Business
What doom loop? With AI, a 'spirit of optimism' returns to San Francisco start-ups
Far from the palm trees of Miami or Austin’s taco trucks, Catalin Voss has headquartered his literacy start-up between a cannabis club and pawn shop in the heart of the Mission District.
Voss rents a nondescript office building in one of San Francisco’s most vibrant neighborhoods as a home base for Ello, a company he co-founded in 2020 that uses speech recognition technology, powered by artificial intelligence, to help struggling students develop their reading skills. The office is within walking distance of his Noe Valley apartment and only steps away from some of the city’s best taquerias and cocktail bars. And those are just a few of the perks he recited in explaining why he is headquartered in San Francisco.
Doom loop be damned.
Voss is part of a sizable cohort of San Francisco loyalists — old and new — who say they are flummoxed by the “all is lost” narrative propagated by conservative media hosts and more recently a vocal contingent of tech leaders that includes billionaire entrepreneur-turned-agitator Elon Musk.
The naysayers depict San Francisco as a city in decline — in Musk’s words, “a derelict zombie apocalypse” — ruined by liberal policies that allowed street crime and illicit drug use to fester. In a November debate with Gov. Gavin Newsom, GOP presidential hopeful and Florida Gov. Ron DeSantis invoked the city’s notoriety multiple times, at one point holding up a “poop map” of human feces soiling San Francisco streets.
Voss, in contrast, says San Francisco is still the “it” city for innovation and opportunity in the tech industry.
“There’s no better place to do it than S.F.,” Voss said, seated in a small conference room in Ello’s apartment-style office, just around the corner from OpenAI’s headquarters.
“If you want to be the world’s best at finance, you move to New York. If you want to be the world’s best at acting, you move to L.A. If you want to be the world’s best at tech, you move to San Francisco,” said Voss, a native of Germany.
San Francisco loyalists say the city remains a vibrant hub for technology start-ups, talent and funding.
(Luis Sinco / Los Angeles Times)
Several tech leaders interviewed — some have spent decades in Silicon Valley, others are newcomers to the region — argue San Francisco and the Bay Area more broadly remain a thriving nerve center of talent, institutional knowledge and bountiful venture capital. They say emerging tech hubs — think Nashville, Miami, Austin — can’t really compare.
Instead, they argue, cycling through booms and busts is just a natural part of San Francisco’s rhythms. And while they acknowledge the economic hit the COVID-19 pandemic wrought as tech companies traded downtown offices for remote work, they see the next boom ahead in the industry building around artificial intelligence.
“It does feel like this really optimistic and exciting moment in time,” said Angela Hoover, who recently relocated her AI search chatbot company, Andi, from Miami to San Francisco. “People are wanting to be in San Francisco, and the folks that are on my team who live here are falling in love with the city.”
The move from East Coast to West Coast has been like “rocket fuel” for Andi, Hoover said. She’s found an abundance of leaders in the AI field eager to provide feedback and collaborate on ideas.
Some key data points also defy the depiction of a region in the throes of decline. The Bay Area last year maintained its top national ranking for venture capital investment, followed by Boston and New York, according to an October report by Ernst and Young, buoyed in part by investments in artificial intelligence.
And while California as a whole has lost roughly 37,200 people since July 2022, according to the state Department of Finance, San Francisco and other Bay Area counties recorded a net gain of thousands of residents. And San Francisco’s prohibitive housing prices have dropped over the last year, a trend that is expected to continue in 2024.
“I have seen in the last six months, a gradual — a gradual — spirit of optimism come back,” said Homa Bahrami, a senior lecturer at UC Berkeley’s Haas School of Business. “Every day you hear about yet another layoff, yet another layoff, yet another layoff. But at the same time you also see this new start-up got formed, this new start-up got acquired, venture money went into this space.”
Bahrami credits the Bay Area’s stature in the tech industry to its tangible resources, including education, mentorship and financing, which make it “difficult for other places to emulate.”
The region’s many elite schools, including Berkeley and Stanford, feed the next generation of start-ups and executives. Scores of retired CEOs are readily available to mentor younger leaders, and venture capital funding is easier to access than in many of the newer tech hubs.
