I was laid off from a telecommuting job about five years ago, which was a bummer, because I lived way out in the country. I spent 17 months failing to start my own business, and stubbornly looking for another telecommuting job -- I found that employers were hesitant to hire a telecommuting employee out of the box -- they saw me as 'a pig in a poke' (as it were).
Eventually I became less stubborn (or more desperate) and took a job with a major e-commerce company in the Seattle area -- it required me to drive three hours each way, but it was a job and it paid the bills. After five months of that horrendous commute, I moved my family in to the city, and ultimately found another job that I transmogrified into a situation that allows me to work from home three days a week. Now I could probably move back to the country (which I love) if I can only disengage my family from life in Suburbia. I agree with Herkum that sometimes one has to be flexible. :)
A note to the OP -- others have mentioned telecommuting, and I would strongly encourage you to consider that. There really aren't many reasons, these days, why a team can't work closely together yet be physically distributed, as long as the team members build good relationships to start with. If I were in your shoes, I'd build a team of three or four telecommuting developers -- I'd spend some money getting them all to come to the office for a couple of weeks at the start, and then I'd cut 'em loose with modern collaboration tools and see what they could deliver. There are a lot of people (like me) who wouldn't consider living in LA unless you were offering serious money.