Boston's Past: How Did the Once American Tech Hub Decline?

Author: Will Manidis

Translation: Deep Tide 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, the situation has long since changed. Over the past twenty years, San Francisco has created $14 trillion in enterprise value, while Boston has contributed only $100 billion.

If you had told that investor at the time that New York, once famous for “cocaine and gray-striped suits of financial glory,” would replace Boston as the regional tech hub, they would have thought you were crazy.

So, why did Boston lose its position? This is a question worth exploring.

From an investment perspective, the city seems to have all the favorable conditions. Two world-class universities are located here (Harvard University and MIT). The well-known startup incubator Y Combinator was also founded here. Undoubtedly, this is one of America’s most beautiful cities. Mark Zuckerberg attended college here. Founders of Stripe, Cursor, and Dropbox also studied here. So, what went wrong?

To understand the scale of Boston’s decline, we must remember that for decades, Boston’s “128 Highway” (Route 128) was the center of the software world. Digital Equipment Corporation (DEC) was the second-largest computer company globally, with a peak of 140,000 employees. Lotus developed applications that brought enterprises 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 trying to answer it usually gives one of two responses:

“Boston’s decline began when Zuckerberg couldn’t raise funds here and had to go to the West Coast.”

“Who says Boston is done? We just led a $15 million Series F funding round for TurboLogs.”

Of course, neither of these explanations fully tells the story. Understanding Boston’s real problems is not only about Boston’s survival but also a key issue for the entire US tech ecosystem.

My answer is simple: Boston’s story illustrates what happens when negative cultural and regulatory feedback loops interact. As a tech ecosystem, the city’s decline stems from three simple forces:

Viewing enterprises as a regulatory system that allows property owners to extract benefits

For decades, Massachusetts refused to comply with the federal Qualified Small Business Stock (QSBS) exemption rules. The state only began to comply in 2022. Yet, in the same year, they passed the “Millionaire Tax.” In Massachusetts, a founder selling a company for $10 million would owe $860,000 in taxes; meanwhile, founders in Austin pay no taxes at all. Additionally, Massachusetts imposes a 6.25% sales tax on SaaS (Software as a Service) revenue, whereas most states do not tax software at all.

A Puritan culture entrenched in elite institutions, making self-regulation difficult

After 2010, Boston’s venture capital activity shifted from helping companies grow to exploiting founders, almost like organized crime. The culture that should oversee such behavior—including foundation donors, large limited partners (LPs), and celebrities attending charity dinners—became too intertwined with these perpetrators and their networks to speak out. This phenomenon results in an invisible “trust tax” on Boston’s business environment.

Viewing technological progress through an “investment-first” lens

We have the world’s top universities, we built numerous lab spaces (though 40% are now vacant), and we gather the best talent worldwide. So why isn’t it working? Can’t we build another innovation hub? Isn’t our soil itself “magical”?

If these three explanations sound overly simple or familiar, that’s because they are. This is the common problem facing the entire US tech industry, and I suspect it could have equally fatal consequences.

The tech ecosystem is inherently a fragile network that generates trillions of dollars in tax revenue for its region, yet the parasitic host (the government) cannot resist killing this “egg-laying goose” every few decades.

Let’s imagine what happens when the host refuses the ecosystem:

First, the talent network begins to disintegrate. Do you need to hire a VP of Engineering who expanded a company from 25 to 500 employees? In San Francisco, there are 600 candidates; in Boston, only five. And soon, those five will leave Boston for San Francisco, where they can demand higher salaries and have a greater chance of success. For entry-level talent, new graduates no longer stay locally; every summer, they board the first flight out.

As the network dissolves, the state government becomes more “tight-lipped,” trying to extract the same amount of revenue from the remaining talent. Meanwhile, as the ecosystem collapses, some unscrupulous market players begin to profit through various means: offering preferential pricing (“Who still flies to Boston for seed funding? Fine, we’ll accept a $10 million valuation”), or through more unscrupulous methods, such as extorting founders via non-market or even illegal means (see some legitimate stories shared by Nikita and others on Twitter). Even some companies founded in Boston, after moving to the West Coast, still retain a degree of “organized crime” behavior (except Matrix—they are good guys).

These issues are complex and intertwined with human nature and reality. They not only destroy cities and people’s lives but also lead to trillions of dollars in lost enterprise value—all driven by shortsighted state policies.

The worst part: this loss is irreversible.

Although I sympathize deeply with those calling for revitalizing Boston into a great tech ecosystem—I myself want to move back, no longer dealing with New York’s chaos—I find it hard to imagine the remaining ecosystem not falling into total collapse.

You cannot save a collapsing network through legislation, nor can you restart a network that has already self-destructed.

Yet, whether it’s San Francisco or the entire US tech ecosystem, they seem to be heading toward the same fate: a regulatory system that views technology as a “cash cow,” such as Prop M (a bill restricting commercial real estate development), office vacancy taxes, and so on.

Meanwhile, a culture deeply embedded in elite networks also struggles with self-regulation. Artificial Intelligence (AI) has attracted many bad actors into the ecosystem, and the rigidity that Boston once struggled to clear out is now taking root here as well.

Add to that the “investment-first” mindset: we have the best AI labs, the most GPUs (graphics processing units), even the President bought some GPUs for us. We have cutting-edge models. So, why are things going wrong?

The difference lies in the cost. Boston’s collapse has cost the US hundreds of billions in enterprise value, while San Francisco’s decline will erase a third of the US GDP growth over the past decade.

But the problem is not just economic failure. It is a survival crisis.

Our tech industry has failed to provide a clear moral justification 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 related to water resources and energy.

Today, the public perception of the AI boom is not ambiguous. Recent polls show that ordinary Americans see AI as a tool that wastes water, drives up energy costs, and is used to deceive the elderly, spread inappropriate content to children, promote sports betting, and commit various other evils.

If the best answer to “why we shouldn’t imprison tech executives, burn data centers, and destroy the US tech industry” is “to help us build better chatbots for your sports betting,” voters will have no hesitation in supporting such actions.

In a zero-sum world, voters do not consider long-term interests; they feel envy first, then begin to plunder. We won’t plunder sewage systems or power grids because we understand they are defenses against chaos. We accept their costs because they can prevent chaos from spreading. So, do ordinary voters also believe that technology plays the same role in society?

Technology is our only way out of the Malthusian trap. However, because we are too cowardly to articulate this clearly, and because we replace coherent progress theories with “rationalism” and “Artificial General Intelligence (AGI),” the country views the tech industry as a parasite that can be exploited at will.

If we cannot clearly explain why innovation is a moral necessity, we will only watch helplessly as the entire tech industry follows Boston’s path: taxed first, plundered second, exhausted finally. Then, we can only bewilderedly ask: where did all this go?