The need to scale is inevitable if you consider 2 trends: startups have become mainstream and the internet is orders of magnitude bigger. When YC applications consisted mostly of PG essay readers the chance of success per company was higher. Also some niche ideas can now work because of a more developed communications infrastructure, easy payments, better targeting, etc.

And knowing which companies are high quality is almost impossible at the early stages.

Neither of those lead to a need to scale. Those are enabling factors, at best.

There needs to be an ROI, YC isn't funding companies out of the goodness of their hearts. So the additional size means they have to bet on Uber and Lyft and Flywheel and every other competitor in that space in order to guarantee a return, because they only win if they bet on every horse. You can't do that if you keep small since the number of entrants got bigger. Hence scaling is necessary for them.

Sure, but that's not the argument that was being made. This is just generically: VC works by power laws so larger portfolios are generally preferable to smaller ones.

As much as I resonate with your sentiment, it's the incentives that investors have that cause them to behave this way, not an inherent belief in scale at all costs.

Keep in mind, YC is very early stage. Asking them to pick only winners based on an application and short interview process would be a fool's errand. I believe their acceptance rates tend to be around 2%, so it's not like they aren't being selective up front—it just takes time to really get signal on who is executing and finding traction. Startup investment is high risk and justified by the outliers, so they have every incentive to find them early, it only makes sense that they would give more support to their winners as they emerge.

>Why couldn't they stick to taking a few high quality companies every year?

Because they don't actually have the ability to pick high-quality companies.

As the article states, YC’s key asset is their deal flow. You simply don’t get that if you only write 1% of the best seed checks.

If you don’t eat the pie, someone else will. If someone else eats more pie than you, they will be stronger than you and eat your pie.

Switching analogies, unless you have a defensible niche with a wide moat, your position of power is an unstable equilibrium; in the open market only a monopoly is a stable attractor state.

So you're saying the "Peter principle" extends beyond tech employee performance and to tech company funding.

If the Peter principle is just “you succeed until you don’t” then it’s tautological and applies in all contexts.

no, it's not the Peter Principle.

The Peter Principle is pointing out that if you keep getting promoted by doing an exceptional job, and you stop getting promoted when you stop, that you have ended up leaving a job you were exceptional at, and landing in a job you are not good at. In a certain sense it's saying "you should be demoted back to your last job that you were exceptional at"; it's not suggesting that, it's suggesting a sort of snarky "this whole system is set up to fail" because it's from a "isn't capitalism grubby" perspective.

None of this flavor is in the general YC scaling case, though you may be able to find it in various places within that.

I think you'd be hard-pressed to make a case that VC-motivated business scaling does not consistently overinflate the businesses which are artificially propped up by investor cash. There are a bunch of companies, existing and dead, that show the folly of growth-at-high-cost.

that's not the Peter Principle

To venture capitalists, “enough money” is a nonsense phrase, much in the same way that a typical computer enthusiast would see the phrase “enough RAM.”

It wouldn’t have to scale, but I’m glad that it did. It’s likely that there’s been somewhat more innovation and economic growth in the world over the last ~decade than there would have been if YC stayed smaller.

Capitalism baby, you always need to grow to increase share holder value.