Does it matter where you locate your startup? While it seems that the SF Bay Area is the most fertile breeding ground for startups, is it necessary to launch there?

Sure, some of the top internet startups of all time launched there… Yahoo, EBay, and Google. And some of the hot startups and acquisitions of late were founded there as well. YouTube is from San Bruno, Six Apart and Wordpress are each in San Francisco, MyBlogLog is in Berkeley.

But a whole host of other hot startups have their roots outside the Bay Area. Flickr, Upcoming, and Del.icio.us are all under Yahoo’s Bay Area roof now, but they moved in from elsewhere only after being acquired. Amazon.com is in Seattle. Skype’s from Europe. MySpace is from Southern California. Some of the hottest funded startups like FeedBurner, NewsGator, 37Signals, and Big In Japan are located in the midwest. And the recent acquisition streak for Sacramento startups is proving exciting for local entrepreneurs.

You certainly see more startups in the Bay Area, and in fact, some argue that there’s a near magical quality to the area that makes it more conducive to launching a company. But does having more companies equal success?

In the Bay Area, it’s not hard to find the successes. They’re well publicized — everyone likes to talk about the big wins. The failures can be harder to find. If a high-flier or a heavily-funded startup crashes and burns, it makes news but how many smaller companies die before they get off the drawing board? When you live in the Bay Area tech economy, “me too” ideas seem to pop up regularly, and the echo chamber can make even the silliest company sound good. When everyone has a startup the success rate among startups in the Bay Area must be approaching single digits.

In Sacramento and other cities with less of a startup culture, fewer people try and create companies. The ones that do are more serious about it. You aren’t as likely to start a social network for reptile owners, quit your job to live off the AdSense ads, and expect that it’s going to be the next big thing.

Sure, in Sacramento you don’t run into VCs while standing in line at Peets so it can be harder to find funding. Office space means renting an actual office or working from home, since there’s not an abundance of worker-friendly coffee shops, co-working spots, or shared offices clustered together. Even meeting other entrepreneurs can be hard, since so many local companies are focused outward. Unlike the Bay Area, most Sacramento startups have customers, suppliers, and partners that are outside the area.

But getting out of the echo chamber might help businesses become more successful. Talking to real people about their needs means you’ll deliver a product that’s useful to people that aren’t steeped in Web 2.0 culture.

(Thanks to Fred Wilson for the idea for this post)