This is a common fallacy, that investment confers some sort of validity. It doesn't. It means only that Sequoia et al. think Y Combinator's model will work. They don't have a crystal ball, and the model is no more or less likely to work than if they found $2m on the side of the road.
I've thought it will work (for them anyway, not for many of the competitors) since before I went through it, but I don't really consider this validation of my belief.
I think this could be a way for Sequoia/Ron Conway to find good companies ahead of other investors. This way, they'll know all about the current crop of YC companies and will be able to spot the winners from day 1.
After all as investors, pg would probably have to report what companies he has selected for the program
This deal explicitly does not include any provisions for anyone to get an early look at the companies.
That said, anyone who speaks at YC dinners obviously gets an early look at the companies in that cycle, since the point of the dinners is to introduce the startups to these experts, and you will notice that 3 out of 4 of the investors already speak at the dinners:
So the investors didn't need to do this deal to get an early look at the startups, because (along with all the other speakers) most of them already had it.
Investors who have a history of writing checks to YC companies tend to get previews ahead of the rest as it is. Still, for only $2m (a paltry sum for the VC and angels involved) it's well worth the good will.
The problem is, Sequoia or Ron Conway need to have heard about the startup for them to call it. By investing in this fund, they not only get to hear about it before others but also get to monitor each as it grows, find out more about the co.s than other investors, which would help them make a better decision on whether to invest directly and at at what valuation.
