I see this as a natural progression of VC industry - the game is not about who can predict the winners and losers, but rather about capturing as much early stage equity on new business opportunities.

In this sense, YC acts as an index fund on startups. Traditionally the IPO process weeds out the fraudulent businesses, and YC's application process is supposed to function the same way (with obviously less diligence) so that the efficiency of passive index returns aren't exploited.

In the limit, YC would be essentially investing in the equity of the totality of the younger technology workforce (who have majority of their earnings and talent and capital lying in the future). This is a good investment.

Where it differs slightly from a "indexing" model is that YC is allowed to encourage portfolio companies to buy and sell from each other, much like how Berkshire Hathaway does the same for its portfolio companies.