I agree that the top VC firms are a narrow channel that already has enough money in it. But on the other hand the number of startups is certainly constrained by the amount of funding available. Which means that if there were another way to get money to them besides the top VC funds, it would increase the number of startups.
Of course, if the government tried such a thing it would almost certainly screw it up. But it's possible in theory.
paul, you innovated with a new form of venture capital called ycombinator. you've figured out how to get the right amount of capital to a new class of entrepreneurs and the results speak for themselves. you've attracted a bunch of copycats, some who will do good things and many who will not.
that's the kind of thing that i would like to see more of. we don't need more money flowing into the existing system which is at capacity and has been for years.
Do we know if Y Combinator is profitable yet? One quality that is likely to limit copycats comes from the fact that it is not like a VC. It is not out there with prospectuses advertising its performance to the deep pockets.
If the YC model is indeed profitable, then it might be time for an enterprising financier to go out, raise a fund, and do it ten times as big. Of course, the success rate will be somewhat lower, since the personal attention and advice that YC gives its companies just won't scale.
If the model is profitable, I would guess there would be private money to be had. I just don't think anyone knows how profitable the model is yet. It is still new, risky, and unproven.
Just because some guy with a ton of domain knowledge can earn a decent return off a few dozen companies a year doesn't mean it will work at scale.
If you want to see more YC-style funding and traditional VC is at capacity, can you (big VC) not take an active role by allocating some of your excess resources into YC-style firms? That could help these firms (and ultimately big VC) add more startups to their portfolios.
Of course, this is assuming they are honest about having to reluctantly turn down high quality applicants each year. I'm sure the relatively small number of mentors would become a bottle neck at this level, though.
I disagree that the number of startups around are constrained in any way by funding. Or, at least, the number of viable startups.
I think there are far more important things on the list of stuff that new startups need, like business guidance and planning, structure, strategy. There are so many avenues right now for "cheap" startups -- using AWS, for example -- that I just can't see that throwing more money at the problem will help at all.
And, even in the case of "expensive" startups -- those that need serious capital for manufacturing or prototyping -- they need a strong business plan and a solid structure before they need money.
I suspect that pouring money into the startup sector would have a result very similar to the dot-com boom and bust cycle, and we don't need another of those right now.
Of course, if the government tried such a thing it would almost certainly screw it up. But it's possible in theory.