Last week, hundreds of people in San Francisco got the news that they would soon be multi-millionaires.
It’s not the first time that this has happened. The town is littered with tech startups, and every time one of them goes public, millionaires are born.
But last Monday’s announcement was different: Anthropic, the AI giant, has reached a dizzying $965 billion valuation, which would break the record for the largest company to IPO in San Francisco; Uber, which went public in 2019 at $82.4 billion, currently holds the No. 1 spot.
Then on Monday, a week after Anthropic’s announcement, it happened again: Rival OpenAI, the creator of ChatGPT, announced it, too, had filed for an IPO, adding another $852 billion to the mix.
San Francisco will soon be swamped by an unprecedented amount of cash. But the city itself will see very little.
California law prohibits municipalities from imposing income taxes, so taking a cut of the lucrative salaries at both firms isn’t an option for the city. San Francisco’s past efforts to buttress its budget with large IPOs, including a 2019 “IPO tax,” have died.
Instead, the effects will be concentrated on “high-end real estate, local services, startup activity, and professional services,” according to Ioannis Spyridopoulos, a finance professor at American University and author of a 2019 paper titled “Local Economic Spillover Effects of Stock Market Listings.”
“It’s not like a trillion-dollar IPO turns into a trillion dollars of spending,” added Ted Egan, the city’s chief economist. He agreed that the effects would be concentrated in real estate and investment. “You can only have so many cars and go out to so many fancy dinners.”
What is clear is that the announcements are unprecedented. San Francisco has seen big IPOs before — though the biggest tech IPOs in the area, like Google and Facebook, were based in Silicon Valley.
Though neither have released the number of shares or share price, Anthropic and OpenAI valuations are orders of magnitude larger than anything this city has seen. Uber, which went public at an $82.4 billion valuation, is still nearly 12 times smaller than the combined valuation of the AI giants.
Martin Kenney, an economist who studies venture capital and Silicon Valley, says the offerings are unique for how much money is tied up in just two firms. If the AI bubble bursts, it could chill AI investing.
“If the firms and the big giants end up wrong on AI, then an enormous amount of capital will have been wasted,” Kenney said. “Even if they get out on the IPO and some people escape with a lot of money, it will be a nuclear winter for venture capital.”
San Francisco has tried to tax IPOs before
Budget season is at hand, and the city of San Francisco is facing a structural deficit that is projected to reach nearly $1 billion by the end of the decade. The IPOs will do little to help.
Unlike, say, New York City, San Francisco does not have an income tax — California state law prevents it.
Elected officials have tried to direct tech windfalls into the city budget in other ways, but without much success. A 2016 “tech tax” — actually a proposed ballot measure that would have raised the payroll tax for some tech companies — died in committee.
In 2019, then-Supervisor Gordon Mar floated what he called an “IPO tax” — a proposal to raise the city’s payroll tax on businesses that offer employees stock-based compensation — but ultimately withdrew it.
The city can’t take a direct cut of the anticipated windfall — all taxes will go to the state, which has already seen nearly $10 billion in tax revenue from the AI boom.
Instead, over the last few decades, the city has scaled back its payroll tax in an effort to entice tech companies to open (and then stay) in San Francisco.
Efforts began in 2014, soon after the Facebook IPO and, since the last major IPOs when Uber and Lyft went public in 2019, San Francisco has replaced its payroll tax with a gross receipts tax, which taxes companies on a combination of their sales and their payroll.
Then in 2024, the city voted in Proposition M, changing the formula to scale back the percentage of the gross receipts that came from payroll even further.
All this, according to the controllers office, means that the city will see only a modest bump in revenue through direct taxes.
But that’s partly by design, says chief city economist Egan. “We thought that the big payroll tax was a reason that companies were downsizing in San Francisco,” said Egan, adding that enticing companies to stay in the city, invest in local businesses and fill empty offices is worth the short-term loss of an IPO windfall.
“That’s the risk you take with having a big business tax,” said Egan. “When you win, you win big, but when you lose, you lose big, too.”
Who’s winning?
Instead, that influx of money will show up in San Francisco as secondary effects, said Spyridopoulos.
