I think using Redhat as a core element in this discussion is innacurate. They IPO'd fairly quickly, at the right time, generated lots of cash and brand value. They are the exception, not the rule. Today launching a company in, or with strong ties, to Silicon Valley, provides a real advantage. And its not just because this is where much of the money is, but it is where large components of the rest of the eco-system exist needed to be succesful - the Valley has more people expert in the business and technology of open source than anywhere else and probably a very high % of those people compared to everywhere else combined. If you're looking for legal support, the Valley has four or five of the top open source attorneys. If you need expert advice or Board and Advisors, many of the best are from the valley. If you need to develope partnerships, almost every major software company in the world and numerous other systems integrators, resellers, etc. have offices in Silicon Valley. So it's not just the money, its the ecosystem. And as to customers, well if the criteria is to be near your customers then most major cities work just fine with a few standing above the rest, including San Francisco. Although if you do need to be physically close to your customer base then it would seem that you are not being able to leverage the key benefits of open source itself and relying on old sales models. Today you don't need to be in Silicon Valley to be close to your customers, no startup anywhere can base itself on that premise, proprietary or open source. And there are no guarantees that being in Silicon Valley will make you successful. It just gives you a better chance.