None of that is true!
/shownew and /show are clearly explained at https://news.ycombinator.com/showhn.html ("Every Show HN appears on shownew. Once it clears a small points threshold, it will appear on the show page in the top bar.") and https://news.ycombinator.com/newsfaq.html ("All submissions appear on newest, and all Show HNs on shownew, but there is a small points threshold before a post appears on ask or show.")
The stuff you're saying about how YC works is not only made-up, it's the opposite of the truth. YC often funds competitors to existing YC startups—first because if you're funding 1000 startups a year, that's inevitable; and second because startups don't usually die because of competition, as PG and YC have been explaining to founders for many years. A startup that's building something people want will almost always find a way to differentiate itself.
We don't moderate Show HNs to favor YC startups or disfavor other startups. We do give YC startups the chance to post Launch HNs that get placed on HN's front page (as explained at https://news.ycombinator.com/newsfaq.html). But these don't go on the /show tab (they used to, but I disabled that so YC startups wouldn't get too much of an extra advantage). Plenty of Show HNs make the front page, and the overwhelming majority have no connection to YC—in fact, I can't fathom how you'd have thought otherwise, since this seems quite obvious.
When a non-YC startup is having a successful Show HN, I often help them and also encourage them to apply to YC. When a non-YC startup posts a Show HN that isn't successful, I often email them with suggestions about how to rework it so the community will like it better, and if they do that, I often put their Show HN in the second-chance pool (https://news.ycombinator.com/pool, explained at https://news.ycombinator.com/item?id=26998308), so it gets a random placement on HN's front page.
From https://news.ycombinator.com/item?id=28810941 I gather that you're upset about something that happened to a specific Show HN. Rather than jumping to false conclusions about what happened, you should post the link so that (a) we can look into it and respond, and (b) readers can make up their minds for themselves. Since the comments you're posting contain no specific information, the more you post dramatic claims, the less likely readers are to believe you.
There could be a ton of reasons why your friend's Show HN got demoted, ranging from setting off the flamewar detector, the voting ring detector, getting flagged by users for some reason, getting downweighted because it broke the Show HN guidelines, getting downweighted because it broke the HN guidelines, various kinds of spam or abuse behavior (the worst of which is buying upvotes from spammers, which people unfortunately do but which typically causes their post to get buried immediately, and their account and site banned on HN). I'd need a link to say for sure which of those, if any, it was. Or maybe it just didn't get enough upvotes to clear the hurdle from /shownew to /show. That often happens. It happens to YC startups too.
If your friend(s) didn't do anything bad, you or they should email us so we can look at the post and possibly help. That's what people do when they assume good faith, and that approach has a much higher expected value than the approach you've been taking with these comments. You/they should do that out of simple self-interest if nothing else. Even when people did do something bad, we usually forgive and unban them if they take responsibility for it and promise not to do it again.
Not only do we not lie to the community, we try never to do anything that isn't clearly defensible to the community. To do otherwise would be not only wrong but stupid, since it would risk losing the good faith of HN users. Why would we do that? That's the only value HN has. It's precisely by not doing it that we can keep HN in the high esteem of this audience, and therefore keep YC in a kind of special relationship with users here. That's what makes HN valuable to YC (https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so...).
I've responded more here: https://news.ycombinator.com/item?id=28817887.