NEW YORK (Dow Jones) -- Silicon Valley could be over the hill. No one disputes - at least not for now - the region's perch as the world's best technology incubator. But factors like the cost of living and the huge sums of venture capital available to less- disciplined startups call into question whether the valley today is the best place to start and nurture a technology company. These issues are arising as other technology centers are increasingly capable of providing companies with an attractive home, according to a report published by a local business group.

The San Francisco Bay Area receives a plurality of the venture capital invested in the U.S., and has held steady at about a third of the total for the last five years, according to research firm VentureOne, a unit of Dow Jones & Co. (DJ), publisher of this newswire. The area took in 37% in the third quarter of 2005, meaning it's far from a decline compared with other national hubs. The valley is also home to marquee companies - like Google Inc. (GOOG), Oracle Corp. (ORCL) and Genentech Inc. (DNA) - in all the fields that are shaking the world.

Since Silicon Valley has developed so much of the technology that makes a worker's location irrelevant, a minor irony of the growing competition is that the valley could suffer, like less forward- looking places, from the diffusion of its creativity. By all accounts, the area still has an extraordinary depth of scientific and engineering talent. What's more, it is the birthplace of the entrepreneurial zeal that venture capitalists like to call "Getting It," which communities across the country can only hope to imitate. Its other advantages include strong universities, good weather and, for entrepreneurs and tech types, the joy of living with like-minded people.

So what's the problem?
A September report issued by the Silicon Valley Leadership Group, a coalition representing area employers on public-policy issues, found the valley to have the worst quality of life of the country's eight major technology clusters, as measured by factors including housing costs, traffic and education. Raleigh, recipient of less than 5% as much venture capital as Silicon Valley, was first. The report found the valley lacking against areas such as Seattle and Austin, Texas, which already have established reputations for cutting-edge business. In addition, areas such as South Florida, Salt Lake City and many others are pushing to get in the game.

The Leadership Group's chief executive, Carl Guardino, described the report as a wake-up call if the Silicon Valley is going to remain pre- eminent.

"There are some very quantifiable measurements where we're not competitive," he said. "We've got to get off our high horse and see what we can learn from others," both in the U.S. and in countries like China, India and Ireland, he said.

In a survey conducted by the same group, 114 Silicon Valley chief executives said the cost of housing is a daunting obstacle to start- ups. According to the National Association of Home Builders, the median home price for the San Jose area was $630,000 in the second quarter of 2005. For the peninsula that includes San Francisco and choice Silicon Valley addresses like Menlo Park and Foster City, the median home price was $750,000, the most expensive metro area in the country, depending on where the boundaries are drawn. Of the eight main national technology centers, San Diego was a distant second, with a median housing cost of $474,000.

With its many advantages, the erosion of quality of life in Silicon Valley is the predictable result of growth - and they hit businesses as well as employees. According to VentureOne, Bay Area companies raised more venture capital per financing than start-ups anywhere else in the U.S. While they may be pursuing more sophisticated operations, the larger rounds almost certainly reflect the valley's elevated cost of doing business.

Richard Kimball, a founding general partner at the Palo Alto, Calif.- based VC firm Technology Crossover Ventures, said he believes "we can get more bang for our buck elsewhere." Of the firm's 14 most recent new investments, 13 have been outside the northern California hub. Still, he said the firm's ties to the community play well in other areas. Eventually TCV's portfolio companies "have to deal with companies in the valley," Kimball said, and the area retains "a mystique, an aura" for outside businesses.

Kimball added that some of Silicon Valley's greatest strengths make it a less attractive target for investment. He suggested that with so many VC firms looking to acquire a portfolio, startups may not have to be as disciplined.

Also, employees may be too savvy for their employers. "Once they've invested stock options they play a portfolio game and move to other companies," Kimball said.

Foster City, Calif.-based BA Venture Partners managing director, Kate Mitchell, another investor unafraid of traveling to a deal, said there are even instances in Silicon Valley of engineering teams "holding investors hostage" mid-project as they call for a reassessment of their stock-option packages. (She declined to give specific examples.) Farther afield, engineers are presumably more grateful for their jobs.

Despite the stronger competition, Mitchell said Silicon Valley would continue to prosper because of the population's capacity to endure change. Referring to the early 1980s, she said "you hadn't earned your stripes unless you'd lost your job once or twice. You weren't with a high enough growth company."

Mitchell said this striving and comfort with uncertainty remains part of the valley's culture and will serve it well against the competition. More than most places, she said Silicon Valley understands that "creative destruction is a positive force."