and venture capital in the Bay Area has placed the region at the forefront of AI.

鈥淭he valuation of the AI companies and some of the revenue by the top end of the AI companies is driving that population migration,鈥� said 500 Global鈥檚 Bryan. At a recent AI event at Hana House in Palo Alto, California, he found it interesting that most people were not originally from the Bay Area. 鈥淓veryone now wants a direct piece or an indirect piece of that value that is going into AI.鈥