This is kind of a grey area. It's not unheard of for early-stage investors to fund two or more competitors (real or potential). If an investor believes the problem is real and the TAM is lucrative, then he or she will have an incentive to take as many shots on goal as necessary. Furthermore, as YC states in its FAQ, "...it's unavoidable you'll end up with some overlap" between companies when you fund so many of them, and when the startups' fundamental business models change so often. In these circumstances, YC states its operating procedure as: "...we don't talk to one about what the other's doing."[1]
Early-stage startups are a loosely regulated market. Things get trickier when you're dealing with public companies, or even with very large private companies. The markets are more established, and the potential for anticompetitive behavior is quite real. Some PE groups have started to come under scrutiny for holding corporate-governance-significant equity stakes in two or more firms operating in the same market.[2][3] And in general, a corporate officer or director of a public company will be deemed to have a conflict of interest if he or she holds a significant position in a competing firm.
Early-stage startups are a loosely regulated market. Things get trickier when you're dealing with public companies, or even with very large private companies. The markets are more established, and the potential for anticompetitive behavior is quite real. Some PE groups have started to come under scrutiny for holding corporate-governance-significant equity stakes in two or more firms operating in the same market.[2][3] And in general, a corporate officer or director of a public company will be deemed to have a conflict of interest if he or she holds a significant position in a competing firm.
[1] http://ycombinator.com/faq.html
[2] http://www.weil.com/news/pubdetail.aspx?pub=8165
[3] https://blogs.law.harvard.edu/corpgov/2012/04/01/sec-enforce...