YC is not some magic oracle at picking startups. They just have way better dealflow because of their reputation and how simple their process is.
No reason that won't change, and even if it did why would they ever make that public? In other words, they'd say that, even if it were not true.
> I know a number of founders who were rejected from YC and while they don't plaster it on their website, they don't hide it if it comes up.
It stands to reason that there are in a pool that large founders that feel one way or the other.
The HN wisdom is that if you let such a rejection affect you then you weren't successful start-up founder material to begin with but in reality it isn't all that simple.
> YC is not some magic oracle at picking startups.
That must be why the chances of getting follow on investment from other investors is so much lower once you reach demo day /s. YC start-ups are generally oversubscribed, especially when compared to non YC start-ups, so even if YC is not an oracle it definitely is a stamp of approval. Lack of such a stamp after trying to obtain it is a negative signal of sorts. And getting continuity funding or not is another signal of that kind.
> They just have way better dealflow because of their reputation and how simple their process is.
Yes, that reputation is what this is about, and that reputation is in a feedback loop. The process being simple has little to do with it, most start-up accelerators have a simple process.
The big factors are: founder friendly, huge alumni network with vast amounts of knowledge, huge pool of people willing to work for YC backed start-ups, coming to America, large chance of finding follow on investment once you are accepted.
Note how all it would take to make a play at this is to drop one single line from the YC continuity program terms, which is that YC continuity won't take the lead. The existence of that one line is the sign that they are not yet ready for a play like that. But that won't always be the case and at some point YC will be flush enough that they can run their incubator at the next higher level.
YC does have a positive signal - meaning that any stamp of approval from YC will make you do better than not. This is why demo day rounds are frequently oversubscribed. They do not have a negative signal - by that I mean getting rejected will be treated the same as not applying.
There are two elements to this, a signalling element and a numerical element, let me get the first - and easiest - one out of the way first before addressing the second.
In a world with an infinite supply of money ready to be thrown at any founder you would be right, absence of a positive signal would not be a net negative.
But we do not live in a world with an infinite supply of money available to start-ups, we live in one where the supply of funds is arguably larger than can be allocated efficiently but that's not the same as saying that it knows no bounds.
And if there is a bound - any bound, really - to this supply then whatever money gets taken out by YC backed companies is by definition no longer available to non-YC backed companies.
And so, these companies will have less funds available to them, and those investors that would as a first choice allocate their funds towards YC backed companies would have less available to allocate to companies not backed by YC.
Which will make it marginally harder for those companies to raise funds, regardless of the signal of having applied to YC and having failed.
Then, secondly there is the signal of applying for a successful program and not making it. It is obviously in YCs interest to ensure that those companies that don't make the cut to be included in a batch do not face diminished chances of raising funds compared to not applying at all since this may make it harder to convince companies to apply in the first place. So YC has built in a lot of ways to ensure that the damage to applicants that do not make it is limited.
But VCs are not quite as rational as one would hope and are super sensitive to concepts such as validation and tend to try to play it safe when it comes to placing their bets.
And in that context, not having a stamp of approval because you did not apply trumps not having a stamp of approval because you did apply but did not make it.
All this besides the psychological effects of rejection on the founders.
When you combine the two is where the problem sits, a company that has applied to YC and has been rejected compared to a company that has not applied at all stands less of a chance of raising from both those VCs that are present at demo day because they have less money remaining and stands less of a chance of raising from other VCs because of their perceived ability to 'have what it takes' to enter YC. It's obvious they are not the top pick and if there is one thing an investor hates it is to pick through the left-overs of a first tier program. It pretty much defines that VC as being second tier. And so it is smart for a company not to advertise that they have applied to YC but did not make the cut.
The herd mentality in VC makes this problem larger than it probably should be.
So, to make a long story short, I'm sympathetic to your claim that it does not matter but I've seen enough of the world from an investors point of view to know that it really isn't all that clear cut and that there are a lot of data points in my periphery to support my claim, just as I'm sure that you have a lot of data points to support yours.
The only real way to get to the bottom of this is to quantify it by doing an exhaustive survey of YC applicants and non-YC applicants and to compare how easy it was to raise funds for those companies that have been public about their rejection compared to those that have kept that quiet with the ones that did not apply at all as a control group.
I'd love to see that study, but absent such a study I'll go by what bits and pieces of evidence I have in front of me.