[davidw]

"Positive network externalities":

http://en.wikipedia.org/wiki/Network_effect

The bay area has 1) a large, talented workforce, 2) great universities, 3) lots of venture capital, as well as people who have "already done it" to give advice. Plus it's a nice place to live if you don't mind the traffic. Granted, opening an LLC costs X compared to a much cheaper Y in Nevada, but that's ultimately kind of small potatoes compared to all the things in California's favor.

That said, I'm more interested in bootstrapping something: what people like patio11, Rob Walling and company have achieved doesn't look like science fiction, and they're doing it in places that are not Silicon Valley.