More money means more spending, more investment, and new jobs created across several sectors: The 2019 paper co-authored by Spyridopoulos found that for every $10 million in IPO proceeds, an extra 41 jobs and 0.7 new businesses were created in the zip codes around the company’s headquarters.
“Overall, I expect the OpenAI and Anthropic IPOs to be a net positive for San Francisco’s local economy,” Spyridopoulos wrote in an email.
The scale of the IPO — estimated to be more than 10 times larger than the largest the city has seen, and equivalent to 60 times the city budget — makes estimating the true outcome difficult, said Spyridopoulos.
“I would be careful comparing OpenAI or Anthropic mechanically to past IPOs such as Uber, Lyft, or Facebook,” he wrote. “These AI companies may be so large that they fall outside the range where it makes sense to simply scale up the estimates from past IPOs.”
The nouveau riche may also have different tastes than their predecessors, according to event planners. After Uber and Lyft went public in 2019, the last major IPOs in the city, the newly-minted millionaires reportedly spent heavily on cars, boats, and custom ice sculptures.
“They wanted huge, bombastic, Cirque du Soleil events,” said Natasha Miller of Entire Productions, a luxury event-planning company based in San Francisco.
The budgets are back now, says Miller, but the tastes have changed. “Now, they want refined events, things that are really quality.”
Vivienne Errington-Barnes, the founder and CEO of Shift + Alt events, which organizes events for companies like Anthropic and OpenAI, has seen a booking growth of nearly 400 percent over the past few months, with one theme dominating requests: connection.
“People used to worry about the event being really memorable,” says Errington-Barnes. “Now, the common theme is ‘I want people to connect.’”
Events today have moved from hosting guests to creating participants.
At one event, guests were taken through an immersive wine-tasting appealing to the five senses, on another, a hand-selected list of people was each asked to plan their own immersive experiences for the group, including blindfolded walks through the forest and CBD sound baths.
For tenants and buyers, it’s a seller‘s market
All of this likely won’t benefit your average San Francisco resident, who is not going to be greatly affected by a surge in party prices. What will have an effect, though, is the cost of housing.
A study of Bay Area real-estate prices published in the journal Real Estate Economics found that local house prices start to rise the same day that a potentially large IPO is announced, before the newly minted wealthy even have access to the money.
Buyers are already feeling the pinch, said Ali Andersen, a real estate agent at City Real Estate. She calls the change the “tale of two tech industries,” and describes her client base as split between two archetypes: On the one side are the newly minted AI millionaires stepping into the housing market for the first time.
“They are so excited and full of energy,” said Andersen. On the other side, would-be buyers are scrambling to keep up with ever-climbing prices of homes in the city.
For Aashiyana Shroff, a real-estate agent at City Real Estate specializing in rentals, the market the past six months has been tinged with desperation. Shroff was working as an agent during the last big IPO offering in 2019, but this one feels different, she said.
“I’ve never seen a high like this. People are just offering more and more money.”
What makes things difficult for renters isn’t just the price tag, but the competition, said Shroff. A listing that might have attracted 10 or 20 people before can now attract up to 100. When prospective tenants go to tour an apartment, they’re met with a crowd of people there to do the same.
“No one can keep up with the amount of people,” said Shroff. “They may be able to make their peace with the price, but the competition has increased.”
One renter, hoping for an edge over their competitors, offered her a bribe of $500 to guarantee they got the lease.
“I said no, of course,” she said with a laugh, “But I think it’s a sign of where we’re at.”
“Now, they want refined events, things that are really quality.” Yeah, those shitty Cirque de Soleil evens were such poor quality.
Well, they do seem more appropriate for a place like Las Vegas.
If we repealed or changed Prop 13, the vast increase in real estate values due to the influx of IPO cash would raise tax revenues. Regardless of whether they’re selling, every single property owner in the city just became a little richer, not because they own AI stock, but because they own the scarce resource now bid higher by the AI money. If we don’t want a full repeal, we can levy the property tax assessment totals for previous years against the final sale price.
