Oakland ranks No. 11 on list of best cities for tech startups

San Francisco and San Jose may soon have a rival when it comes to tech startup headquarters.

Oakland ranked No. 11 on a list of the most attractive U.S. cities for tech startups, according to a recent survey from the National Venture Capital Association. San Francisco was ranked No. 1, with Silicon Valley’s San Jose coming in second.

The results were first published on CIO.com, a publication for technology leaders. Cities like Boston, Los Angeles, Boulder, CO and New York City also made the list.

Available space, low real estate prices, access to talent pools like U.C. Berkeley and an attractive urban vibe all draw new tech startups—outshining drawbacks like crime and a troubled school system that still challenge the city.

“Today, in San Francisco, if you’re a young startup, you literally have to worry: ‘Is there room for you to grow?’” said Joe Kennedy, Chief Executive Officer of Pandora, which just added 30,000 square feet to its Oakland operations. “You have young startups trying to bank for space in advance. Oakland still has a reasonable amount of capacity and companies can locate for a reasonable cost.”

In contrast to Silicon Valley’s general technology focus, several Oakland startups and venture capitalists said the city is becoming more of a sustainable and green tech hub.

“We’ve started to see the clustering of clean tech companies along [Highway] 880,” said Cynthia Ringo, one of the managing partners of DBL Investors, a venture capital firm that invests in several Oakland tech companies including Pandora and green packaging business Ecologic.

Ecologic managers said this way of thinking was an important part of their operations.

“The thinking is progressive,” said Jack Wei, director of marketing, describing many Oakland startup managers and their companies. “It’s so fast-paced, and it’s creative.”

The diversity of the city was another plus.

“If you think about the methodology of Silicon Valley, sometimes … the reality is that … the market starts on the east side of the Bay and goes from there across the rest of the country into the great masses of America,” said Danny Kennedy, president of Oakland-based Sungevity Inc., a solar electricity company. “You get your first test market by talking to local Oaklanders.”

He added, “I know there’s a lot of negative press around Oakland, and we need to deal with public safety issues and education, but there’s a lot of commitment to the place, too, and a lot of people that love it dearly. There’s a lot of pride in Oakland—that counts for something.”

To encourage business development, the city offers several tax incentives. Tech startups producing something involving sales can get up to a 50 percent tax break. Companies with at least 20 employees can qualify for a business tax incentive, in which all or part of their first year business tax to the city is refunded, said Sean Maher, spokesman for Mayor Jean Quan’s office. For certain industries like high tech, digital media or digital art, the city can waive the 20-employee requirement, he said.

“We’re encouraging those kinds of companies to come to Oakland,” Maher said. “We’re trying to break down that barrier for them and give them easier access.”

He added that Quan is trying to tackle public safety concerns through the new budget released last week, which allocates more to the Oakland Police Department’s training academy, enough funding for four academies in two years.

Hot spots for tech startups in Oakland include downtown Lake Merritt, the area around the Oakland International Airport and Jack London Square, which has become a hub for solar energy companies. Access to transportation, whether it’s BART, the airport or Highway 880, make these places desirable, said Nancy Pfund, one of the managing partners of DBL Investors. The East Bay is also home to a growing biotech industry, with hubs in Emeryville, Berkeley, Alameda and Richmond.

The growing reputation of Jack London Square as a solar startup central brought new startup Sunible Inc. to Harrison Street in Oakland. Sunible allows consumers to compare prices of solar energy providers in much the same way as Kayak.com lets travelers cross check airfares of different airlines, said Stephen Torres, CEO.

“We wanted to be part of this solar startup ecosystem,” he said. “We have all of the great access to all of the talent, without the extra price.”

Torres said one drawback might be that recruiting potential employees in San Francisco requires a location in that city.  But few startup CEOs mentioned drawbacks of having their headquarters in Oakland.

“Our employees would revolt if we moved out of our present location,” Joe Kennedy said. “They like the vibe of the neighborhood, they like what they’re able to do … they’re reasons not to just come here, but more strong reasons to stay.”