The new million-dollar question of technical startups: Do we really need an office?

Going to the cloud alone may not be for all companies. Even in the software sector, where the activity does not generally involve the design and construction of tangible objects, there are a number of challenges to giving up offices altogether. These range from learning the communication habits of colleagues who have never met in person to encouraging the types of relationships needed to raise funds from afar. Decades of research indicate the power of proximity, enhancing the tradition around Silicon Valley and the birth of the most successful companies in the world.

But some start-up founders, such as Alan d’Escragnolle, are not struggling with compromises and find the benefits of remote work worthwhile: He said his team brainstorms just as well from a distance and that productivity employees did not suffer.

A year ago, Mr. d’Escragnolle had to join his co-founder at Filmhub, an online film distribution company in Los Angeles, to sign an office lease and start hiring. Instead, he ended up renting a ski house in Lake Tahoe and running the company there in March.

Filmhub now has 15 employees, with brainstorming teams over Zoom, staying in touch with Slack and tracking customers and incorporating new employees with a workspace app called Notion. The company’s latest employments are based in Ukraine, Portugal, Atlanta and the Dallas area.

“We save at least $ 5,000 a month right now” on salaries and rent, said d’Escragnolle, 32. Filmhub may eventually have a small office in Los Angeles, he said, “but in the end we’re not convinced it’s necessary.”

It is too early to say how many startups will remain completely removed once the pandemic ends, but there is a consensus that a greater share will be built and raised by teams living and working separately. If they are able to stay away, this could have a negative effect on the distribution of talent – and venture capital funding – across the country.

In early 2020, Kim-Mai Cutler, a partner with Initialized Capital, a venture capital firm that invests in young start-ups, conducted a survey of nearly 100 of its backed founders, demanding the most beneficial location to set up. a company. . Nearly 42 percent said San Francisco, and New York was a distant second. One year later, the main answer to 42% was not a special place, or rather, “distributed or remote”, up from 6% the previous year. Only 28% still say San Francisco is where it needs to be.

In the initial survey, whose investments include Reddit and Instacart, more than a third of respondents said they would keep their office model completely remote or decentralized post-pandemic. Previously, only 18% said that their company’s location was completely decentralized.

“The pandemic will certainly reset this to a higher basic level,” said Cutler. “The bigger this baseline, I don’t know.”

Steve Case, co-founder of America Online, founded the venture company Revolution in 2005 to invest in startups outside major technology centers. Of the 150 companies backed by its Rise of the Rest Seed Fund, at least seven that disappeared during the pandemic have already decided to stay completely away for the foreseeable future. Twenty more intend to keep an office, but make remote work a permanent option for employees. Others are still in the process of deciding.

Mr Case said the combination of the pandemic and the availability of publicly available software means that while Silicon Valley will continue to receive most of the investment, there will be changes in talent distribution and funding.

“Now you can be in any city,” he said. “You had to be in an office, maybe you can be completely remote or hybrid.”

Venture capital investors have said that whether only the remote control makes sense depends on a variety of factors: How experienced is the team? What stage is the startup at? What kind of product do I build? Where is the founder’s network based?

Ryan Reede, 27, is part of a four-person startup called Teleportal, which is developing an augmented reality filmmaking tool. Mr. Reede had planned to move into a Los Angeles home with the company’s founder, Thomas Suarez, so that the two could work at any time without renting office space. During the summer, Mr. Suarez decided to move to Atlanta instead, so Mr. Reede took advantage of the falling rents and moved to San Francisco.

“I think having a distributed workforce and a remote culture will pay dividends,” Mr Reede said. “Remote-first is very cheap.”

Mr. Reede worked at the DreamWorks animation campus in Glendale, California, with koi ponds and wide corridors designed to encourage colleagues to bump into each other and ideally stimulate creativity. When he and Mr. Suarez started, they left Mr. Suarez’s parents’ house, making whiteboard in his childhood bedroom. These could cause coding issues or anything else without the need to trigger Zoom. “These micro-interactions matter,” Mr. Reede said.

Now, with a distant team, he has learned the importance of over-communication. “In the morning at standups, talk about what you’re going to work on, repeat to Slack, finish, then tell the channel that the task is complete,” he said.

He worries about how well this will spread and how long he can retire with colleagues and investors. However, the founders of Teleportal intend to stay away as long as they can run the company effectively in this way.

Christina Cacioppo, founder of Vanta Inc., the San Francisco-based company, on the launch of cybersecurity and compliance software, said that when she founded her company three years ago, she thought she would need several thousand employees before having satellite offices or a significant number of remote workers. .

“You want to push this as long as possible, because it’s so important for people to be in the same room, to talk through problems, to talk around, all of that,” Ms. Cacioppo said. “Covid didn’t care about any of those words.”

Ms. Cacioppo, 34, has grown her company from 17 people to 55 in the last year. Some recent recruits come from Indianapolis, Tucson, Arizona and Western Massachusetts. She managed to find people with more work experience than she would have expected to get from the salaries she was willing to pay to Bay Area employees. He also found that remote boarding is, in some respects, better: as newcomers cannot just be part of experienced team members, the company has had to develop a more rigorous training program.

Staff stayed connected through Zoom meetings and using a virtual office platform called Gather, where colleagues could dine, clash and make presentations.

But Ms. Cacioppo discovered that working remotely led to miscommunication with a member of her sales team, who moved to LA in July. When an investor advised her to follow suit and go live there for a short time, she first thought “it was crazy” – then realized that she was “actually quite smart.” The two met on an Airbnb five days a week for two weeks.

“The problems were identified more quickly,” she said.

Ms. Cacioppo signed a new lease of office space in the Hayes Valley of San Francisco in January 2020 and has paid rent for it since then, but has not yet worked there. Now, her plan is to maintain that office with about 45 full-time employees in the field of products and engineers, while maintaining the distance sales staff across the country.

Ian Hathaway, an executive at the Techstars seed accelerator and a senior member of the Brookings Institution, who researches start-up ecosystems, believes that any increase in fully removed displacement is distorted by the circumstances of the pandemic.

“It seems that, of course, we will build remote companies from now on, we just went through simulation,” he said. “Does that mean we will continue to do this?” His assumption is no, even though we see many more hybrid companies, and technology workers are becoming more widespread across the country than before.

He mentioned the long-term benefits of co-location, including more innovation, easier collaboration and easier fundraising, which he said needed to build relationships. These factors have led to the concentration of decades of talent in superstar cities and could be a reason why VC funding for early-stage start-ups is declining right now.

“This force was so strong that people were willing to live in places that were increasingly uninhabitable in terms of cost and congestion,” Mr Hathaway said. “Let me just say this because I’ve been in this pandemic and I’ve been trying this for a long time, that everything is completely canceled, I just don’t buy it.”

—For more reviews, reviews, tips and WSJ Technology headlines, sign up for our weekly newsletter.