Y Combinator often backs startups that duplicate other YC companies, data shows

> Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.

This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket.

What VCs do is allocate capital in a way that mitigates risk for themselves.

There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company.

The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.

We need to define conflict of interest. Question: is an investor who gives money to one organization, but is not involved in the decision-making, conflicted if they give money to another organization? Are they self-conflicted (undermining their own likelihood of success)? Are they contractually or legally conflicted? Have they breached the trust of people they invested in? Are they ethically conflicted?

Answers to these questions are non-obvious. Attempts to simplify the set of relevant questions means imposing a worldview.

On the ethical question, a consequentialist would say it depends on the outcomes. Like many consequentialist analyses, this is complicated. Consider this: Investing in a similar company might validate the market and make it more likely for the company and/or its people to reach viability.

> Execution matters, not the idea.

Execution matters _as much as_ the idea.

A good idea executed poorly produces bad results.

A bad idea executed well produces bad results.

This is what YC is hedging (was it the execution or idea) by investing in duplicative startups.

It was nothing like as bad as this 10 years ago, no.

Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.

Hedge funds that use a "pod" structure (Chinese walled groups of traders) will hire one pod to mimic another pods strategy. Not hard to guess why.