Isn't this criterion just a bit irrational for people entrusted with investing billions of dollars?

People entrusted with investing billions of dollars are very much not rational, as we can observe every day.

Additionally, network effects and experience input and VC concentration in Silicon Valley are very real and very rational. For VCs, why go anywhere else if the best of the world are flocking towards you already?

This might change in the near future, but I doubt it.

> For VCs, why go anywhere else if the best of the world are flocking towards you already?

Very false. A lot of the best in the world have no intention of ever living in silicon valley. In my circles people dread even a week long trip there.