“The Bay Area is a global ecosystem,” Bahrami said. “It’s not just an American ecosystem.”
Still, Bahrami urged caution in reading too much into early signs of the next “boom.”
“I would use the word ‘paradox,’” Bahrami said. “I think we’re just sort of transitioning from the pandemic-era world to the post-pandemic era. But we haven’t quite got there yet.”
And Bahrami noted that “dark clouds” are still looming, including inflation, geopolitical challenges and the struggles San Francisco faces in revitalizing its post-pandemic downtown.
San Francisco’s office vacancy rate now tops 30%, according to the city’s chief economist, Ted Egan. Workers are coming into the office at only 43% of pre-COVID levels, and that’s bad news for restaurants and retail.
“Downtown before the pandemic was a pretty rich ecosystem. But at the core of it was people coming to work in offices,” Egan said. “Until you get that back, it’s going to be hard to restart a positive dynamic flywheel downtown.”
Even San Francisco’s defenders acknowledge the pandemic exodus has been a blow. In recent years, tech giants had taken over lengthy stretches of the downtown core, raising gleaming new towers that employed thousands of workers who needed places to eat and drink and shop and live.
After COVID hit and tech companies allowed people to work from home, it was only a matter of time before “home” became another city and then another state, with cheaper rents, fewer homeless camps and less property crime. Many tech leaders followed suit, realizing they could raise money and run a business from states with lower tax rates.
It’s not that Voss doesn’t see any problems. It’s that he thinks San Francisco is thriving despite them.
“I perceive it as noise in the background,” he said.
Voss said Ello employs about 35 people, with satellite offices in New York and Nairobi. The company recently raised $15 million in Series A funding, and Voss said he persuaded a well-known machine-learning engineer to move to San Francisco from China.
“If you are that person who is that ambitious and wants to be the best in the world at the thing you do, I don’t think you’re not going to give San Francisco a second look because of what Fox News says,” Voss said.
Russell Hancock, president and chief executive of the think tank Joint Venture Silicon Valley, agreed, saying most people in the tech world disagree with the narrative that San Francisco has somehow lost its allure.
“San Francisco is vibrant. It’s a magnificent city,” Hancock said. “There’s a reason it has appeal. And part of the appeal, let’s never forget, is it’s kind of quirky and kooky and progressive.”
Hancock doesn’t see other cities developing into tech centers as a bad thing, arguing that the shifting dynamics could relieve pressure on the Bay Area’s infrastructure and temper the housing prices.
But as artificial intelligence takes hold, San Francisco has a “leg up” on other regions, Hancock said.
“That’s how Silicon Valley goes,” he said. “These things come in waves. And this appears to be the next wave. And it appears to be real.”
A big part of San Francisco’s enduring appeal for tech is that it’s in the city’s DNA to be a “tolerant place,” added Peter Leyden, a Bay Area entrepreneur and, most recently, the founder of Reinvent Futures, a company that helps convene top leaders in artificial intelligence.
In Silicon Valley, Leyden said, it’s pretty much a requirement to fail with one company to get access to the capital and credentials needed to gain success with another. While the right-wing and libertarian “crypto crew” fled for red states during the pandemic, he said, the old guard stayed put, confident that San Francisco would rise again.
“The point is every place has its issues, and we do, too, but the narrative that’s out there is just wrong,” Leyden said. “Because there really is nothing like San Francisco.”
Fernando Flores can spend eight hours a day pouring the same cup of coffee.
He is not a barista. He’s a robot puppeteer, trying to train humanoids.
He manipulates mechanical arms remotely, using hand and arm sensors to make them pick up a pot of coffee, pour it into a mug and put the pot back in the coffee maker. Flores checks for spills, then empties the mug back into the pot by hand and does it again — hundreds of times.
“The repetitiveness, it can cause some discomfort,” said Flores, who has the title of senior robotic pilot at San Francisco startup Encord. “It becomes second nature after a while.”
This Sisyphus of Silicon Valley is on the front lines of a rapidly expanding industry of robot trainers, preparing to teach and operate the army of humanoid robots scheduled to march out of nearby factories in the coming year. Encord practices, records and sells data about movement to the companies racing to bring humanoids to homes, offices and factories.
