I read here, and in articles elsewhere, about how important it is for a startup to be located in Silicon Valley. But they're all very vague, mentioning "the energy" or "the talent" or "networking."
Can anyone give me some concrete examples? Even if they're just hypothetical?
Sure there's a lot of talent there, but you can find talented developers in any big city.
With whom am I going to network? Investors? Is this just a benefit because there are more investors-per-startup there, making the odds of finding an interested one better?
In terms of investors I would add that there are above 75% of all VC investment in the world are made in the Silicon Valley (I don't have the exact number, but it's in that range). And don't be fooled, getting VC investment without having some kind of network to introduce you or backup the quality of your work is much much harder. By being in the Silicon Valley you meet the VC folks, you meet former Entrepreneurs that were already funded and successful, you meet the crowd that you need to get build the trust you need to get your funding.
Not to say that being in Austin TX, or Boston, or else is not good, but the Silicon Valley is a very helpful place to be.
Drawback: COST OF LIVING!! it is expensive to live here and as a consequence wages are high so your startup cost are high. Also, competition for talent is very strong, so you have to pay people more (increased cost again). And finally, the average time spent in a company is around 3 years in the Valley, which means you will have a lot of turnover in your talent pool which has a hidden cost (training, ramp up time, etc..).
PayPal is an interesting example of a dense pool of 'talent' that went on to start a number of great companies.
For more on paypal see:
http://www.siliconvalleywatcher.com/mt/archives/2011/02/top_paypal_alum.php http://money.cnn.com/2007/11/13/magazines/fortune/paypal_mafia.fortune/index.htm I think there's a reasonable hypothesis that there will be dense pockets of talent that startups can tap into from google, facebook, twitter, etc.
Consider studying Facebook. Although not all great start ups that are building businesses on top of facebook are started in SV (Playfish, Buddymedia), it is important for companies like Zynga to have a presence near their key partner to adapting to strategic changes to virality features & payment methodologies, for example.
I don't think your logic is sound with respect to fund raising. Specifically, it is not a probability game ("more investors = more likely to find an investment).
You do have a higher potential for creating competition if you have a good plan and strategy, which can result in a better transaction for the entrepreneur.