The ChatGPT and generative AI 'gold rush' has founders flocking to San Francisco's 'Cerebral Valley'

• Because of pandemic-era closings, San Francisco became somewhat of a ghost town for two years. 
• As people left the city and worked remotely, some wondered if San Francisco was dead as a tech hub. 
• Now, a race to succeed in the fledgling space of generative AI has founders flocking back. 

San Francisco's tech scene is back. After the pandemic effectively shut down the city for more than two years, San Francisco is shifting away from proclamations of a once-great city's demise and towards the good old times, when it was the destination for those trying to reshape the world's technological vision. 

Across the city, founders are planting their flags, with dreams of riding the wave of a new technology that's been said to be a step-change akin to the iPhone: generative artificial intelligence. Amber Yang, an early-stage investor at Bloomberg Beta, recently tweeted that startups in that field are flocking to San Francisco's Hayes Valley neighborhood, which founders have renamed to "Cerebral Valley." The tweet was somewhat made in jest, but Yang went on to explain that the nascent field of generative AI is advancing so quickly that teams feel being together in one hub is necessary to keep up.

Generative AI takes training data — for instance, a vast corpus of written text — and teaches itself how to produce completely new, unique works. In the first five days since its release, more than 1 million people have reportedly tried out ChatGPT, an AI chatbot that can respond to questions with human-like answers. Microsoft is reportedly investing $10 billion in the tool's creator OpenAI, with plans to incorporate the technology into its Bing search and Azure cloud offerings. 

ChatGPT has limitations, however. It may know how to form human-like sentences, but it can't discern whether they're accurate. 

Still, the underlying technology of generative AI is nonetheless quite impressive, and startup founders see much potential.  22% of generative AI companies are based in the greater San Francisco Bay Area, and 55% of capital invested in the space is landing here, says James Currier, a partner with early-stage investment firm NFX.  

The "crazy hackers" are here

Founders Víctor Perez and Diego Rodríguez knew San Francisco was the place to be for generative AI when they moved there several months ago to build KREA. Their startup, based in the city's Hayes Valley neighborhood, creates models for high-quality image generation along with asset management services.

Originally from Spain, the duo first landed in Miami last year, where they developed generative image models. There, they noticed that most of the "crazy hackers" they met came from San Francisco.

After giving New York a try for several weeks, the generative AI boom picked up. People began telling them to head west. Dave Fontenot, founder of a 12-week residency program called HF0 for founders in San Francisco, told them they'd be "crazy" and "irresponsible" not to work on generative AI in San Francisco, Perez said.

Perez and Rodríguez initially planned to stay briefly, but when they started meeting people around San Francisco working on generative tech — including individuals working on artificial intelligence at Meta and OpenAI — they knew they had to stay. They said they felt the excitement and the motivation of developers to build something new. 

Perez said that the sense of urgency to get working on building better AI models comes from how generative AI improves with more data. Models must be trained using real data created by humans — the more images of a fish that an AI model sees, the better it gets at producing its own image of a fish, for instance.

"We feel urgency," Perez said. "But it's not because some other people can create a better model than us today. It's creating the best models tomorrow."

Another founder who recently landed in San Francisco, Nicholas Locascio, is working on Booth AI, which targets e-commerce with a tool that generates professional product shots without having to pay for an expensive photo shoot. Customers upload images of their product — say, a coffee mug — and then Booth AI can place the coffee mug in a lifestyle scene that makes it look appealing on e-commerce pages. 

Along with co-founders Ian Baldwin and Mitra Morgan, Locascio was recently accepted into the vaunted Y Combinator accelerator program based in Silicon Valley.

"This is a technology that a lot of traditional thinking about programming just doesn't work for," Locascio said. "Nobody knows the best way to do anything right now. It's a complete gold rush."

No skeptics yet

While founders are confident that generative AI will change the world, they're still trying to figure out exactly how it will play out. 

"There are no skeptics yet, so it's a unique time," said Currier, the NFX partner. "But entrepreneurs have to figure it out because the Big Tech companies aren't sitting around." 

To Currier's point, Google reportedly issued a "code red" in recent weeks to respond to the potential threat of generative AI products against search and its other key services.

That's why it's key for up-and-coming AI startup developers to work together to get ahead while they can and share ideas with each other – similar to how in the early days of the sharing economy, Uber co-founder Travis Kalanick and Airbnb CEO Brian Chesky would reportedly have dinner together frequently and leave with ideas on how to improve their companies. 

"The lunch and the parties happening in the Bay Area are going to have a substantial impact" on who figures out the strategies to win, Currier said. "So being in the same place matters," he added.