Boston's Past: How Did America's Former Tech Hub Decline?
Author: Will Manidis
Compiled by: TechFlow
In 2004, if you asked a tech investor where the world's best software companies were, they would give two answers: Boston and San Francisco.
Obviously, things are very different today. Over the past two decades, San Francisco has created $14 trillion in enterprise value, while Boston has contributed a mere $100 billion.
If you had told that investor back then that New York, once known for its "cocaine and pinstripe financial glory," would replace Boston as a regional tech hub, they would have thought you were crazy.
So, why did Boston lose its position? This question is worth exploring in depth.
From an input perspective, the city seems to have all the right conditions. Two of the world's top universities are located here (referring to Harvard University and MIT). The renowned startup incubator Y Combinator was also founded here. It is undoubtedly one of the most beautiful cities in the United States. Mark Zuckerberg attended university here. The founders of Stripe, the founders of Cursor, and the founders of Dropbox also studied here. So what went wrong?
To understand the scale of Boston's decline, we must remember that for decades, Boston's "Route 128" was the center of the software world. Digital Equipment Corporation (DEC) was once the world's second-largest computer company, employing 140,000 people at its peak. The applications developed by Lotus were key to bringing businesses into the PC era. Akamai built the foundation of the modern internet. So, where did Boston go wrong?
This is a question worth discussing. However, anyone attempting to answer it usually gives one of two answers:
- "Boston's decline began when Zuckerberg couldn't raise funds here and had to go to the West Coast."
- "Who says Boston is failing? We just led a Series F investment in TurboLogs at a $15 million valuation."
Of course, neither of these statements is sufficient to tell the full story. Figuring out Boston's real problem is not only a matter of survival for Boston but also a key issue for the entire U.S. tech ecosystem.
My answer is simple: Boston's story shows what happens when negative cultural and regulatory feedback loops interact. As a tech ecosystem, the city's decline stems from three simple forces:
- A progressive regulatory system that treats businesses as resources for property owners to extract value from
For decades, Massachusetts refused to comply with the federal Qualified Small Business Stock (QSBS) exemption rules. The state finally began complying in 2022. However, that same year, they passed the "millionaire tax." In Massachusetts, a founder selling a company for $10 million would pay $860,000 in taxes; a founder in Austin would pay nothing. Additionally, Massachusetts imposes a 6.25% sales tax on SaaS (Software as a Service) revenue, while most states levy no tax on software at all.
- A Puritanical culture deeply embedded in elite institutions, making self-policing difficult
After 2010, the primary activity of Boston's venture capital was no longer helping businesses grow but rather squeezing founders, operating almost like organized crime. The culture that should have policed this behavior—including foundation donors, large limited partners (LPs), and the celebrities attending charity galas—was too closely tied to these perpetrators and their networks for anyone to speak out. This phenomenon led to a persistent, invisible "trust tax" on Boston's business environment.
- Viewing technological progress through an "input-first" lens
We have the world's top universities, we've built vast amounts of lab space (though 40% is now vacant), and we've gathered the world's best talent. So why isn't this working? Can't we build another innovation hub? Is our soil inherently not "magic"?
If these three explanations sound overly simple or even familiar, it's because they are. This is precisely the common problem facing the entire U.S. tech industry, and I suspect it could have equally fatal consequences.
Tech ecosystems are inherently fragile networks that generate trillions in tax revenue for their regions, but the parasitic host (referring to the government) can't resist killing the "golden goose" every few decades.
Let's imagine what happens when the host rejects the ecosystem:
First, the talent network begins to disintegrate. Need to hire a VP of Engineering who has scaled a company from 25 to 500 people? In San Francisco, there are 600 candidates; in Boston, there are 5, and soon those 5 will also leave Boston for San Francisco, where they can command higher salaries and have a higher probability of success. As for junior talent, new graduates no longer stay local; they take the first flight out every summer.
