Miami's tech boom is in big trouble
May 18, 2022
The music is always too loud in Miami, but tech workers seem to love it anyway. As the tech industry fanned out across the US over the past two years, a geographically liberated workforce found itself in new and unexpected places — like frivolous, beachy Miami. Where other cities have spent billions of dollars on incentives, planning, and research parks over decades to lure startups, Miami's inchoate community was tweeted into existence in a matter of months. Right now, the US tech sector is on tenterhooks as markets tumble, startup valuations crater, and tech layoffs are announced daily. The industry's uncertain future raises a question: Can Miami parlay its recent success into a status as a globally competitive tech hub to someday rival Silicon Valley? Or will it turn into a cautionary tale about placing all your bets on a bubble? The Miami miracle of migration
Ed Glaeser, an urban economist who wrote the book "Triumph of the City," once told an interviewer that "the most successful economic development policy is to attract and retain smart people and then get out of their way." Miami may not be the most obvious place to attract the type of people who would build a new Silicon Valley. After all, as the venture capitalist Paul Graham wrote in 2006 : "Most nerds like quieter pleasures. They like cafes instead of clubs; used bookshops instead of fashionable clothing shops; hiking instead of dancing." Even some in Miami doubted the city could become a tech hub. Mayor Francis Suarez and the CEO and head of product strategy at TradeStation in front of the Miami bull. The idea of Miami as a tech hub used to be unthinkable. Diana Zapata/BFA
In 2013, the Knight Foundation, The Atlantic, and the urbanist Richard Florida held a conference to discuss the future of Miami's economy. Named "Start-up City: Miami," the gathering marked one of the city's first attempts to brand itself as a transcontinental tech hub, but it was not well received by all the area's leaders. Miami Beach's mayor at the time, Phil Levine, unforgettably called the idea of a tech-driven Miami Beach " the dumbest idea in the world ." He believed that Miami Beach should play to its strengths: tourism and travel. When Zappos' CEO at the time, Tony Hsieh, the internet pioneer who helped revitalize downtown Las Vegas, took the stage during the conference, he asked the audience of Miamians, "How many opportunities do you have in a lifetime to help shape the future of a major city?" Nearly 10 years later, the city's new contingent of tech disciples and policymakers are welcoming the challenge to create something in a place with no tech traditions. "You could see the need for Miami to diversify," Francis Suarez, Miami's mayor since 2017, told me during an interview in March. Suarez is one of the biggest reasons for Miami's economic transformation. Using social-media buzz and livestreamed conversations with recognizable tech leaders over sugary Cuban espressos called cafecitos, Suarez called for investors, programmers, designers, and entrepreneurs to relocate to Miami's shores. He has argued that the city has the ability to remake itself. "We're a relatively young city — 125 years old," he said. "The modern Miami started in my lifetime." There's no playbook for building a sustainable, long-term tech ecosystem using online publicity and peer pressure, but the early returns from Suarez's constant promotion are encouraging. In the year following the start of the pandemic, the Miami-Fort Lauderdale region had the greatest inbound migration of software and IT workers of any US metro area, at 15.4% year over year, while the Bay Area fared the worst. Miami was aided in its efforts by the snowglobe-shaking disruption of the pandemic. "Part of what made this moment possible were macro factors," Suarez told me. Remote work empowered people to find places with a cheaper cost of living, better quality of life, lower taxes, and less stringent health protocols. Sunshine and socializing in a Sun Belt city became a temptation for many in New York City and San Francisco. And the Magic City, similar to other warm-weather cities, became a " have-it-all hub ." "You're starting to see this decentralization of talent in tech. I think Miami is well positioned to come out of that era as a dominant player," Suarez told me. "Many of the people I talk to are saying, 'We'll build here, but we may hire from all over the country.'" Peter Yared, a founder of the software startup InCountry, arrived in Miami from San Francisco in September 2020 after briefly considering Los Angeles. "People think that you move for taxes, but you don't upend your life for them," he told me. For Yared, as for many others, it was a combination of factors including governance and crime that turned him away from San Francisco and the "monoculture that had distilled" the city. More than a flash in the pan
