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In San Francisco, Twitter's IPO stokes debate over wealth it created

Most of Twitter's roughly 2,000 employees became paper millionaires with the company's blockbuster IPO, prompting a heated debate in San Francisco about whether this newfound wealth should be cheered or feared.

November 11, 2013|By Jessica Guynn and Chris O'Brien
  • Instead of losing Twitter to Silicon Valley, San Francisco two years ago granted Twitter — and any other company that moved to the so-called Mid-Market neighborhood — a payroll tax break. Above, Twitter's headquarters.
Instead of losing Twitter to Silicon Valley, San Francisco two years ago… (David Paul Morris, Bloomberg )

SAN FRANCISCO — Ray McClure was lucky enough not only to get hired as one of Twitter's first employees but to get some stock.

When he left Twitter in 2007 after one year, McClure cashed out a bit at a time by selling his shares privately. He opened an art gallery with his wife. He bought a house in San Francisco, sold it several years later for a tidy profit, then bought another. And he hasn't had to work, spending the last year at home caring for his 18-month-old daughter.

"It changed my life in a very positive way," McClure, 35, said.

No doubt the estimated 1,600 Twitter employees who became paper millionaires with the company's blockbuster initial public offering last week will one day share that sentiment. Twitter shares closed Monday at $42.90, valuing the online short messaging service at more than $20 billion.

But elsewhere in Twitter's hometown, the city's highest-profile IPO in years has prompted a heated debate about whether this newfound wealth should be cheered or feared.

City boosters and the mayor's office have hailed the IPO and Twitter's success as catalysts that have revitalized one of the city's most dismal neighborhoods and cemented San Francisco's reputation as the world's start-up leader.

But community activists, already anxious that the tech sector is fueling rising housing costs and evictions, worry that the new Twitter wealth will accelerate trends that are changing the nature of this quirky city.

Although the forces changing the city's economy extend well beyond Twitter, the timing of its IPO has made it a convenient symbol for both sides wrestling over the city's economic future.

"Come three to six months from now we're going to see a lot of new liquid wealth in town. What happens then?" said San Francisco tech entrepreneur Chris Tacy. "My hope is that they're going to be responsible corporate citizens and figure out a way to give back in a manner that is both appropriate and meaningful."

In recent years, the center of gravity of Silicon Valley's tech boom has shifted to San Francisco.

Start-ups in the city raise more venture capital than any other city in the world. And increasingly, younger employees from Silicon Valley companies such as Apple, Google and Facebook are choosing to live in the city and commute.

Gourmet eateries, high-end boutiques and wine bars have popped up all over neighborhoods where tech workers live and work.

The boom has reduced unemployment: San Francisco has the state's third lowest jobless rate. Tax revenues are filling city coffers. And the city's skyline is filled with cranes marking a flurry of construction activity.

The bad news: San Francisco had the steepest year-over-year rent increase in the country in the third quarter. The median rent for an apartment in San Francisco was $3,398 a month, up 21% from a year earlier. According to a recent report by the city's budget and legislative analyst, evictions over the last three years have increased 38% while housing prices have risen 22% over that same period.

Perhaps nowhere is this transformation — and the resulting conflict — more clearly on display than in Twitter's neighborhood, the so-called Mid-Market area of San Francisco.

The name refers to a stretch of Market Street, which slices diagonally through downtown San Francisco, running from 5th Street to 9th Street, and to several blocks to the north and to the south. For years, Mid-Market has been a seedy, crime-plagued neighborhood so desolate that famed San Francisco Chronicle columnist Herb Caen once called it "le grand pissoir" for the persistent smell of urine.

Mid-Market has stubbornly resisted every attempt at economic revitalization. But two years ago, city leaders struck a deal with Twitter that finally promised to change the neighborhood's fortunes.

Fast-growing Twitter was threatening to leave the city for a nearby suburb, much like other tech companies that got their start in San Francisco only to migrate in search of more room to grow.

Instead of losing Twitter to Silicon Valley, the city granted Twitter — and any other company that moved to the neighborhood — a payroll tax break.

The city would forgo tens of millions of dollars from taxes on salaries and stock compensation. But the deal was still considered better than nothing, which is what the city was looking at if Twitter left, said Ted Egan, the city's chief economist.

Twitter moved into an aging 1930s Art Deco building on Market Street that it renovated. The company is now in talks to lease a 320,000-square-foot office next to its headquarters that would more than double the company's current footprint.

The difference in Mid-Market since Twitter moved in has been stark.

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