The new million-dollar question from tech startups: Do we really need an office?

Joining the cloud may not be for all companies. Even in the software industry, where work generally does not involve designing and building tangible objects, there are a number of challenges for dispensing with offices entirely. This ranges from learning the communication habits of colleagues who have never met in person to promoting the types of relationships needed to raise funds from a distance. Decades of research point to the power of proximity, increasing the tradition around Silicon Valley and the birth of the most successful companies in the world.

But some start-up founders, like Alan d’Escragnolle, are not struggling with payoffs and are finding that the benefits of remote work are worthwhile: he said his team brainstormed remotely and that employee productivity did not suffer.

A year ago, d’Escragnolle was scheduled to join his co-founder at Filmhub, an online film distribution startup, in Los Angeles to sign a rental agreement and start hiring. Instead, he ended up renting a ski house in Lake Tahoe and has been running the company since March.

Filmhub now has 15 employees, with Zoom brainstorming teams, keeping in touch on Slack and tracking customers and integrating new employees with a workspace application called Notion. The company’s most recent hires are based in Ukraine, Portugal, Atlanta and the Dallas region.

“We are saving at least $ 5,000 a month now” in wages and rent, said Mr. d’Escragnolle, 32. Filmhub may eventually have a small office in Los Angeles, he said, “but in the end, we are not convinced that it is necessary.”

It is too early to say how many startups will remain totally remote once the pandemic is over, but there is a consensus that a larger share will be built and increased by teams that live and work separately. If they are able to remain remote, it can have a ripple effect on talent distribution – and venture capital financing – across the country.

In early 2020, Kim-Mai Cutler, a partner at Initialized Capital, a venture capital firm that invests in young companies in its early stages, conducted a survey of nearly 100 of its supported founders, asking which is the most beneficial place to open a company . Almost 42% said that San Francisco, with New York in a distant second place. A year later, the main answer with 42% was nowhere in particular, or rather, “distributed or remote”, up from 6% the previous year. Only 28% said San Francisco was the place to be.

In the Initialized survey, whose investments include Reddit and Instacart, more than a third of respondents said they would keep their office model completely remote or decentralized post-pandemic. Previously, only 18% said the company’s location was fully decentralized.

“The pandemic is definitely going to reset that to a higher baseline,” said Cutler. “How much higher is that baseline, I don’t know.”

Steve Case, the co-founder of America Online, created the venture company Revolution in 2005 to invest in startups outside major technology centers. Among the 150 companies supported by its Rise of the Rest Seed Fund, at least seven that were remote during the pandemic have already decided to remain completely remote in the foreseeable future. Another twenty plan to maintain an office, but make remote work a permanent option for employees. Others are still in the process of making a decision.

Mr. Case said that the combination of the pandemic and the availability of publicly available software tools means that, although Silicon Valley still receives most of the investment, there will be changes in the distribution of talent and funding.

“Now you can potentially be in any city,” he said. “You had to be in an office, maybe you could potentially be completely remote or hybrid.”

Venture capital investors said that whether remote control alone makes sense depends on a variety of factors: What is the team’s experience? What stage is the startup at? What kind of product are they building? Where is the founder’s network located?

Ryan Reede, 27, is part of a four-person startup called Teleportal, developing an augmented reality movie creation tool. Mr. Reede planned to move to a home in Los Angeles with the company’s founder, Thomas Suarez, so that the two could work at any time without renting an office. During the summer, Suarez decided to move to Atlanta, so Reede took advantage of the drop in rents and moved to San Francisco.

“I think that having a distributed workforce and having a culture of the first remote will pay dividends,” said Mr. Reede. “The first remote is very cheap.”

Mr. Reede used to work on the DreamWorks Animation campus in Glendale, California, with koi ponds and wide corridors designed to encourage colleagues to bump into each other and, ideally, to increase creativity. When he and Suarez started, they worked at Suarez’s parents’ house, working on whiteboards in their childhood room. They could talk about coding problems or anything else without having to activate Zoom. “These microinteractions are important,” said Reede.

Now, with a remote team, he has learned the importance of communicating too much. “In the morning, at standups, talk about what you are going to work on, repeat on Slack, do this and communicate back to the channel that the task has been completed,” he said.

He worries about how well it will scale and how long he will be able to screencast with colleagues and investors. Still, the founders of Teleportal plan to remain remote as long as they can manage the company in this way.

Christina Cacioppo, founder of the San Francisco-based cybersecurity and compliance software startup, Vanta Inc., said that when she started her company three years ago, she thought she would need several thousand employees before having satellite offices or a significant number remote employees.

“You want to postpone this as much as possible because there is a lot of value in people being in the same room, talking about problems, environmental conversations, all of that,” said Cacioppo. “Covid didn’t care for any of those words.”

Ms. Cacioppo, 34, grew her company from 17 to 55 people last year. Some recent recruits are from Indianapolis, Tucson, Arizona and Western Massachusetts. She was able to find people with more work experience than she expected to get from the wages she was prepared to pay to Bay Area employees. She also found that onboarding remotely is better in some ways: as newcomers cannot just keep track of experienced team members, the company had to develop a more rigorous training program.

The team was connected through Zoom meetings and using a virtual office platform called Gather, where colleagues can have lunch, bump into each other and make presentations.

But Cacioppo found that working remotely created communication problems with a member of his sales team, who moved to Los Angeles in July. When an investor advised her to follow suit and live there for a short time, she first thought “this is crazy” – then realized that she was “really really smart”. The pair met on an Airbnb five days a week for two weeks.

“The problems were identified more quickly,” she said.

Ms. Cacioppo signed a new lease on office space in Hayes Valley, San Francisco, in January 2020 and has been paying rent since then, but has not been able to work from there. His plan now is to maintain this office with around 45 full-time engineering and product employees, while maintaining a remote sales team across the country.

Ian Hathaway, executive at Seed Accelerator Techstars and a senior member of the Brookings Institution who researches startup ecosystems, believes that any optimism about going totally remote is distorted by pandemic circumstances.

“It looks like it’s clear that we’re going to build companies remotely from now on, we just went through the simulation,” he said. “Does this mean that we will continue to do so?” His guess is that no, even though we see many more hybrid companies and technology workers end up more distributed across the country than before.

He cited the long-standing benefits of co-location, including more innovation, easier collaboration and more relaxed fundraising, which, he said, requires building relationships. These factors have led to decades of talent pooling in superstar cities and may be one of the reasons why venture capital funding for early-stage startups is now low.

“This force was so powerful that people were willing to live in places that were increasingly uninhabitable from the point of view of costs and congestion,” said Mr. Hathaway. “Saying that just because we’ve been in this pandemic and we’ve been trying this remote job thing for a while that’s completely undone, I just don’t believe it.”

—For more WSJ Technology reviews, analysis, advice and headlines, sign up for our weekly newsletter.