I've also started several companies that were mostly or partially distributed. Getting funding for those is sometimes awkward depending on the investors. Most VCs in particular are pretty skeptical of remote work, especially if any of the founders are remote. Even VCs who have funded well known distributed companies tend to be a little hesitant.

Another issue is that later rounds of investment are really difficult if you don't have traction as the VCs will scrutinize everything you do that doesn't look normal, and distribution of people is apparently pretty off the charts.

YC is itself a good example. Everyone must co-locate to San Francisco at the same time. 500startups is the same way. At least in the case of incubators, the centralization is temporary, but I have no idea if there is pressure to co-locate post-YC. Perhaps someone who is post-YC can offer some similar experiences.

To that end, the (preferably open-plan) office is a set designed to demonstrate that "work is being done here" and everyone required to arrive at 9:00AM to type into their company provided computers during normal business hours are extras on the set.

My friends in Silicon Valley say it's because if a developer is any good they move out there. Quite simply that is just not true. They may be less reluctant to work for a startup, but those that will aren't being asked.

Sure, I'd be willing to work for a startup again. But relocation to SF would be a challenge, due to the difference in CoL, housing prices, and level of services.

There seems to be evidence that this is, at least statistically, true. There will of course be good developers in the Midwest. But when you combine the draw of the valley, with the fact that most of the best developers got to where they are by the interactions they have with other developers. Add in that the best programmers are driven by their trade, and highly likely to move to where they can get the best, most challenging problems. I could easily see this to be true.

Then, when most developers are hired by personal reference, how do you expect us to find these amazing developers hiding in the Midwest?

Sounds like you live in a bubble. There are tons of great developers who'd never move to San Francisco (family, personal preference etc), and I can interact with other great developers without leaving my city ... additionally, doing startups isn't the only interesting programming work to be done :D

Then, when most developers are hired by personal reference, how do you expect us to find these amazing developers hiding in the Midwest?

Maybe relying only on personal reference is doing it wrong then ;)

We try not to, but other forms of recruitment have thus far, returned less than stellar applicants. The only other luck we've had is actively seeking out people with projects in the same field. But that has mixed results also.

I don't really think you're trying and that was my point.

You're telling me the Midwest developers who move out to the Valley don't know a single great developer from back home who would jump to work for your startup as long as he could do it from home?

You may want to look into some remote development tools? I suggest Sococo, but I work there.

I'm always looking for more remote development tools, I'll check out Sococo, but any other suggestions.

I also find that face-to-face conversation and in-office team building are important aspects to build a solid company for a long time.

EDIT: Lack of sleep yields poor brain, eye, and hand coordination.

I understand that English is likely not your primary language. And no offense intended, but grammar does add substantially to clarity.

It's easier to be dismissive of people that you don't see on a daily basis.