I think the world has changed drastically in the past few years...
I can provide perspective from working for a startup in SF in 06-07 and a startup in Chicago now... In Chicago noone thinks you're unemployed if you say you work for a startup. That was the case a couple of years ago, but with Groupon and a TON of other companies that just isn't the case. The difference is just that more people are doing startups in SF vs. consultants/bankers/fortune 500 workers... Go to a bar here and girls think it's so damn cool that you are running a startup (apparently girls are obsessed with all things geek - http://www.chicagobusiness.com/article/20110924/ISSUE03/3092...).
Re: the coffeshop thing- just by chance (ie we didn't know this going in and it is NOT the startup hub area within Chicago), within 3 blocks of FeeFighters office are: 37signals, SproutSocial, Threadless, Crowdspring, and several other startups. I don't see how it helps us significantly to bump into them (though we have helped our neighbors when they've had merchant account issues). Many people think it is a wasteland anywhere not the valley but I have seen that not to be the case here, in New York, and even in Pittsburgh.
So what is the difference between here and there? The largest differentiator I've noticed between the valley and elsewhere is funding. We raised most of our money in Chicago from VC's we really like, but could have raised easier on the west coast. A lot of top VC's prefer to have you close and told us flat out they would fund us if we moved there. We had term sheets dependent on us being in Austin, SF, and LA. I don't think it has had an effect one way or another on our business thus far.
Startups need money, and often flock to where it is. Things are changing all over the place though (Rich people in Chicago all of a sudden want to fund startups, will be interesting to see if that continues post-Groupon IPO)
It also depends on your type of business. If you sell mainly to startups, you should probably be in the valley.
West coast VCs are aggressively investing three thousand miles away from the valley in NYC. I'm sure being geographically closer to VCs makes it easier to raise money, but I really hope startups don't pick their location based on where VCs are. There are better parameters to optimize for.
I encourage startups to base their businesses where they'll have the best chance at recruiting the best talent. The next search engine would be well-served starting in the valley, especially if it's an ex-Google team. Similarly, storage companies continue to thrive in and around Boston, as they can draw talent from EMC. New media startups with a heavy emphasis on design-as-differentiator do really well recruiting in NYC.
By this reasoning, it might even make sense to base your web startup in Florida, if your network high-quality development talent is in Florida. I've seen this approach work well in unusual startup geographies, especially when it's a leader of an ex-team that is getting his or her band back together for second (or third) time.
Pick a geography that will play to your recruiting strengths.
Aggressively investing? That wording suggests to me that VCs are actively cold-calling or spamming companies with indications of interest. I assume you don't actually mean this.
[W]ithin 3 blocks of FeeFighters office are: 37signals, SproutSocial, Threadless, Crowdspring, and several other startups. I don't see how it helps us significantly to bump into them ...
That's because the marginal utility FeeFighters will get on average out of any given serendipitous moment is a lot less than, say, an unfunded startup no one's ever heard of.
If you graphed that marginal utility over time, you'd probably find that it's multi-region: linear in some parts, exponential in others.
I can provide perspective from working for a startup in SF in 06-07 and a startup in Chicago now... In Chicago noone thinks you're unemployed if you say you work for a startup. That was the case a couple of years ago, but with Groupon and a TON of other companies that just isn't the case. The difference is just that more people are doing startups in SF vs. consultants/bankers/fortune 500 workers... Go to a bar here and girls think it's so damn cool that you are running a startup (apparently girls are obsessed with all things geek - http://www.chicagobusiness.com/article/20110924/ISSUE03/3092...).
Re: the coffeshop thing- just by chance (ie we didn't know this going in and it is NOT the startup hub area within Chicago), within 3 blocks of FeeFighters office are: 37signals, SproutSocial, Threadless, Crowdspring, and several other startups. I don't see how it helps us significantly to bump into them (though we have helped our neighbors when they've had merchant account issues). Many people think it is a wasteland anywhere not the valley but I have seen that not to be the case here, in New York, and even in Pittsburgh.
So what is the difference between here and there? The largest differentiator I've noticed between the valley and elsewhere is funding. We raised most of our money in Chicago from VC's we really like, but could have raised easier on the west coast. A lot of top VC's prefer to have you close and told us flat out they would fund us if we moved there. We had term sheets dependent on us being in Austin, SF, and LA. I don't think it has had an effect one way or another on our business thus far.
Startups need money, and often flock to where it is. Things are changing all over the place though (Rich people in Chicago all of a sudden want to fund startups, will be interesting to see if that continues post-Groupon IPO)
It also depends on your type of business. If you sell mainly to startups, you should probably be in the valley.