If tech companies’ optimistic plans are to be believed, a swarm of American-built robots is about to hit the market.
Tesla’s Fremont factory stopped car production this year to make way for production lines for its Optimus robots, with unbelievable plans to ramp up capacity to 1 million units a year. Palo Alto-based 1X Technologies is already manufacturing its 66-pound, 5-foot-6 humanoid named Neo at its factory in Hayward. The company received 10,000 preorders, and its first shipment is expected later this year. Figure AI’s humanoid factory in San Jose has increased its manufacturing capacity to produce one Figure 03 robot an hour, with the goal of producing 12,000 a year.
Fernando Flores demonstrates the articulation of a robot performing a whisking motion at Encord on May 21.
(Paul Kuroda / For The Times)
Goldman Sachs projects the global market for humanoids could reach $38 billion by 2035.
The AI of these humanoid robots needs an immense amount of data on human movement. How humans write, speak, code and compose was easily scraped off the internet, but the bots need more information to master how to stand, step, lift, squeeze, pour and perform other physical movements. That is where companies like Encord come in.
The $10 billion invested in robotics in 2026, according to CB Insights, has spawned an industry focused on training robots. Initially, that meant humans strapping iPhones to their foreheads, recording actions like cooking, cleaning and performing household chores. That, however, doesn’t capture the exact torque, force and grip required for a robot hand to work flawlessly.
Now, humans are directly guiding robots through expensive rigs that let them control the robots’ movements. Data collected using robot arms offer richer insights into motor skills and object manipulation. Encord charges clients up to $1,000 per hour for training data.
The information gathered from trainers controlling robots is “super important to bridge the next level of learning,” where robots will learn to correct mistakes and do the chores on their own, said Vineeth Velmurugan, head of robotics learning at Encord.
The company is already working with some of the top companies in robotics, but said it couldn’t share most names. Among the clients it could mention were Toyota Research Institute and Weave, which already has laundry-folding robots in a few homes.
Brian Gonzalez pulls an ethernet cable using a robotic arm at startup Encord on May 20.
(Paul Kuroda / For The Times)
Many of the new robotic data companies are focusing on industrial use cases. Robots can perform better in a structured, predictable environment, like a factory or warehouse.
Home tasks are tougher, as layouts and tasks are more varied and messy. While many bots have mastered walking, they still struggle to open doors, fridges and washing machines smoothly. They don’t know where or how to grasp a doorknob, handle or door edge or how much pulling, pushing or twisting force to apply.
Flores has mastered making the robot arms pour coffee, but he still often spills. When that happens, he deletes records of the attempt.
“Typically, we don’t want any mistakes,” he said. “If we have more than three consecutive mistakes within a 15‑second window, that’s not going to be good data.”
Inside Encord’s test facility in Hayward, it has replicated a standard American home with a fully furnished living room, kitchen and bathroom.
In the living room, a pilot rearranges an untidy study desk. She first scatters AA-size batteries, pens and scissors on the table, and walks back to the nearby control rig to make the robot arms place each one inside the tray of a desk organizer.
Depending on the day’s training, the pilots could be opening and closing refrigerator doors, whisking liquids in a bowl, sorting silverware or turning a water faucet on and off over and over until the robot arms get it right.
Cortney Weintz, left, and Tony Schiller record data with cameras at Encord.
(Paul Kuroda / For The Times)
In another corner of the facility, people wearing smart glasses place and pick up playing cards and sort plastic plates by hand, collecting first-person videos.
One key skill for the coming bot invasion: plugging in cables.
Companies want robots that can crawl into duct spaces, identify ports and plug cables to help build the massive data centers needed for AI. Encord replicated a real data center server rack, where an operator inserts blue cables into penny-sized sockets all day.
Many companies have entered this business. Meta-backed Scale AI and Palo Alto-based Micro1 are major players in the space. China has more than 40 state-owned robot data-collection facilities where hundreds of on-site humans mimic train bots how to move in the real world.
In Watertown, Mass., Tutor Intelligence has set up a 100-robot facility dedicated to harvesting movement data. Its robot arms, which are being trained to do factory work, are controlled by a human team split across Mexico, the Philippines and Boston. This is in part to train its robot, Sonny, which will hit the market later this year.