To be sure, Silicon Valley wasn't successful just because it was a suburban area with nice weather. What fueled its rise as the center of the tech world were its competitive research institutions, friendly business and labor laws, access to venture capital, and web of legal, financial, and accounting firms ready to aid eager entrepreneurs. Plenty of cities have tried to follow in its footsteps — from Atlanta's " Silicon Peach " to Salt Lake City's " Silicon Slopes " — but have mostly ended up as promising but pale imitations. Miami's most distinguishing feature as a startup hub is its status as an international city — a crossroads for a variety of industries, events, and people. Its network of domestic and international flights and its proximity to Latin America make it a gateway for people and globalized markets . In 2019, more than 54% of residents of Miami-Dade County were immigrants, and immigrants held 61% of STEM jobs. The city can capitalize on its title of the "capital of Latin America" and its existing industries — namely hospitality, aviation, and healthcare — to provide an economic base for the tech sector that could spur recombinant urban economic growth. With its density of hospitals and treatment centers, it can build up its biotechnology reputation, which the University of Miami's life-sciences-and-technology park and incubator has ventured to do. And the robustness of the region's tech economy may depend on expanding beyond crypto projects and into traditional industries and newer sectors such as climate technology. The "first ever NFT minting and landmark sports event" in December 2021 in Miami. In order to be a viable tech hub, the city needs to expand beyond crypto. Arturo Holmes/Getty Images for Bitcoin Latinum & TAPSTATS
It also has the advantage of being a vibrant city that can draw entrepreneurs, business celebrities, and startup CEOs from across the country to events. Back-to-back tech conferences and large-scale events like Miami Tech Week, the Bitcoin Conference, and eMerge Americas have brought in powerful people. And the city has become an alternative to New York and Las Vegas for some of the most voguish nonbusiness events including Art Basel and the Formula 1 Grand Prix in early May. Now that the idea of Miami as a tech hub has caught on, startup founders, developers, and venture capitalists are flocking to be part of it. "There's a vanguard of interesting people all showing up at the same time," Yared told me. "It's what makes cities boom. "
Miami is also rapidly drawing in venture capital. In 2021, the value of venture-capital deals for Miami-based startups nearly quadrupled, reaching $4.6 billion overall , up from $1.2 billion in 2020 and right behind Austin. While the city ranks 12th in the country in terms of venture-capital funding, representing only 1.4% of the total amount raised in the US, the year-over-year growth is substantial. SoftBank grew its Miami fund to $250 million, while Founders Fund, Atomic, and Silicon Valley Bank opened offices. As more funds relocate or expand their offices to Miami, other venture firms will be drawn into this vortex. And this convergence of capital makes Suarez confident that Miami "will be the main aggregation center of capital." The growing white-shoe network of legal and accounting firms within the banking and financial-services sector is also poised to support the city's growing tech sector. Despite the recent precipitous drop in tech stocks, momentum doesn't appear to be slowing. So far this year, startups in the Miami area have raised over $1.15 billion, according to PitchBook. Nationally, a record-breaking year in venture-capital fundraising has given way to sobering expectations of an industry pullback as public markets get hit hard and startup valuations slump. Eventually, the macroeconomic environment may drag down Miami's nascent tech economy, but with newly funded venture-capital firms needing to deploy capital, the fallout could be minor. To make sure this rapid boom doesn't result in a just-as-sudden bust, Miami will need to couple the tech cheerleading with more sustainable development. The city has to invest in nuts-and-bolts infrastructure, the kind that helps keep housing costs, homelessness, crime, and poverty low. And it must face down its most existential crisis: climate change. The higher-education brain drain
The most glaring roadblock on Miami's path to challenging Silicon Valley is brain drain and the lack of top-ranking applied sciences and research universities. Regional experts such as Alejandro Portes, a sociologist who has studied Miami's economic history, have highlighted that the region's top young people often depart for Boston, New York, or California for college . Keeping these students near home — during and after school — requires South Florida to have a top-tier engineering university. "Higher ed is ripe for disruption. We are looking at higher-ed partnerships or at creating something completely new," Suarez told me. He's heading up a free, tech-oriented charter school to encourage young people toward tech. Local universities are also aware of this need. Florida International University is constructing a $48 million facility to expand engineering programs, and it says that in the past four years it's grown its computer-science enrollment by 60%, to about 8,000 students. Even