Case study
August 22, 2017

Bay Area Economic Impact

A single TechShop location holds the potential for hundreds of innovators to collaborate at any given time.

Since our three Bay Area TechShop locations have been in operation the longest, we will look at these sites to provide an idea of the economic impact that a TechShop can have on a community.

TechShop has helped launch hundreds of businesses. A small sample of those that have come out of the Mid-Peninsula, San Francisco and San Jose TechShop locations include Solum, Oru Kayak, Lumio, Local Motion, Coin, Boosted Boards, Brydge, DODOcase, Type A Machines, HeadThere, Karatstix, Better O Wed, OpenROV, Theradome, Wood Thumb, YesAndYesDesigns, C-Loop, BioLite, Lightning Motorcycles, Fauna Sauna, SFMade and SF Laser. Together, these companies represent thousands of jobs, 100s of millions of dollars in VC funding, millions of dollars’ worth of Kickstarter projects and even two SharkTank winners. Here is a closer look at three TechShop-launched Bay Area companies:

Clustered Systems: This company built a data center cooling system that is 8% to 15% more e cient than any other known data cooling center system in the world. Emerson Electronics licensed its technology and now sells it through one of its divisions. The annual global spend on electricity used to cool data centers is in excessof $250 billion. As a result, as these systems are deployed globally and as competitors are forced to nd ways to match Clustered Systems’ e ciency, this TechShop-launched company will have spurred an annual, global, electrical savings in excess of $10 billion.

Embrace: A fairly small company doing only
$1 million or so in sales, with roughly 10 employees, Embrace is a 501(c) 3 that has
won numerous awards. This company making low-cost warmers for hypothermic infants in developing countries has already saved the lives of 200,000 babies.

The largest single company to launch from TechShop is Square, the merchant banking solution that James McKelvey and Jack Dorsey founded in 2009. Now worth more than $6 billion in shareholder value, the company did in excess of $1billion in sales and over $30 billion in transactions in 2014. It is estimated that they ended 2014 with 1,000 employees. We estimate that the average salary at Square is more than $100,000 or $100 million in aggregate.

Using Square as the rare but large instance, then applying Zipf’s law*, the direct estimated impact to the Bay Area over the last eight years is $12 billion in incremental shareholder value, over $2 billion dollars in annual sales, $200 million in annual salaries and 2,000 jobs. This is just the direct impact and direct job creation. The indirect impact is even greater. The indirect number of jobs created as a result of these and other businesses coming out of the TechShop locations could easily double or triple those numbers. Let’s just double them and call it 4,000 jobs.

The state of California makes more on the income tax generated by those jobs on an annual basis than it takes to fund multiple TechShops for ve years (9.3% tax rate plus $2,191 of annual income at $100 thousand per job yields $11,491. Multiplied times 4,000 jobs, that comes to about $45.96 million annually). The cost per job is not $5,000 or $50,000 or even $500. Over ve years the state of California is collecting $49,957 per job just on income tax. To put it another way, $30 million in services returns almost $200 million in taxes over ve years. The Federal government makes between 2–3 times that, and then there is sales tax and the government’s share of the capital gains (something around $1 to $1.2 billion in capital gains for the state of California). The total potential government return over ve years including sales tax, capital gains and income taxes is in excess of $4.5 billion.

The Bay Area community funded all three California TechShop locations through loans, reduced rent and direct investments, investing less than $30 million. What is the costbene t of this investment? The State of California takes in more each year on the income tax from the jobs created as a result of TechShop than we have spent to fund and operate all three locations in the state for the last eight years.

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