True, although YC is a pretty special case where they actually leverage that physical proximity extremely well. They have office hours with powerhouse investors and entrepreneurs, dinners with special guest speakers, access to a large number of angel investors with whom they can have meetings, etc. These are resources that startups living in crack motels in SF aren't going to have access to. So for those privileged few lucky enough to be accepted to YC, being in SF at least for the duration of the program certainly makes sense.