In any case I do not agree. Design does matter even if there are outliers that break that mold. If you have no funding then you have to do what you can given your resources. If you have money you can allocate it wisely which is not the same as throwing it away.
People hear 'design' and just think it is just the prettification of a product and not the actual usability and utter simplification of it. Maybe it's because there are so many designers that focus on gradients and drop-shadows anymore instead of the what and why, but design is imperative to the success of a company. Even though PG's point was that it doesn't matter (if I understood it correctly?), Google's minimalistic homepage compared to other search companies' sites in 1998 (bold colors, links everywhere, multiple functions/offshoots of the site) is part of what made it so popular; it did what it said on the tin and it made sense doing it.
It's evident in comparison, that simplicity pioneered by Google, has been a significant principal in modern web design.
While a lot has improved in the design of Google's image over time, mostly aiming towards simplicity, the essence of Google's design, remains unchanged.
But no, it turns out, 'thaumaturgy is right. Go look at Lycos and Altavista. It's hard to make a concise and compelling argument for Google's design being worse than its competitors. This was what professional web designs looked like in 1998.
It's especially easy to claim one without the other when the whole argument is that design is not a competitive edge for search engines.
I gave up trying, for whatever that's worth. 1998 just looked crappy. Great year for indie rock! Neutral Milk Hotel! Bad year for web design.
Of course if one is going to use an example of where design didn't matter in 1998 you could always counter with an example of the imac, circa 1998, of which the design was key to the success of the product. (I won't even get into the other apple products).
http://designmuseum.org/exhibitions/online/jonathan-ive-on-a...
I'm assuming that that statement refers to YC startups as opposed to "startups" who may seek VC or angel funding (who may have limited knowledge and be more impressed with visual slickness). In that case the design, usability and appeal of the site matters much more.
99 designs probably isn't going to help someone who doesn't know how to make a usable product, but YC has enough mentors that it's not an issue.