A challenge faces California’s Silicon Valley and Bay Area — the standard-bearer of the technology revolution. The same technologies it helped create have evolved to the point where some of the companies founded and nurtured there no longer feel the need to call it home.

To the alarm of business leaders, several have already announced plans to relocate their headquarters to other states. Texas is one of the big winners of this exodus. 

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There are some common factors underlying these decisions, including high taxes in California, perceived over-regulation, high land and housing costs, high cost of living, and the ability of many executives and employees to work remotely. 

Among the Silicon Valley companies that have moved or plan to move their corporate headquarters to Texas are giants such as Hewlett-Packard Enterprise (HPE) and Oracle. Elon Musk,  the chief executive of Tesla and SpaceX, has also moved to the Lone Star State, although his companies remain headquartered in Silicon Valley. 

However, HPE’s Silicon Valley campus will remain an innovation hub, with no layoffs, it has been announced. And in a Securities and Exchange Commission filing, Oracle said its Oracle’s existing US hubs will still be “supported” and employees may choose to work at any of them or from home. 

In some cases, like HPE and Oracle, companies say the relocations are motivated by business needs, cost savings, a diverse talent pool, and employees’ preference for working remotely. Other companies are moving because of a perceived cultural misfit. In a Wall Street Journal interview, Elon Musk blamed California’s “complacency” and “entitlement”.

Looking further inland, the software company Palantir has moved to Denver, Colorado. Palantir’s chief executive Alex Carp objected in an Axios interview to the state’s “increasing intolerance and monoculture”.

But it is not just tech companies that are flooding out of the Golden State. Financial services company Charles Schwab and the medical distribution giant McKesson have also moved their headquarters to Texas.

The outflow started before the Covid-19 pandemic, but the epidemic reinforced it, says Jeff Bellisario, executive director of the Bay Area Council Economic Institute. 

“Business leaders are concerned about the future of the state,” Mr Bellisario says. “The movement of corporate headquarters is problematic because talent follows. We have all this talent and networks and an ecosystem of innovation, but if remote work allows you to access that across the globe, it becomes less necessary to have a presence in Silicon Valley.”

And while abundant local venture and seed capital remain a major attraction for the region, accounting for 44% in 2019 of all such funding nationwide, Mr Bellisario sees a challenge in the growth of venture capitalists in rival US innovation hubs. 

Texas is more than happy to welcome the Californian arrivals. “While some states are driving away businesses with high taxes and heavy-handed regulations, we continue to see a tidal wave of companies like Oracle moving to Texas thanks to our friendly business climate, low taxes, and the best workforce in the nation,” gloated Texas governor Greg Abbott.

Michael Caffey, president of advisory services for the Texas region of commercial real estate firm CBRE, agrees. Mr Caffey notes that Texas has no income tax, a lower corporate tax rate, a lower wage structure, light regulation, moderate housing costs and good infrastructure, coupled with a diverse technology base and good universities. 

Still, California cannot be counted out. “I still think that when you look across the globe, the Silicon Valley name is held up as the gold standard for how you look at innovation, growth and opportunity,” says Mr Bellisario.

This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.