At what point will CA's abysmal tax environment stop Silicon Valley from being a sought-after destination for entrepreneurs and talented employees? Reinforcing the idea that CA is a great place to start a business while they're sucking businesses dry is like buying the school bully lavish gifts every time he sticks your head in a toilet.
If you opened the same company in Seattle instead of SF, you'd get to keep around 9% more of your income. That was enough margin for me to leave CA for WA five years ago. (Though the recall election didn't help my feelings toward the place.)
California has one overwhelming advantage that will keep it competitive until and unless it makes it impossible for a company to begin or profit: non-competes are unenforceable.
Also nice, but much newer, is a law that makes what you do with your own time, resources and ideas your own.
So to reify this, if I can't open "the same company in Seattle" simply because I'm shackled by a ludicrous non-complete them I'm damn well going to open it somewhere in California or give up altogether (well, I suppose moving out of the country might be an option).
And this goes for subsequent startups; this is a critical part the SF/SV ecosystem.
Question: does your startup's employee contracts include non-competes?
IANAL, but based on many conversations on the topic and a few close friends' personal legal experiences, WA generally doesn't uphold non-competes unless they're very specific (in geographic area and in time).
If someone is encumbered a geographical non-compete and they're leaving another state where they signed a non-compete, I'm willing to bet that the court battle will actually be in the original state, so CA law wouldn't apply. But again, IANAL.
I'm anti-non-competes unless a truly specific case warrants it (for commissioned sales teams, for example... I think it's reasonable that your new salesperson can't come in, print off your leads and go off on his own the next day).