Benchmark Joins Twitter in San Francisco's Startup Zone

Benchmark Joins Twitter in San Francisco's Startup Zone

Twitter Inc. will be joined by one of its biggest investors soon after the company moves to San Francisco's gritty Mid-Market neighborhood next month.

Benchmark Capital, which bought a stake in the micro- blogging service three years ago, signed a lease this week for more than 10,000 square feet of space on Market Street, a half mile from Twitter's new headquarters. The office is just above the Warfield Theater, a 90-year-old entertainment hall that's featured everyone from Louis Armstrong to Bob Dylan.

While Benchmark is keeping its existing office in Menlo Park, California, the new urban outpost is the latest sign that the startup hub has moved north from Silicon Valley. In addition to Twitter, San Francisco is home to Zynga Inc. (ZNGA) and Yelp Inc. (YELP) as well as fast-growing Web companies Dropbox Inc., Square Inc. and Airbnb Inc. That's pushed down vacancy rates and raised rents.

"The business moved and we're all waking up to the fact that this is a monumental shift," Peter Fenton, a general partner at Benchmark and board member at Twitter and Yelp, said in an interview. "These forces are long-term and we're making a bet consistent with that." Two-thirds of Benchmark's deals since 2009 have been in San Francisco, he said.

Fenton and Matt Cohler are the only two of Benchmark's six investing partners who live in San Francisco, though all of them will be using the space starting in the second half of this year. They'll occupy the seventh and eighth floors at the top of the building on Market Street near the corner of 6th Street. Fenton declined to provide terms of the lease.

SoMa Startups

Most of the startups are concentrated in the nearby South of Market, or SoMa, district, where scores of social, mobile and cloud-computing companies are emerging. The vacancy rate in SoMa shrank by more than half in the first quarter to 3.8 percent, the lowest since 2000, according to brokerage firm Jones Lang LaSalle Inc. That helped boost San Francisco office rents by 24 percent to an average $46.66 a square foot from a year earlier, the brokerage said.

Twitter's six-year lease on Market between 9th and 10th streets gives the company three floors with 215,000 square feet at an average annual rental rate of $30 a square foot. The company opted to stay in San Francisco after Mayor Edwin M. Lee supported a six-year payroll tax exclusion last year aimed at keeping Twitter in town and building up Mid-Market.

Historically, it's been a rough area, replete with crime and homelessness. Fenton said the ground floor of their building has a strip club on the right and a drug paraphernalia store on the left. The firm wants to be part of the neighborhood revival as well as enjoy the "romantic appeal" of being on top of a music venue, Fenton said.

Vaudeville Hall

The Warfield opened on May 13, 1922, as a vaudeville and movie theater and became primarily a music hall in 1979, when Dylan played two weeks of concerts. The Jerry Garcia Band was a house favorite until Garcia's death in 1995.

"It speaks to a place that will be fun and appealing to young entrepreneurs, not a stuffy financial-services kind of presence," Fenton said. "There's always a risk. In three to five years, people may laugh at this decision or say, 'hey, there was some foresight."'

Lewis Cirne, founder of cloud-based business software maker New Relic Inc., is working on his second startup backed by Fenton. The first was on the Peninsula, south of San Francisco, and when he started New Relic in 2008, all the momentum was moving to the city, he said.

'Round Two'

"Round one for Peter and me was the Peninsula and round two for both of us in San Francisco," said Cirne. "Benchmark is capitalizing on a trend and it signifies them being ahead of the curve."

Until now, Benchmark's main office has been on Menlo Park's Sand Hill Road, surrounded by other high-profile firms such as Kleiner Perkins Caufield & Byers, Sequoia Capital and, more recently, Greylock Partners. Venture firms in San Francisco include Crosslink Capital and First Round Capital, and last year Europe's Index Ventures opened an office in the city, while Trinity Ventures started a co-working space for portfolio companies.

Benchmark was founded in 1995 and made its marquee investment in EBay Inc. (EBAY) two years later, reeling in billions of dollars after the auction site's 1998 initial public offering. More recently, Benchmark was the biggest outside investor in photo-sharing app developer Instagram Inc., which was bought by Facebook Inc. (FB) last month, and it backed five companies that sold shares to the public in the past 14 months.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net