As the network dissipates, the state government "tightens its grip," trying to extract the same amount of value from those who remain. And as the ecosystem crumbles, some bad actors start profiting through various means: for example, through preferential pricing ("Who would fly to Boston to compete for a seed round? Fine, we'll accept a $10 million valuation"), or through more unscrupulous methods, such as extorting founders in non-market or even illegal ways (refer to some legally shareable stories shared by Nikita and others on Twitter). Even some companies that started in Boston retained a degree of "organized crime" behavior after moving to the West Coast (except for Matrix, they're good people).
These issues are complex, involving human nature and reality. They not only destroy cities and people's lives but also lead to the loss of trillions in enterprise value, all stemming from the state government's short-sighted actions.
The worst part: this loss is irreversible.
While I deeply sympathize with those calling for a revival of Boston as a great tech ecosystem—I myself would love to move back and avoid New York's chaos—I find it hard to imagine that the remaining ecosystem won't descend into complete collapse.
You cannot legislate your way out of a collapsing network, nor can you reboot a network that has already imploded.
However, both San Francisco and the broader U.S. tech ecosystem seem to be heading toward the same fate: a regulatory system that treats tech as a "cash cow." Examples include Proposition M (Prop M, referring to the measure limiting commercial real estate development), office vacancy taxes, and others.
Meanwhile, a culture deeply entrenched in elite networks also struggles to police itself. Artificial intelligence (AI) has attracted many bad actors into the ecosystem, and the kind of ossification that Boston once found difficult to clean up is now taking root here as well.
Add to this the progressive notion of "input-first": We have the best AI labs, we have the most GPUs (Graphics Processing Units), even the President bought some for us. We have the most advanced models. So, what could go wrong?
The difference lies in the cost. Boston's collapse cost the U.S. hundreds of billions in enterprise value, while San Francisco's decline would erase one-third of the U.S. GDP growth over the past decade.
But the problem isn't just economic failure. It's a failure of survival.
Our tech industry has failed to articulate a clear reason for its existence at the national level. If this issue isn't addressed, 2028 will become a referendum on "imprisoning, destroying, and plundering the tech industry," with the trigger being accusations about water and energy.
Today, the public perception of the AI boom is not ambiguous. Recent polls show that the average American believes AI is something that wastes water, drives up energy costs, and in return provides tools to scam the elderly, spread inappropriate sexual content to children, promote sports gambling, and commit various other evils.
If our best answer to "why we shouldn't imprison tech executives, burn data centers, and destroy the U.S. tech industry" is: "so we can build better chatbots for your sports betting," then voters will not hesitate to vote for these actions.
In a zero-sum world, voters don't consider long-term benefits; they first feel envy, then start plundering. We don't plunder sewage systems or power grids because we know they are defenses against chaos. We accept their costs because they prevent chaos from spreading. So, does the average voter also see tech playing the same role?
Technology is our only means of escaping the Malthusian trap. However, because we are too cowardly to state this clearly, because we've replaced a clear theory of progress with "rationalism" and "Artificial General Intelligence" (AGI), the nation views the tech industry as a parasite to be squeezed dry.
If we cannot articulate why innovation is a moral necessity, we will only watch the entire tech industry follow in Boston's footsteps: first taxed, then plundered, and finally depleted. By then, we'll only be left wondering: Where did it all go?
In a zero-sum world, voters don't look to the long term; they first feel envy, then start plundering. We don't plunder sewage systems or power networks because we understand they are barriers against chaos. We accept their costs because they can block the spread of chaos. So, does the average voter also believe technology serves the same purpose for society?
Technology is our only way out of the Malthusian trap. However, because we are too timid to express this clearly, because we've replaced a coherent idea of "progress" with "rationalism" and "Artificial General Intelligence" (AGI), the nation views the tech industry as a parasite that can be drained.
If we cannot explain why innovation is a moral imperative, we can only watch the entire tech industry repeat Boston's fate: first taxed, then plundered, and finally exhausted. And we will be left wondering: Where did it all go?
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