The Hedge | Brutal Honesty Over Hype Since 2008
This blog has spent considerable space over the past two weeks documenting why California is a difficult place to build a business. That case is real, well-documented, and not in dispute. But intellectual honesty — the foundation of what The Hedge has been about since 2008 — requires presenting the complete picture. There are specific situations where California is not just acceptable but genuinely the best choice for building a business. This post makes that case as honestly as I can.
The Venture Capital Case Is Real
I’ve said this before but it deserves repetition because it’s the most important exception: if your business is a technology or life sciences company that needs institutional venture capital, and you need that capital from the most sophisticated investors with the deepest networks in your sector, California remains the best place in the world to be. The density of Sand Hill Road, the depth of the Bay Area biotech ecosystem around Mission Bay and South San Francisco, and the entertainment technology ecosystem in Los Angeles are genuinely unmatched. The networks, the deal flow, the experienced operator advisors — these things take decades to build and don’t transplant overnight. Austin is growing. Miami is growing. Neither is Sand Hill Road.
The Specialized Labor Markets
For businesses that genuinely need the specific talent concentrated in California, the cost premium buys something real. AI and machine learning research talent is more concentrated in the Bay Area than anywhere else in the world. Entertainment production talent is concentrated in Los Angeles in ways that are not replicated in Nashville or Atlanta despite their growing film industries. The maritime and aerospace industries have deep California talent concentrations. If your business model requires expertise that genuinely doesn’t exist elsewhere in comparable density, the cost of accessing that expertise in California is the cost of doing your specific kind of business — not an overhead to be optimized away.
The California Market Itself
California is the fifth-largest economy in the world. With 40 million residents and a GDP exceeding $3.5 trillion, it is a market unto itself. Some businesses — California-specific regulatory compliance consultants, California real estate services, California water technology companies, California agricultural businesses — need to be in California because their customers and regulatory environment are California-specific. Being in California to serve California customers is not a strategic mistake. It’s the obvious business decision.
The Network Effects of the Existing Ecosystem
For entrepreneurs who already have deep California networks — professional relationships built over decades, access to experienced mentors, relationships with the specific investors and customers they need — the cost of replicating those networks in a new market may exceed the savings from relocating. Networks are not portable on a spreadsheet. They are built over years of shared experiences, mutual favors, and demonstrated reliability. An entrepreneur with 20 years of California relationships who moves to Austin saves money on taxes and rent while potentially losing the relationship capital that has been the foundation of their success.
The Honest Conclusion
California makes sense for: venture-backed technology and life sciences companies that need the California VC ecosystem; businesses requiring the specific talent concentrations in Bay Area tech, Los Angeles entertainment, or other California-specific expertise clusters; businesses that serve the California market specifically; and entrepreneurs whose existing relationship capital in California is genuinely irreplaceable. It does not make sense for: businesses that serve national or global markets and don’t require California-specific talent; businesses that could attract the talent they need in lower-cost markets with comparable equity upside appeal; and entrepreneurs who are in California primarily because they’ve always been in California, without having run the cost-benefit analysis honestly.
Know which category you’re in. Make the decision with clear eyes.
The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.
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