In Chicago, where I'm located, this is our core problem too. It's all about that first round of winners. I think startup scenes really launch after the employees from the first big win sell _their_ companies.
We actually had some winners in the 90s but many of them either lost their winnings in the dot bomb or never invested in other companies. A few of those winners are guiding their second or third start-ups, too.
Definitely. The main reason they didn't reinvest was timing -- everyone was burnt out on startups even if they had won after the dot.com burst.
But now, FB or Google employees are like, wow, that was awesome, let's do it again. I think the startup scene is more mature now and that reinvestment is more likely to happen outside of SV now -- the key difference is that startups are more stable, wiser, far leaner, and more `cool' now, so it's seen as an actually "safe" bet to re-invest. I know if I ever had a win that's exactly what I would do, in fact being able to re-invest is a lot of my motivation for being a founder.
The data for Illinois is already looking up based on VC activity. The Halo Effect that Groupon will enable should be a good thing for Chicago. Look at page 15 of this report which shows an uptick for Illinois - http://bit.ly/hdL5Yz. Of course, 2 quarters doesn't make a long-term trend but it's a start so hopefully lots of good things will emerge from Chicago and the virtuous cycle will start.