The one you're in now. Or someplace cheaper. The Internet is everywhere, and if you're starting an Internet company, you don't need to be anywhere physically in particular.
Right now, I'm working with a smaller town of 5-6K to convert to a muni telco. Why? Because the ILEC's early '90s era backbone from their CO in town to their NAP 15 miles away is near capacity. And the ILEC will not upgrade it. In practical terms, this means residents can only get 1.5-3 Mb DSL max (first come, first served); it means businesses have difficulty adding even a T-1, let alone Metro Ethernet or other advanced services.
The town has had several economic development opportunities from businesses wanting to locate there pass them by, because of the network issue. They've had enough.
And this is not an uncommon situation.
In places like SF, you have a massive pool of talent, but demand and wages/perks are through the roof so finding talent ends up being a negative ratio.
That said, your first hires should be people who believe in your product, no matter where the pool lies