Elaine Batchlor sorts screws and bolts with a robot in a mockup at Encord.
(Paul Kuroda / For The Times)
“We built the Data Factory to bootstrap the initial intelligence for the Sonny robot, so that we can begin to deploy Sonny into the field,” said Josh Gruenstein, co-founder of Tutor. Ten of its remote operators are based in Boston, and the rest are international.
Remote operation is emerging as an integral part of the humanoid robot business. Employing teleoperators in countries where wages are much lower than in the U.S. could, in theory, mean a robot controlled by a human in another country could do a task at a fraction of the cost of having an American do it.
This month, a humanoid robot cleaning service in San Francisco called Gatsby completed a robot cleaning of a U.S. home using a teleoperator in Mexico.
The technology is still evolving, said Aron Frishberg, co-founder of Gatsby, but being a first mover means Gatsby is getting more training.
“There’s obviously stuff that goes wrong,” he said. “It’s really hard to get precise hand movements or arm movements and grab something.”
Encord co-founder Ulrik Hansen said it will be setting up a teleoperations center in its Hayward facility in the next three months. Even as more robots are deployed and master increasingly sophisticated tasks, they will still need humans to occasionally take control remotely.
“They will need some exception handling when they get things wrong,” he said.
Hundreds of teleoperators will learn where the system succeeds, where it breaks and step in when needed. Once those patterns emerge, Hansen said, they can move teleoperations to cheaper locations abroad or to the Midwest.
Back in Hayward, Flores created new coffee-pouring challenges for his robot arms. He changed what was on the counter around the coffee maker and moved the mug to different spots. It takes a lot of know-how to puppet and train a robot, he said.
“A lot of people would (guess) this might be easy, this is dumb,” Flores said. “There actually is thought here. There actually is critical thinking.”
A Carl’s Jr. franchisee is trying to close and sell his 59 locations in California after filing for bankruptcy protection in April.
The franchisee, Harshad Dharod, who has branches mostly in Southern California, intends to close 10 of the branches he controls and find a buyer for the remainder, according to a broker helping find buyers.
In earlier bankruptcy filings, Dharod had blamed California and Carl’s Jr. for his stores’ struggles. Dharod said a lack of support and innovation from Carl’s Jr. and an increase in labor costs from a $20 minimum wage left him unable to cover his expenses.
Dharod couldn’t be reached for comment.
A spokesperson for Carl’s Jr. and its parent company CKE Restaurants, said they are aware of Dharod’s decision to sell.
“This situation is specific to this individual franchisee’s financial and business circumstances,” said the spokesperson. “This has no impact on the operations of any other Carl’s Jr. locations.”
National Franchise Sales will oversee the sale, which spans Southern and Northern California.
A spokesperson for the broker said it already has interest from prospective buyers. The spokesperson said that when a franchise changes owners, employees and managers usually keep their jobs.
Carl’s Jr. began in 1941 as a hot dog cart on the corner of Florence and Central in Los Angeles and grew into one of the region’s best-known burger chains. It opened its first sit-down restaurants with expanded menus in Anaheim in 1946. Its smiling yellow star was born in the 1950s and rapidly spread across California throughout the 1970s.
Although it moved its headquarters from Carpinteria to Tennessee in the last 10 years, its menu still reflects its California origins, with items such as the Cali XL, a double cheeseburger. The chain was among the first to spot the meat-free trend and introduced plant-based burgers and the charbroiled turkey burger. In the early 2000s, it made a splash with commercials pointing to its California origins.
It has had a tough time this year remaining relevant amid new competitors and fast-food consumers who are becoming more picky about what they will pay for and eat, analysts say.
Like most restaurants, Carl’s Jr. has been struggling to attract customers at a time when many are increasingly concerned about inflation and the health of the economy. Some chains are slashing prices. Smaller chains can’t compete well in the price wars. Those without a strong brand identity and fan base have been suffering.
Dharod told the bankruptcy court that business had become particularly bad in the last two years, leaving him without sufficient access to cash to cover wages, rent, supplies and insurance. Although his outlets have generated more than $6 million in monthly revenue, they have been losing more than $600,000 per month this year.
