Garry Tan, the President and CEO of Y Combinator, just threw some cold water on California's economic track record. This comes days after David Sacks, venture capitalist and the White House's AI and crypto czar, suggested the famous startup accelerator should open an Austin office to hedge against California's mounting fiscal and political headaches.

California's Economic Report Card Isn't Pretty

Tan highlighted a Financial Times opinion piece that laid out California's less-than-stellar stats: the nation's highest unemployment rate, its highest homeless population, its highest median housing prices, and its highest gas and electricity prices (except Hawaii, which somehow manages to be even pricier on the energy front).

The Financial Times column came from Michael Moritz, Chairperson of Sequoia Capital, who argued that California's billionaire tax plan is bound to backfire. His point? The state has leaned way too heavily on a handful of ultra-wealthy residents over the past half-century, and that dependency is starting to look risky.

Sacks Makes the Case for Geographic Hedging

Sacks had previously pushed Tan to rethink Y Combinator's geographic concentration, pointing out that Austin's startup scene has picked up serious momentum. He noted that Tesla Inc. (TSLA) CEO Elon Musk and venture capitalist Joe Lonsdale have already made the move.

"If you don't start diversifying now, you won't have any leverage," Sacks wrote, warning that Silicon Valley's network effects essentially give California politicians rent-extraction power over the tech industry.

Y Combinator Weighs Its Options

Tan has shown he's listening to these arguments, though he's pointed out that San Francisco Bay Area startups hit product-market fit at 2.5 times the rate of their Austin counterparts. Still, in a separate post responding to a user on X, the Canadian-American venture capitalist said Y Combinator would "have to consider Austin or Cambridge programs" if California's proposed wealth tax actually makes it to the ballot.

For context, Y Combinator has backed some of the biggest names in tech, including Airbnb Inc. (ABNB), Reddit Inc. (RDDT), and DoorDash Inc. (DASH).