YC's record is a lot closer to 1% than 100% of getting huge homerun hits.

By your logic, this implies that in the best possible circumstances (YC), you're not going to get above a few percent chance a priori of a huge success if you work like crazy.

Whereas an equally intelligent person working reasonable hours on the side when appropriate has a decent chance of making a profitable lifestyle business in the millions without the possibility burnout and debt.

I am not talking about "getting huge" at all, because I don't believe there is enough space in the market for 300+ (number of YC investments so far) huge (Google/Apple/Facebook/Microsoft) companies. I am, however, talking about non-trivial exits, ones that definitely put a founder in the "success" bin. Let's say, 10+ million in 4 years. I don't think it's possible to get to that point "on the side".

Don't use generalizations, just do the math.

$10 million, minus the VC investment, split each among 2 or 3 founders. That ends up being what, $2-3 million in 4 years? I personally know several people who make more than that off of one iPhone app on the side. Apple's paid out billions to app developers.

Again, look at the numbers: what percent of YC investments have exited at $10 million+ in 4 years? Again, much closer to 10% than 100%. This is in a thread where pg implies that the chances of a big success are 2/3 or higher for some people. Empirical evidence proves that top investors are not right anywhere near the probability suggested.

Investors are incentivized to not only pick the founders they think have a very high chance of huge success, but to make as many founders as possible think they belong to that group. If they're right, big rewards. If they're wrong, the founders (and LPs) pay the price.

More: http://www.paulgraham.com/venturecapital.html

The VC firm in business for the fees was mostly a product of the Internet Bubble of the late 90s. There were still a significant number around when I wrote that 6 years ago, but in the last few years (and particularly since 2008) the bad firms have been ruthlessly pruned.

No VC whose name you recognize will invest in bad startups to get the management fees.

Great point. And founders who have taken the 90-hour-a-week path are emotionally incentivized to believe it's the only path to success -- because if not, they could have made different tradeoffs.

I don't think that's any different from most other institutions that "accept" people for challenging endeavors. If you are accepted into medical school, work insane hours, and then fail out, you still have the loans to pay back.