Working on discussion boards. Like tumblr, for forums.
We already run some forums based on vBulletin, XenForo, Vanilla, etc... and have ~300k monthly unique visitors, ~40k registered members, ~15k active (each month) users, and mailing lists of ~25k.
Forums being one of the oldest things on the internet (usenet) and one of the most resilient.
But we're not making this forum or that forum... those are muffins and we're building a muffin making machine. A hosted platform to build great forums.
The whole business came out of user demand. Frustration at the stagnation of forum software and what users have to do, and how they have to compromise to make a community work on such software.
We (the users and I) started to ask "What if we..." instead of "How do we work around this limitation?". Where we've ended up isn't technically impossible... it's just a lot of work. But they're really excited by it, as am I, and the first mockups have all been built with a lot of feedback from them and their response has largely been:
That mock-up thing is rad as fuck! Hurry up and get some bank details or something up so I can blast some patron money in your direction!
The fundraising is to help support the building of it (stipends for people to work on it, rent for a small office, etc), and the users themselves are asking for hack weekends so that they can come in, and pool 20 people's effort into pushing it along.
But still, the YC application was borne out of hope that we could move even faster. We make a profit already from affiliate fees, and there's a lot of money in hobbies... we just want to get the first real version out of the door and into the hands of the users.
* The LaunchRock page is just that... because we're already working with users most of what we've focused on has been in-person stuff from our office near London Waterloo. We haven't yet felt a pressing need to spend time on a pretty landing page.