Favoritism shown or patronage granted to relatives and friends.

But I think this is just an example that shows investment is merely gambling.

Not necessarily, the article mentions that YC allegedly never even vetted the project:

> According to Upton, a senior employee at Y Combinator claims that Bellack has a friend in the accelerator who helped greenlight DreamWorld without the appropriate due diligence. "Originally, I thought this was a bit of a joke, but they called me and validated all their information and their sources. This person is actually higher up than just investing," he says. "[DreamWorld] wasn't vetted. They apparently had nothing to show on demo day, and they were still allowed through."

Should not be a surprise after Theranos.

It's actually a good thing, because it destroys confidence in YC and their reputation is deservedly diminished. This results in actually successful companies not bothering to apply for YC, which hurts their performance.

This debacle will cost them a LOT more than the cash they gave to the scam.

Isn't this congruent with the "Invest in teams, not products" philosophy though?