Being the folks to come up with the concept and having $2 million in backing from Sequoia clearly puts YC at the top heap. Clearly gives YC more choice. There are however plenty of talented and motivated people in all parts of the world.
And the answer to your question is four.
So perhaps talent is not the right word, but it is rather motivation. And motivation may well be a larger determining factor than talent in the success of a startup.
Which has led to the Valley being a hothouse of artificially-compressed geniuses building products for each other instead of for the real world.
But not everyone is a brilliant 23-year-old willing to share a flophouse with three other geniuses while coding 20 hours a day. In the real world, people have spouses... kids... mortgages... elderly parents... heck, maybe they just like sweet tea! There are all sorts of reasons that they won't move to the Valley, even if they have plenty of talent to compete at that level.
I submit that looking for the best of the best among that 99% of the country is a heck of a good way to make money. It's harder, because you can't sit on Sand Hill Road and watch the universe rotate around you. But with some hustle and some brains, there's plenty of opportunity for non-Valley entrepreneurs, and non-Valley investors, to do very very well.
I'm not going to try to embed a picture here on HN, but check out the link and let me know if you want a button! (I think Fred Wilson would wear one; I doubt that Paul Graham would.)
In short, they have other priorities. (BTW - Lots of Valley folk are not 23-year-olds.) Maybe that won't matter, but ....
No one is saying that folks can't succeed elsewhere or that there aren't opportunities elsewhere. (FWIW, I've found that people who attack strawmen are fighting at the level that they think they can win....) Instead, they're saying that the valley has some unique properties wrt certain kinds of success.
If those properties or that kind of success isn't relevant or important to you, the valley isn't for you. There's nothing wrong with making other choices, but there are consequences. If you like the ones somewhere else, go for it.
Not too be elitist, but YC is clearly the top of the food chain in the micro-angel funding niche, where the most motivated founders go first. It was the only one we applied to, and if I were doing it over again it still would be. Then there's a couple others a rung below it, like TechStars, and a rung below that with a couple players like LaunchBox and maybe Shotput. (I've actually never heard of them, which is hard to accomplish in this industry, but I'll assume they're pretty decent and it's just because I've been working too hard lately).
So the startup founders move their way down the chain from the top, with the best x% being selected at every tier. At the YC level, you've got the highest quality and most motivated talent pool. At the bottom levels you've probably got the people who either whiffed their way down the chain, or just are looking for one near where they live. If I lived in Atlanta (which I could, it's a great city) and wanted to do a startup but wasn't particularly keen on relocating I might give it a go, assuming the Shotput guys brought enough to the table to make up for the small equity stake.
I'd guess PG wasn't taking that into account with his initial comment. I'd love to know what % of their funded startups have founders who lived within driving distance beforehand.