How would an increase in property values make “every single property owner” richer? Because now they can sell and leave their home? The vast majority of property owners bought a long time ago, or inherited from their parents or grandparents. I must know 20 “home owners” and they’re all living in some relative’s house, send their kids to SFUSD, CCSF, and intend to pass it on to their own children – *because* the housing market makes it impossible for them live in the city. There are 6 of us living in a 2.5 bedroom apartment. We “own” the house, pay the mortgages, pay the taxes, pay the upkeep, and it’s still cheaper than rent. None of my family could possibly afford to live in the city otherwise. So, how does making housing *more* expensive benefit us? I’d love if there was more section 8 housing, I’d love if there were more buildings with family rentals that were affordable. I’d love if the price of housing dropped like crazy, but all I see is people building luxury condos that are 99% sold to people from outside the city, increasing the overall cost of living, increasing property values, increasing rents, increasing property taxes, etc…
The only people who benefit from this crap are rich people who flip luxury condos, investors who build luxury condos, and absentee corporate landlords who own hundreds of rental units and LOVE non-rent-controlled buildings.
/rant.
“All I see is people building luxury condos that are 99% sold to people from outside the city” …that’s one giant [citation needed] right there. One thing is very clear and obvious: SF continues to fail to build enough housing to meet demand, and the pressure release of covid and high interest rates only did so much. As ever, prices go up when there’s not enough housing to keep up with population increases and household downsizing. SF might have a robust uptick in jobs afoot but it’s still an aging city and aging—often single—residents want to stay in their neighborhoods. The demand for condos is coming from longtime residents and maybe a few ‘outsiders’ who want to move here to retire. Others want to buy property as an investment. So what? Let people come here with their money so they can renovate deteriorating housing stock and revitalize neighborhoods. I fail to understand what’s wrong with ‘flipping’ if it means a family can move into a home that was previously uninhabitable. Or investing in property to rent to people who work in the City and don’t have enough saved for a down payment. Or with buying an empty lot and putting housing there. This city still has tons of room before it gets truly crowded. If you think actually building causes more evictions and rising rents, I invite you to look at what Berkeley, Seattle, and Austin are up to and how many evictions those cities have logged recently.
Lots of people who live in SF own property that they wouldn’t be able to buy at today’s prices. Repealing Prop 13 would eventually force them out by making their property taxes impossible to pay.
Repealing prop 13 would result in displacing fixed income seniors and working class families who inherited their generational homes. I won’t help it either if you put a lien against the properties for prior year unpaid taxes. The tax burden will eventually grow larger than the value of the home forcing them to sell or get reposessed. Home values would crash with the increased tax burden and the stampede of owners rushing to sell but it probably won’t come down to a level that you could afford. it would just displace up to 50% of working class and elderly San Franciscans who could no longer afford to live here.
.
You know who wouldn’t be affected by the repeal?
The rich tech bros and housing corporations who would swoop in with lots of cash to buy up many of the distressed homes sales. because prices would be lower, their tax base would also be lower. Keeping prop 13 in place may over-inflate housing prices but it allows a significant number of San Franciscans in their homes. If you let the tech bros pay full market price with their IPO money, they’ll pay higher taxes on those high prices as well. I’d rather protect the elderly and working class than make it even easier for the rich and corporations to buy up pied a terres in SF.
….Did ML accidentally copy comments from a different article? This story is not at all about Proposition 13. Anyway, who is talking about repealing it? No one is going to do that, even if it’s a terrible law that has stagnated housing diversification and eviscerated our school districts over the past few decades. No one should ever pass a law that incentivizes people to hoard resources. Should the elderly and disabled be protected from estate-tax fluctuations? Yes, but always always always with income qualifications. And with heavy incentives to downsize. If those incentives were there, then there would be more apartments built in each neighborhood. Prop 13 doesn’t just inflate housing prices—it keeps houses off the market altogether and thus prevents young families from staying in cities and robs our schools of students. I’m baffled that the disastrous consequences of this law haven’t been more obvious to everyone.
“What does this mean for San Francisco? ”
Class war. Historic levels of wealth inequality. Evictions. Even higher food and utility prices. Faster rate of climate change. Higher sea levels.
“Apart from that, how did you like the play, Mrs Lincoln?”
I’m forever blowing bubbles
Pretty bubbles in the air
They fly so high, nearly reach the sky
Then like my dreams they fade and die
Fortune always hiding
I’ve looked everywhere
I’m forever blowing bubbles
Pretty bubbles in the air
And how would the city be better if we did not have successful businesses?