Be careful about assuming that how the company looks when the early employees are hired is how the company always looked.
It usually takes 2-3 years before a typical founder can get seed funding and even think about hiring employees. During that time period, they are funding the company themselves, and doing all the work themselves. Yes, they usually draw a small salary once the company is VC-funded. By that point, ~95% of founders have been flushed out of the market and failed.
There are a small minority of people who can raise VC on just an idea because they're white, wealthy, and went to Stanford or because they're roommates with a VC's daughter or because they're an unusually slick salesman who can swindle lots of people. I would highly recommend not working for these people - or really, any founding team who did not build and sell the initial version of the product themself - because they generally do not know what they're doing, and these startups become a miserable experience for the employees. But they are, I'll reiterate, a very small minority of founders. They are a somewhat larger minority of the founders who can hire employees, because getting VC investment automatically puts you in the pool of startups that is looking to hire. That's an information distortion between the viewpoint of employees (who only see the startups who have gotten at least to the first funding round) and founders (who see all startups, including the ones that struggle for years to get their first revenue).
I say "white, wealthy and went to Stanford" because that is the reality of it. The "Hi, I'm going to raise money on nothing but an idea because trust me" strategy does not generally work if you are Indian, Chinese, or any other minority ethnicity, unless you previously had an exit (in which case you know just how hard actually building a business is, and my comment doesn't apply to you). It largely also does not work even if you are white, if you happen to lack the cultural capital that comes with growing up wealthy and going to Stanford. I know a number of East and South Asian founders (I'm one of them) who have taken VC (I'm not one of them), and they all got to that point the old-fashioned way: they built a product and sold it, themselves, before any VCs invested. These are all folks who have plenty of credentials, including working at major successful Silicon Valley companies (Sun, Google, Microsoft) or graduating from Stanford.
(Exception: if you are Chinese and your investor is Chinese and you have a personal connection to that investor you can sometimes raise money on "Hi I have an idea and trust me." This is a recent development and comes from the massive amount of Chinese capital floating around these days, and is sometimes not actually the best move for your startup.)
Do you think (a) White applicants are more likely to get into YC? (b) Founding teams with no white people that get to demo day are less likely to get funded than those who do?
I know YC is a relatively small part of the VC ecosystem but it’s pretty influential. If the VC ecosystem is as racist as you say there should be plenty of opportunity to make better returns out there for some enterprising VC.
I think YC is pretty unrepresentative of the VC industry in this regard, simply because the VC industry is as racist as I say and YC is hoping to be that enterprising VC that seizes this opportunity for better returns. The YC partners have been pretty open about this - racism creates a market opportunity, and so they've put in a significant amount of working in retraining their own unconscious biases so that they don't miss the market openings that are left behind by other firms. (I should probably also say that they're not doing this just for better returns - it's also the right thing to do, but it has the side-effect of being economically rational.)
There are a few other VC firms that similarly work hard to avoid missing promising founders of minority backgrounds, but they are still the exception rather than the rule. Over time, the "rich, dumb, and prejudiced" folks will get flushed out of the market, but that's over a lot of time. Besides, they'll probably just get replaced by a different set of prejudices - nobody can be 100% unbiased, you can only hope to replace biases that are useless and arbitrary with ones that are somewhat more useful.
It usually takes 2-3 years before a typical founder can get seed funding and even think about hiring employees. During that time period, they are funding the company themselves, and doing all the work themselves. Yes, they usually draw a small salary once the company is VC-funded. By that point, ~95% of founders have been flushed out of the market and failed.
There are a small minority of people who can raise VC on just an idea because they're white, wealthy, and went to Stanford or because they're roommates with a VC's daughter or because they're an unusually slick salesman who can swindle lots of people. I would highly recommend not working for these people - or really, any founding team who did not build and sell the initial version of the product themself - because they generally do not know what they're doing, and these startups become a miserable experience for the employees. But they are, I'll reiterate, a very small minority of founders. They are a somewhat larger minority of the founders who can hire employees, because getting VC investment automatically puts you in the pool of startups that is looking to hire. That's an information distortion between the viewpoint of employees (who only see the startups who have gotten at least to the first funding round) and founders (who see all startups, including the ones that struggle for years to get their first revenue).