Rent could. If you try to create a start up in say SF or NYC you are going to be wasting a lot of money on living expenses when it could have gone back into the product itself.
Nextt is based in Madison, WI. A lot of people argue that the relative lack of density out here (as opposed to something like NYC or the Bay Area) would make it harder to get a lot of traction for something that relies on people.
I can't help but wonder how the physical location of a social-networking start-up could possibly affect that start-up's product.