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Y Combinator Partner Harj Taggar: "San Francisco is Becoming Silicon Valley"

Few people are better situated to evaluate the current tech boom than Harjeet Taggar, a partner at Y Combinator, which twice a year, invests a small amount of money (~$20k) in dozens of promising startups from all over the country.

The startup teams move to Silicon Valley for three months, during which YC works with them to get their companies into a position where they can appeal to investors at Demo Day, when a bunch of big-time investors show up.

During the past few funding cycles, Taggar told 7x7 that he has noticed a definite pattern.

"First, the minority were focused on mobile; they were all building their website, then an iPhone app.

"Six months later, they were starting with an iPhone app and then building a website.

"Six months later it was an iPhone app, then a website, and then an android app.

"Now, they are starting with both iPhone and android apps, saying they need to nail mobile distribution, and saying that maybe will never build a website at all, because it's unnecessary.

"This is especially true with location-based services like photo-sharing, since the website is secondary, just in the background.

"Another big trend I see is a focus on local businesses. This changed dramatically with Groupon. Now geeks see that local businesses will pay money for their product. When you combine raw tech ability with local business opportunities, you have something very special.

"In the Bay Area, in fact, local businesses are overwhelmed by offers from startups.

"San Francisco is becoming Silicon Valley. The city used to be seen as not part of the Valley. But Twitter, Zynga, Square, and our most successful companies from YC — Airbnb and Dropbox — are all there.

"The biggest problem I'm seeing our graduates having is the problem of hiring. The main demographic they seek is engineers in their 20s and those guys want to live in San Francisco. The majority of YC grads head to the city now.

"Besides, in my opinion, if you have a social product, it's really important to live amongst your users. For example, if I were building an app to target bartenders to help them build their own brands, I would want to be in San Francisco, not the Valley."

YC is attracting ever more applications, as the current wave of entrepreneurial ventures continues to grow, not just in San Francisco, but all over the country and beyond.

"At YC," says Taggar, "Every round we have more applications. But we only accept between 2.5 and 3.5 percent of those who apply. The first round this year we had 44 companies; this round we have 64 companies [almost a 50 percent increase]."

Folks, that is a boom.

One factor in YC's boom is the added incentive that every startup accepted by YC automatically now receives a $150,000 investment when they graduate, courtesy of Yuri Milner and YC founder Ron Conway's SV Angel fund.