>startups are the best way anyone has found to develop great new software
YC's program is 10 weeks. The time ALONE means they aren't developing great new software that other people can't make. Back to your Microsoft example, they were notorious for having people demo for them, then stealing the idea and developing it in-house. (Remember how start-ups were all scared of going into a market segment Microsoft might want?) A start-up isn't even a good way of getting an audience, which is what Reddit, YouTube, etc. were bought for, because chances are your start-up will fail. The reason start-ups collectively work is there are so many of them, a big company can just acquire the winners.
Focusing on only the hits and ignoring the misses is a hallmark of pseudoscience, so if we're going to trumpet the winners let's compare that to the vastly larger deadpool. Start-ups are 10x more effective in producing stuff that goes nowhere. Big companies are automatically better at producing stuff people use than 90% of start-ups for that reason alone.
> I'm just claiming they're better at producing new great stuff and that big companies suck at it.
I think this is a case of "the overwhelming majority of great developers do not work at YOUR company". Numbers alone mean that more great ideas will come from outside your company than from within. More new stuff will always come from everyone not at company X than at company X.
Working at Google doesn't seem to stop people, hired or acquired, from coming up with good stuff, so once again we're back to start-ups being an advertisement of who's dedicated rather than a superior development methodology. I mean there are only so many ways you can just sit there and code, there's nothing magical about doing it in a cramped apartment. And it's demonstrably worse to do it on ramen than on free gourmet health food.
The reason Joe Kraus and others romanticize it is because they were young, it was new and exciting, and they were doing it with a bunch of their friends. That's a good recipe for getting something done, but the code's going to be a mess if you're inexperienced, and worse if you're rushing to a demo. Out of large numbers of people getting something done, some of those will be a lot better than others. It's a numbers game. VCs fund, what, way less than 1%?