Self re-enforcing loop. The investors are in SF/NY because the startups are in SF/NY, because the investors are in SF/NY...

There are plenty of VC funded startups which aren't in SF or NY, and they will have slower burn rates than those who are in SF and NY, simply due to the cost of living.

I don't understand why people on here seem to believe startups are just a bunch of programmers in a room somewhere. They are a business, and sales is of utmost importance in business. You want to be as close as possible to your current and potential clients.

The investors are in SF/NY because they can make more money there.

I agree that it's probably a network effect rather than anything fundamental about SF/NY. But really, so what? Yes, if all the startups were in Cleveland then it would be smart to go to Cleveland. But they're not.