It depends - are you sure this isn't a winner-take-all market and do you have something that gives you some unique advantage over them?

Perhaps you have unique insights into the market which they don't understand? (Eg, Foursquare vs Google Latitude)

Perhaps you have a launch strategy that gives you something better users (Eg, Facebook vs MySpace)

Perhaps you can do a better job (eg, Dropbox vs every other previous backup service, Google vs every previous search engine)

They have money, first mover advantage and the advantage of YC contacts. Are you advantages enough to win?