PG, Since the piece was mostly tongue in cheek I agree, not much thought went into it. But it would only make sense that some of the team members not making the cut ended up on a team that did. Also, it is common knowledge and confirmed by large companies such as Google and Microsoft that they sometimes buy companies for the value of the team rather than the product. So in the general sense, the logic works.

After reading some threads in your news-YC section, I did find that some of the companies not making the grade were ticked off. But, this can be handled by setting expectations and delivering the rejection in the proper manner. We all know that we desire what we cant have. Put it this way. I am sure that a recruiter that had access to the list of contacts amassed through your funding contests could show a fine ROI on your investment. No doubt there is value in that network of contacts.

BTW the article is Titled: Paul Graham is Selling our children