I'm watching this all from the outside, in a stable salaried job outside the bay area. But it just feels like the end of a road -- the community is eating itself. Making stuff people want is a distant memory at this point.
It's because it's not humanly possible for a single investor, be it Dave McClure or a YC partner, to process the sheer volume of pitches that come their way. There needs to be some sort of filtering mechanism, and endorsements/recommendations are one way of doing that.
As Dave mentioned in the video embedded in the article, he WILL give his full attention to a founder IF they have already met with 500 Startups portfolio companies (i.e. people he trusts and respects) and proven to them that they are legit.
People like Dave McClure (and pg) have thousands of people vying for his extremely limited time, and so giving his full attention to every pitch that comes his way would be a huge disservice to the other startups that actually deserve it i.e. have actually done their homework, put time in to prove themselves, and committed to forming long-term relationships with people in his community vs. those looking for a quick and easy shortcut to funding and networking.
My point was deeper: once the environment has reached a point where the important investors have "thousands of people vying for [their] extremely limited time", to the extent that "it's not humanly possible [...] to process the sheer volume of pitches", then it seems like the startup environment has jumped the shark. It's a machine now -- generate as many launches as possible, and pitch them to as many investors as possible. The focus is about funding -- not survival (does anyone remember "ramen profitable"? Yeah, we don't hear that so much anymore), and not products.
Back in 2005, it didn't seem that way at all...
Despite how mainstream tech entrepreneurship has become, and despite how many founders are not in it for the right reasons, I still believe (or hope) it's mostly noise and the best products and founders will always rise to the top. The US (and the world) still needs more entrepreneurship to stay competitive, though perhaps not in its current model/form, and we haven't yet reached the point of diminishing returns in my opinion.
This is a tangent to your main point, but TechCrunch had a pretty good piece on how YC tries to tackle this problem: http://techcrunch.com/2012/04/02/yc-y-combinator-scaling/
But as someone who watched the end of the 90's boom, this feels the same way. I don't have numbers, but do any of us really believe there is enough future revenue in mobile social sharing apps with nice typography to justify the absolutely insane funding environment?
I don't either. And there's a hard landing ahead.
The only point at which anything has jumped the shark is when you start seeing 50 companies IPO at once.
Of course that the offer (pitches) will always be greater by several orders of magnitude than the demand (investor money). A natural consequence of that is that investors are sick of being pitched everywhere they go.
But for investors, is it better to have too many pitches, or not enough?
Don't worry, there are still plenty of people shipping shit that people want :)