On the one hand, it's probably true that experts overweight their own ability to pick winners. My guess is, PG is likely overestimating the ability of YC staff to actually identify good patterns simply because it's easy to draw conclusions from just a few datapoints but it's hard to draw statistically significant conclusions that hold up out of sample. However, I doubt that a startup index fund will outperform the best VCs and incubators simply because good deal flow is key, whereas in publicly traded markets, everyone has access to all deals. Having said that, I have no doubt that a VC index fund would outperform many of the VCs that are not that good

There's also a question of how do you define the index fund. The S&P is pretty non-ambiguous. How do you define which startups are in the index? By the time they're definable as a real business, they're no longer early-stage startups.