He had to ask for special permission to use his daily cash flow to fund expenses, or risk running out of money and being forced to close his outlets.
A small group of the close to 1,000 employees working for the franchisee say the efforts to cut costs to the bone have left them overworked, understaffed and exposed to violence.
Some say they are getting injured as they have to do the work of multiple people. Some detailed violent interactions with customers, including robberies and physical assaults, and said the company didn’t provide safety training. Some have staged multiple walkouts in recent months to bring attention to their concerns.
A Delaware Court of Chancery judge delivered a blow to wrestling impresario Vince McMahon and other World Wrestling Entertainment officials earlier this week.
Judge J. Travis Laster, vice chancellor of the Delaware Court of Chancery, issued sanctions for “spoliation of evidence” in the shareholder lawsuit over the 2023 merger between Ultimate Fighting Championship and WWE.
Laster ruled on Tuesday that WWE executives destroyed evidence by using the auto-delete setting on the messaging app Signal, enabling potentially relevant communications to be deleted.
The ruling means the court will operate under the assumption that five potentially damaging statements are true while allowing the defendants to rebut them.
The statements, according to the ruling, include that McMahon’s decision on the merger was “influenced” by Endeavor Executive Chairman Ari Emanuel’s “promise” to provide him with a continued role at the company and to indemnify him and provide legal support as federal investigators were looking into claims of alleged sexual misconduct.
McMahon pursued a deal with Endeavor in 2022 before WWE initiated its strategic review process, and both McMahon and then-WWE President Nick Khan worked with The Raine Group, a strategic financial advisor, “to steer the process to Endeavor and away from other potential bidders,” the ruling states.
In September 2023, entertainment giant Endeavor, the parent company of UFC, acquired WWE and merged the two sports entities to form a new, publicly traded company, TKO Group Holdings, in a deal worth $21.4 billion.
A month later, a group of shareholders filed suit against McMahon and other company officials in Delaware Chancery Court, claiming McMahon orchestrated a “sham sale process.”
Representatives for McMahon, WWE and TKO were not immediately available for comment.
According to the suit, McMahon, WWE’s controlling shareholder, turned down higher offers and excluded other bidders who would have ousted him and instead chose a deal that favored Endeavor’s Emanuel, a “close friend and longtime ally,” enabling McMahon to continue running WWE and shielding him from federal investigations related to a raft of sexual misconduct claims.
The complaint also alleges that the $21.4-billion deal undervalued the company and was “far below the offers” WWE’s board could have received from other interested parties had they “made any effort to negotiate in good faith.”
The litigation is related to the 2022 investigation by WWE’s board that found that McMahon made at least $14.6 million in payments between 2006 and 2022 for “alleged misconduct.” McMahon has denied claims of misconduct.
The settlements were made to women, including WWE employees, who alleged that McMahon initiated unwanted sexual contact and coerced women into performing sexual acts on him. In one case, first reported by the Wall Street Journal, a woman claimed that McMahon sent her unsolicited nude photos of himself.
McMahon’s alleged misconduct became the subject of ongoing investigations by the Securities and Exchange Commission and the U.S. Department of Justice.
“I am confident that the government’s investigation will be resolved without any findings of wrongdoing,” McMahon said in a statement to The Times in 2023.
Last January, the SEC announced it had settled charges against McMahon alleging he had violated federal securities laws by failing to disclose a pair of settlement agreements to WWE worth $10.5 million.
McMahon agreed to pay more than $1.7 million in a civil penalty and in reimbursement to WWE, without admitting or denying the agency’s findings. Federal prosecutors also have dropped their criminal investigation.
In January 2024, McMahon resigned as executive chairman of the board of TKO Group, one day after a former WWE employee, Janel Grant, sued the company, McMahon and former head of talent relations John Laurinaitis, alleging sexual assault, trafficking and emotional abuse.
Grant claimed that McMahon agreed to pay her $3 million in exchange for her silence.
The shareholder trial is set to begin on June 8. McMahon, Emanuel, Khan, TKO President Mark Shapiro, and WWE Chief Content Officer Paul “Triple H” Levesque are expected to testify.
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