The way I see it is that YCombinator provides a service: Advice and access to relatively small amounts of money. It is taking a cut too. This service is in comp

The way I see it is that YCombinator provides a service: Advice and access to relatively small amounts of money. It is taking a cut too. This service is in competition with other ways of doing things. And at the moment it is successful so people opting and paying at times dearly for it still go for it again and again. It is easy to criticizes a solution and blame the solution for the forces that shaped it. In the past where there was no YC if and only if you got funding maybe you ended up with a larger cut. Maybe, maybe not. Often professional third party capital came later. Also there were less standard processes and a more asymmetric information so probably the outliers were larger. There is a surviver bias when looking back. YC deals in part with other peoples money (OPM) and that in general lead to attracting players strongly financially motivated with less technical skills and putting them at the top. Building a technical business from scratch requires technical investment on the ground level and leaves more equity for the technical guys. So why has the route to get early funding through YC become so popular? I believe a factor is the general problem in the society of capital formation in the middle income layer of the society. In the past students left the university without debt - today they and their parents often are under water. Getting access to the initial capital has become harder and access to financing through third parties thus more important. It will be interesting what Kickstarter does to the YC business. I guess YC has to compete more strongly on the services side.