Tech Startups’ new million dollar question: do we really need an office?

The move to cloud only may not be right for all businesses. Even in the software sector, where the work generally does not consist of designing and building tangible objects, there are numerous challenges to forgoing offices completely. These range from learning the communication habits of colleagues who have never met in person to maintaining the types of relationships needed to raise money from afar. Decades of research point to the power of proximity, an increase in Silicon Valley knowledge and the birth of the world’s most successful companies.

But some start-up founders, like Alan d’Escragnolle, don’t struggle with trade-offs and find the benefits of remote working worthwhile: He said his team brainstormed just as well from a distance and that employee productivity hasn’t suffered.

A year ago, Mr. D’Escragnolle joins his co-founder at Filmhub, an online film distribution startup, in Los Angeles to sign an office lease and begin hiring. Instead, he ended up renting a ski home in Lake Tahoe and has been running the business from there since March.

Filmhub now has 15 employees, with teams brainstorming Zoom, keeping in touch with Slack and following customers, and onboarding new employees with a workspace app called Notion. The company’s most recent hires are located in Ukraine, Portugal, Atlanta and the Dallas area.

“We are now saving at least $ 5,000 a month” on salaries and rent, 32-year-old Mr. D’Escragnolle. Filmhub could eventually have a small office in Los Angeles, he said, “but ultimately we’re not convinced it’s necessary.”

It’s too early to say how many startups will stay completely at bay once the pandemic is over, but there is a consensus that a larger share will be built and grown by teams living and working apart. If they can keep their distance, it could affect the distribution of talent – and venture capital funding – across the country.

In early 2020, Kim-Mai Cutler, a partner of Initialized Capital, a venture capital firm that invests in fledgling companies in their earliest stages, conducted a survey of nearly 100 of its backed founders, asking for the most convenient location to start a business to start. . Nearly 42% said San Francisco, with New York in a distant second. A year later, the main response at 42% was no place in particular, or rather, “distributed or remote”, compared to 6% the year before. Only 28% still said San Francisco was the place to be.

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

“The pandemic will certainly put this back on a higher baseline,” said Ms. Cutler. “I don’t know how much higher that baseline is.”

Steve Case, the co-founder of America Online, founded the venture firm Revolution in 2005 to invest in startups outside of the major tech hubs. Of the 150 companies supported by the Rise of the Rest Seed Fund, at least seven that went remote during the pandemic have already decided to stay completely isolated for the foreseeable future. Twenty others plan to keep an office, but make remote work a permanent option for employees. Others are still in the decision-making process.

Mr. Case said the combination of the pandemic and the availability of publicly available software tools means that while Silicon Valley will still receive the lion’s share of investment, there will be changes in the distribution of talent and funding.

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

Venture capital investors said that whether only remotely makes sense depends on a number of factors: How experienced is the team? What phase is the startup in? What kind of product are they building? Where is the founder’s network located?

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

“I think having a distributed workforce and having a culture from a distance pays off first,” said Mr Reede. “Remote first is very cheap.”

Mr. Reede used to work at the DreamWorks Animation campus in Glendale, California, with koi ponds and wide corridors designed to encourage colleagues to bump into one another and ideally stimulate creativity. When he and Mr. Suarez started, they worked from Mr. Suarez’s childhood home, whiteboarding in his nursery. They could talk about coding issues or some other stuff without having to launch Zoom. “Those micro-interactions are important,” said Mr. Reede.

Working with an outside team, he has learned the importance of overcommunication. “At stand-ups in the morning, talk about what you’re going to be working on, repeat it on Slack, get it done for each other, then tell the channel the job is done,” he said.

He’s concerned about how well that will scale and how long he can screencast with colleagues and investors. Still, Teleportal’s founders intend to stay remote as long as they can effectively run the business that way.

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

“You want to push that out for as long as possible, because it’s so valuable when people are in the same room, going through problems, ambient noise, all that,” said Ms. Cacioppo. “Covid didn’t care about any of those words.”

Mrs. Cacioppo, 34, has grown her company from 17 to 55 employees in the past year. Some recent recruits are from Indianapolis, Tucson, Arizona, and Western Massachusetts. She has been able to find people with more work experience than she expected with the salaries she was willing to pay Bay Area workers. She also found that remote onboarding is better in some ways: Since newcomers can’t just shadow seasoned team members, the company had to develop a more rigorous training program.

Staff have stayed connected through Zoom meetings and through the use of a virtual office platform called Gather, where colleagues can have lunch, bump into each other and give presentations.

But Ms. Cacioppo found that remote working led to miscommunication with a member of her sales force, who moved to LA in July. When an investor advised her to follow her lead and live there for a short while, she first thought “that’s crazy” – then realized it was “actually pretty smart.” The couple met five days a week on an Airbnb for two weeks.

“Problems were identified more quickly,” she said.

Ms. Cacioppo signed a new lease for office space in Hayes Valley, San Francisco in January 2020 and has been paying rent for it ever since, but has yet to work from there. Now her plan is to keep that office with about 45 full-time product and engineering employees, while keeping the sales force at a distance across the country.

Ian Hathaway, an executive at the seed accelerator Techstars and a senior fellow at the Brookings Institution researching startup ecosystems, believes that any optimism about going completely remote is biased by pandemic circumstances.

“It looks like from now on we are going to build businesses remotely, we just went through the simulation,” he said. “Does that mean we will keep doing it this way?” His guess is no, even though we see a lot more hybrid companies and techies are more spread across the country than before.

He cited the long-standing benefits of co-location, including more innovation, easier collaboration, and smoother fundraising, which he said requires building relationships. These factors have resulted in decades of talent being concentrated in superstar cities, and this could be one reason why VC funding for budding startups is currently unavailable.

“That force was so powerful that people were willing to live in places that were increasingly uninhabitable from a cost and congestion point of view,” said Mr Hathaway. “To say that just because we’ve been in this pandemic and we’ve been trying this remote working for a while, all this has been completely reversed, I’m just not buying it.”

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