"That quote was the sketchiest part of the article for me, because the same math was used to justify the subprime mortgage bubble."
Except that YC doesn't do this. They aren't funding 10x more startups and pg says he avoids finding out how many get funded afterwards because it's the wrong thing to optimize for.
To put it another way, there are a lot of ways to bring down post-Demoday funding to 30% and most of them are not going to be helpful. The observation just points out that given their high VC funding rate YC is probably not optimizing for the homeruns as well as it should from a financial perspective.
"We'd have to be willing to fund 10x more startups than they would."
I guess that if currently nearly all of your startups are getting VC funding, there are two ways to end up funding 10x more startups than VCs: 1.) Make the VCs fund 10x fewer startups or 2.) Fund 10x more startups yourself. (Or various combinations, of course.) #1 seemed absurd to me, so I read the thought experiment as suggesting #2.
Edit: Hmm, I guess another alternative is to fund startups that "look worse" to VCs, which is basically #1 but doesn't seem so absurd. So perhaps I was misreading the quote.
"We'd have to be willing to fund 10x more startups than they would."
The contracted 'we would' is key. They WOULD have to be willing to do that IF they were going to pursue that goal. They aren't. He's positing the idea that if they were properly optimized for the black swans then they would see a much lower funding rate. Not that they should aim for a low funding rate for it's own sake. But, as he discusses, actually performing such an optimization is hard, not to mention the fact that making money isn't their only reason for running YC.
Except that YC doesn't do this. They aren't funding 10x more startups and pg says he avoids finding out how many get funded afterwards because it's the wrong thing to optimize for.
To put it another way, there are a lot of ways to bring down post-Demoday funding to 30% and most of them are not going to be helpful. The observation just points out that given their high VC funding rate YC is probably not optimizing for the homeruns as well as it should from a financial perspective.