There are compensating factors that make up for the relative sparsity of talent outside SFBA. SFBA talent is unusually expensive and talent acquisition in SFBA is more uncertain than in other areas. (We have an office there; we are hiring constantly in all three locations).
There are kernel hackers, Javascript engine developers, 2D graphics virtuosos, database engine designers and software security freaks in Cleveland and Dallas, and AmaGooBookSoft isn't competing with you for them.
There are good reasons to base out of SFBA (selling to tech companies is one of them). I'm not sure recruitment is a clear cut win, though; at least, not for indies.
I think that for medium sized (250+) tech companies with solid funding it starts to just become difficult to NOT be recruiting in the Bay Area simply because there are so many engineers constantly churning and the statistics start to work against you without including the area in your talent pool.
That said, for smaller companies, I still believe the chances of getting everyone under the same roof are much higher in the SFBA as well as in other large, dense cities; only a few of which exist in the US and none of them being particularly cheap. There's a reason successful companies are willing to continue to pay the premium decade after decade for locating in big cities: it's worth it.
Overall though I think the point Alex was trying to make is that the exact location is unlikely to be a make or break for early stage startups. Pick a city with a solid background in your chosen field and it can be a launchpad for a successful company.
There are kernel hackers, Javascript engine developers, 2D graphics virtuosos, database engine designers and software security freaks in Cleveland and Dallas, and AmaGooBookSoft isn't competing with you for them.
There are good reasons to base out of SFBA (selling to tech companies is one of them). I'm not sure recruitment is a clear cut win, though; at least, not for indies.