Angel investors are now, and always have been, the engines for innovation. Bankers - the old angels - funded Henry Ford. Back in the day, you could get a loan from a bank for a new venture. You can't any more; this, more than anything, is why new innovation is so concentrated in geographic areas.

In the old days, New York banks would give money to an engineer in Detroit. Now, if you want angel money, you need to be physically near the angels. You can raise VC - follower - money from outside your area if you 1) have traction or 2) are a known quantity with a past exit. But a new team in a new market with a new idea? Get thee to the Valley or Route 128, cause that's where the angels are.

EDIT: I should say networks of angels for first money in. SV and Mass have enough angels to syndicate a deal. You're restricted to sugar daddies doing $200K by themselves outside those areas (and maybe NYC). First Round led Mint, but they syndicated it in the Valley. Same deal with iSocket, where Tim Draper of DFJ led, but the deal was syndicated to angels.

And, of course, if you're Shai Agassi, you can raise a ton of money for Better Place, even though you have no experience in battery tech or distribution, because you're Shai Agassi.