It's hard to imagine YC funding a porn company, but I will say from experience that there are worse jobs than being a programmer at a porn company. Aside from the fun parties and social work atmosphere, it can be very technically challenging (scaling a Rails app up to 1,000,000+ uniques per day is pretty fun if you've never done it before).
A while back I saw an article on HN that was on the blog of a porn site (something like blog.pornsite.com). It was a blog worth following, it was about building a modern video site on Python and Django and GWT, and all these interesting technical challenges. It just happened to all be for a porn site.
my understanding was that they funded the people as much as the idea. i doubt the fact that a bunch of smart people were doing something cool with - shock - boobies would stop him.
I have no idea whether or not pg is a prude. What I meant was that it's a hyper-competitive, highly saturated market and most porn companies these days are "innovating" with traffic generation and content, and not with technology or novel business models.
Believe me, I've worked in and with the industry for years and it is ripe for a breakthrough. I actually was working on a project at a porn company that had the potential to disrupt the porn industry but was abandoned due to internal political reasons. If pg wanted me to build it again, I'd be all over it.
I think a lot of people in Silicon Valley don't want to touch it, because of the stigma. Having that on your resume reduces your chances of getting a job with high profile companies or government agencies.
I can imagine that the industry is innovating. If not with standard technologies, they must be evolving their business practices. I am not sure if the magazine sells have declined, but I can only imagine that they have. If so, there would be a necessity to innovate in the realm of business operations and monetizing in order to compete with free offerings.
