Raising money beyond bootstrapping is very difficult unless you are referred by a credible source, which is what YC is. Its about the referrals and connections and the associated attention that comes along with them, not so much the money. I'd give up 6% of my startup if I could personally connect with all of the important angels in SV and Boston, probably even if no money was involved.
But, like you say it all really comes down to the product. That I'll agree with.
(1) The overwhelming majority of VC A-rounds don't go to YC companies.
(2) A majority of YC companies don't seem to get funded --- defined here as "an A round of over $1MM".
Graham knows more about (2) than I can claim to, and I could be wrong, but my sense of it is that I am not.
The normal route to funding for News.YC readers seems to be:
(1) Bootstrap (2) Prototype (3) Customers (4) Adult Supervision (5) Funding
(4) --- a CEO who knows how to talk to VC --- sounds demeaning, until you realize that it pales in comparison to (5), which dominates both the normal and the YC graph (note edge to (0) FAILURE at every vertex).
http://www.matasano.com/f38a0ad3a3d5c1a4a666.png
(n.b.: large). Instead of YC A-rounds, we were looking for security A-rounds. It took a few hours. This is very OCD, but hey, you can spend a few hours doing nothing on IRC.
My point is, I think your numbers are wrong, and no way do 10% of all A-rounds go to YC companies. Do YC companies have a 50% chance of getting an A-round within 12 months? I guess Graham can tell us.
Most entrepreneurs would not give up 6% for a 10-fold chance in simply getting funded. You will find this hard to believe, but I'll report it to you firsthand: some companies turn down the opportunity to get funded. We haven't even gotten into the terms discussion. Say 50% of YC'ers get funded. What percentage of them get good deals, and what percentage get tranched, 3x prefs, tiny valuation, and loss of the board? 0% of bootstrapped companies have those problems.
Late edit: there are more than 100 VCs on that radial chart. So much for 10/100=10%.
I'm saying, to the person who said "I wish it was that easy", it is exactly that easy. Most of the companies YC "funds" don't need VC to start up, which is good, because YC doesn't give you that kind of money anyways.
There are lots of paths to success. Look at virtually any Mac software startup; none of them get VC, and they accomplish ridiculous things. Which is harder to build, Reddit or Quicksilver? Reddit was Graham's "hello world" for Arc.
Not all that hard: my last employer turned down VC financing. And I'm going a similar route with my own startup: I'm not averse to VC financing, but only after achieving "product/market fit". There's no sense taking other people's money for an idea that may not fly, and I can change direction more easily without employees or investors.
I still would like to see actual numbers for the 4 quantities I mentioned. My point is not that you're wrong, it's that without that data, you can't draw a sound conclusion either way.
"What percentage of them get good deals, and what percentage get tranched, 3x prefs, tiny valuation, and loss of the board?"
One of the advantages of YC, as I see it, is that this is far less likely to happen. YC brings bargaining power: if a VC screws over a YC startup, you can bet that YC will not be bringing any future deal-flow to that VC. You don't have this advantage as a lone startup, regardless of how good your product is. Never underestimate the power of incentives in getting people to behave properly.
How many YC "sessions" have there been so far? If each produces 4-5 funded companies 6 months later, this isn't a hard question to answer. For instance, most companies publish their boards of directors. Let's see which ones got screwed.
Off the top of my head, I'd say the ratio is about that, of companies that want to raise series A rounds. Most don't actually want to. They don't need that much money, so they go with angels because it's so much less restrictive.