Companies—especially small ones—are defined by their culture, and I really think culture is best developed and maintained in person. We recently had three of our team members move away for various reasons, and they're now working remotely. It has been a shake-up. I won't say it's a bad thing, because I truly want them to be happy, and I'm truly willing help them make it work, but it has been a surprising culture shift for our entire company. At this point, I think we'll make it work, but the day-to-day work experience for all our employees has changed dramatically and that's not something to take lightly.
Find a place you truly want to live (which definitely doesn't have to be in the Bay Area) and find a company that you want to work for locally. Go into the office every day. Talk with people about more than work. Connect and develop relationships. Work toward a true culture that exemplifies what the company stands for both internally and externally, and make it meaningful to everyone involved.
That's what makes me happy, and that's what I'm optimizing for. Am I in the absolute number one place that I want to be in, period? Maybe not. If I had my say I'd be living and working on the east side of the Sierra Nevada within 1 hour each of Mammoth mountain and the Yosemite highlands—and that may be my eventual destination.
But right now, location is far less important to me than the people I spend each day with, the people with whom I work, and the company culture that I'm helping to generate and preserve. That's what moves me forward each day, and I truly believe that will make my company more successful and sustainable.
I understand you though. I went through a time in my life where I was more attached to places than people. Turns out I was in the right place all along, but I just hadn't run into the right people. That changed for me, and now I truly believe that location is a small price to pay. It's complicated—it is of course better to have a great employee working remotely than a poor one in the office, but I think it's even better—perhaps exponentially so and especially to a startup—to have that great employee in the same room.
*Edit: I'd like to add, that part of this is the "who moved my cheese" problem, of going from a 100% local company to a significantly dispersed company. We are adapting as a whole and each week we improve our process and culture. The challenge has become "how do we maintain a culture and coherence remotely?" I think in time we will be successful at that, and continue to be a strong group, but it's still a challenge, and one that you'll have to weigh against other challenges if you so choose.