Given a choice for investing in a new firm that is a 15 minute drive from the VC's office, and with tons of existing talent to recruit into the company, and with lots of other VC's in the area to fund future rounds VS a startup that might get a better bang for the buck on pricing because it's in the boondocks, and I don't think MORE startups will appear in the midwest than SV.
California, and therefore "Silicon Valley", still enjoys the unique advantage of non-competes being unenforceable, creating a particularly liquid market in talent.
It's probably an advantage for California but it's far from clear how major a factor it is in why Silicon Valley developed the way it did. My understanding is that the law that's the basis for non-competes not being generally enforceable has been in place for a very long time (1800s). Yet, Silicon Valley was fruit orchards while other areas of the country were the centers for developing computers and creating much of the technology behind the early Internet.
Indeed, and my question, having lived the tail end of Route 128's boom years and then its hard and final death, is why those other places got eclipsed by SV, with no clear sign that's going to change (modulo it looking to be harder and harder to make it work economically).
The only unique thing about SV is the unenforceability of non-competes, that was clearly absolutely critical in the original silicon days (https://en.wikipedia.org/wiki/Traitorous_eight) and probably sped things up by decades, I've also experienced two good pieced of technology killed by them outside of California, and I'm frankly left without a better explanation.
Just how important unenforcability of non-competes was for making SV into SV is debatable (eg, clearly did not differentiate from LA). More compelling reason for any state to make them unenforceable is that less enforcement has better outcomes (more startups, jobs, incomes, patents; well last is problematic but usually used as a proxy for innovation), _even when Northern California is excluded from the dataset_; see 10.1287/mnsc.1100.1280 or http://webdoc.sub.gwdg.de/ebook/serien/lm/DRUIDwp/10-02.pdf
I think that mentality may change as people start coming to the realization that it will soon no longer be necessary or even possible to "scale up quick and capture market share" based on a theory of disruption. The gold rush of the internet will soon come to a halt, especially as people start realizing that you no longer need to sell a pound of flesh and the rights to your first and second born child to VC in order to build great, quality companies.
Depending on who wins out this general election, we will possibly see a rather ironic shift that will not only undermine the hegemony of Silicon Valley, but will also make staffing startups with low cost talent from all over the globe far more feasible. I've been telling Silicon Valley for a while now, be careful what you wish for, because it's easy to lose sight of the real world from within a rose colored bubble.
I have a feeling that as/if globalism were to expand and consolidate power and control, it also broadens, dilutes, and devalues "labor" on a global scale as you start feeling the effects of globalism that clothing makers, furniture makers, auto makers, etc. have all felt before you. The only thing that is keeping the tech industry enslaved to Silicon Valley, is the dependence on their VC masters, as you so well described. Once that is no longer a benefit or necessary or an advantage, what keeps people in Silicon Valley?
