Startups and innovation

I want to create a startup that does the exact same thing as an existing company. The area where we would be competing is very large and there appears to be only one legitimate company operating in this space. I was thinking about cleverly trying to differentiate my company from the existing competition but came to the realization why bother. If the market is large and there are no proprietary issues, there is no reason why two companies can't succeed in this space. It got me thinking, are too many web companies dissuaded by the existence of competition? How does YC and other funds feel about putting money into companies that are not really innovative?