with all this, Miami's tech education pales in comparison to the roughly 18,000 science and engineering graduates in and near Silicon Valley in 2016 and the thousands more in software boot camps. Research facilities are also critical for developing an innovative ecosystem. The benefits of research and development are hyperlocalized , meaning research benefits the community through local commercialization of new technologies before spreading nationally and internationally. And research has suggested that university spin-off companies are more likely to attract venture capital . In a report by the National Science Foundation ranking colleges and universities by the number of utility patents developed through their research from 1969 to 2012, the highest South Florida institution ranked 29th, behind institutions in areas with much smaller populations. To boost that number, Miami could follow the example of New York City: In 2011, the city partnered with Cornell University and the Technion-Israel Institute of Technology to build an engineering campus on an underutilized piece of land. As these tech-talent pipelines form, however, companies based in Miami can draw on their proximity to Central and South American markets and labor, setting up remote teams in places like Mexico City and recruiting more diverse talent from abroad. Can Miami fight the housing crisis and rising shorelines? Only a few years ago, Miami's cost of living was just above the national average . But thanks to a precipitous jump in newcomers, Miami has become the most expensive housing market in the US , a May report from RealtyHop said. According to Redfin, the average rent in Miami increased by 34% over 2021, hitting an eye-watering $ 3,020 . The consumer price index for Greater Miami increased by 9.8% over the year to February; that figure was nearly 2 percentage points higher than in most parts of the country. How can Miami avoid the pitfalls of growth that accompanied the Bay Area's rise, a phrase that local newspapers have pejoratively called the "San Francisco-ization" of Miami ? Suarez is transparent about the challenges Miami faces and the looming crisis of unaffordability. "We are not perfect and we have all of the challenges of major cities but we are at historic lows in homicides, unemployment and taxes. Much work to be done on affordability and education," he tweeted in February. Despite the hot market, more units are being built, offering a positive, if imperfect, outlook as many residents are uprooted. "We have in our pipeline 47,000 units in construction . That's a 25% increase in dwelling units that we're going to see over a two- to four-year period," Suarez told me. For now, the housing crisis has not translated into homelessness; rates are at a 25-year low . What's more, with the exception of the pandemic spike, the unemployment rate, currently at 3% , has remained low in recent years, and wage growth has surged by more than in other metro areas recently — things that, taken together, may help alleviate the cost of living. Just as pressing as housing issues, the crescive tides accompanying the climate crisis may affect the city's growth over the next several decades. In 2017, voters approved a $400 million "Miami Forever" bond to help protect against rising sea levels and flooding. The city in recent years has embraced advisors from the Netherlands to help it adapt. Over the next two decades, the sea level is expected to rise by 11 inches around Miami, threatening billions of dollars in real estate if the city isn't able to adapt effectively. Undoubtedly, the region will need to invest substantially more toward mitigation efforts. It takes time to build
For Miami and its newly minted tech hub to continue growing at the current pace, the city will need to address these imminent risks and the challenges of responding to the climate crisis and the second-order effects of growth. Greater Miami, by various metrics, consistently hovers between 10th and 12th among US metros for economic output, number of knowledge workers, and annual venture capital, which together provide a picture of Miami's tech economy: Miami is midsized, but it's growing fiercely. The city has embraced a talent-focused and place-based policymaking approach to building a tech hub. And it has many of the ingredients for a hub that's perfect for a remote-work era: a high quality of life with many social opportunities to counteract the siloing effects of working from home. But the one factor in Silicon Valley's success that Miami still needs is time. "We're a 10-year overnight-success story," Suarez told me. That is far short of the decades it took for Silicon Valley to mature. It's clear that Miami's star is rising, but to become an entrenched part of the tech industry, the city will need to weather economic storms like what we're seeing today. Reading the coffee grounds from cafecitos, there is a growing chance that Miami could very well become a superstar city with an international tech hub. Emil Skandul is a writer and founder of digital innovation firm Capitol Foundry. He is working on a book about tech hubs.