But they've also rented some office space: two cubes, a meeting room, a front desk, and a lockable office for the locking file cabinet. Now, it was cheap office space, but still, why?
It's a waste of the angel's money, is increasing their burn. For what it's costing them, they could hire another coder. Dev speed is their current bottleneck, and going from 2 to 3 causes only minimal invocation of Brook's Law, especially if it's early. If they start to grow, they'll have to hire #3 and #4 soon enough anyway, at which point they've outgrown their space, and now also have the cost, pain, and distraction during their growth phase of having to move.
For the locking file cabinet, keep that in the CEO's house. The geeks and the CTO can do gang programming at a house, or in a cafe. Meetings can be held in a cafe.
In fact, when I had my meeting with them, I discovered that while I had driven from CapHill to Bellevue to meet in their offices, they (the CEO & CTO) had also driven from somewhere else in Seattle back over to Eastside to meet me there. We could have just met in a cafe here on the Hill.
If you start out with your company being distributed, then it will be easy to distribute it later. It makes finding hires easier, it makes figuring out how to handle employment alternatives easier (halftime, homework, contractors, outsourcing, specialists, independent designers, etc).
There are advantages to physical proximity, I will admit. The `net doesn't yet have the bandwidth to really do hallway design or pair programming. But don't demand physical proximity and offices just because it's traditional, or it makes management oversight "easier".
Something I would like to see MySQL staff and management do more off on their blogs and at the various technology and open source conferences is to make posts and presentations about "Running an international distributed company. How MySQL AB makes it work."
This musing came to the forefront because I have a local friend who's being interviewed for a neat position with a large well known open source project foundation. However, despite the fact that it's a distributed development environment, he would still have to move to the Housing Hell that is the Bay Area, because the foundation wants all their important people to work in the same office together.
Recently, Marc Andreessen in his blog had a series of posts on how VCs work and how to get one to fund your idea. One of the things he let slip are that two of the imporant factors in getting VC money is that VCs prefer to work thru face to face referrals, and (not admitted to) the VC doesn't want to have to drive too far from his house or office to the offices of the startup he's funding.
Which pretty much guarantees that if you want to take Silicon Valley VC money, you have to deal with the housing and governmental hell that is Silicon Valley. Yet another reason not to take VC money if you can at all avoid it.