I don't think it could be any other way, though. The investment is only about 5% of what YC does. The other 95% is stuff that has to happen face-to-face.
We did once try letting a startup not move. By Demo Day they were way behind the others, and they didn't survive much past it.
Now clearly you're running a business and not a charity, and you've arrived at the investment amount for certain reasons. But I do wonder what sort of opportunities and business ideas might arise if a group similar to YC were to offer, say, $10K-$15K per founder for the period.
My problem is the single mom thing. I have a bunch of ideas (and they are all BRILLIANT!) & a great co-founder, but I need to have inexpensive health insurance, and I don't have a life partner willing to pick up any slack. In order to afford the rent on our one bedroom & work crazy hours on a y combinator start-up, I need to save a few thousand dollars. I'll be mid-30s by the time I feel comfortable applying, but that's ok. Last summer I met a founder in his 30s, and it didn't seem to be a problem for him.
In the meantime, it's nights & weekends, which can also be fun if you like your project.
I don't see family as much of an excuse. Can you really not get away for three months? It's not that long.
Also, I don't see why it is so black or white. A couple nights a week is more on the line for me, and that still seems like a significant amount of face-to-face time. When you add to that online community tools (which I presume exist), I would guess a dedicated person could go along way into complete integration into the group.
For me, it's not an excuse, it is a reason. And I can't think of a better one.
On the raw happiness scale, my family has a better ROI than anything else I've done. Including founding three startups.
We had great memories of Cambridge and thought it was worth it.
Also, as someone else pointed out, travel is an option. It could be more than just the dinners, e.g. perhaps three days (two nights) a week.
Finally, I didn't mean to suggest that the opportunity missed is solely an investment opportunity. I meant more generally the opportunity to develop great startups to their full potential, which might otherwise not do so. In my case, I don't need the money at all.
It may be that there is much more face-to-face time that happens because people are co-located, but I didn't the impression that the founders all work in one large room or anything similar.
Even traveling to SF or Cambridge for 2-3 days a week is something that I think people would be willing to do. I can even imagine looking forward to the time away from the family!