Speaking at the Techonomy conference today, Sean Parker warns about the downside of the explosion of seed-stage startups: “Little startups are ridiculously overfunded,” he said. “The market is ridiculously overcrowded with early stage investors. This results in a talent drain, where the best talent gets diffused and work for their own startups.”
The problem in his view is that many of the talented engineers and product designers who are now starting their own companies could have a bigger impact at places like Facebook, and they in turn will have a hard time attracting the best talent because those people can get funded to start their own projects as well.
It’s gotten so bad that, says Parker, “Now institutionally-backed venture funds are backing other venture funds in order to stay close to the dealflow.” (Hmm, sounds familiar).
“And it will end very badly,” pipes in VC Jim Breyer, who is also onstage with Parker.
Parker suggests that one reason it will end badly is because the Internet industry will ultimately consolidate just like the PC industry did in the 1980s and 1990s.
“What comes after the revolution is inevitably bureaucracy,” he says. “Whoever wins the revolution builds a bureaucracy.” And what will end up happening is the big powers will control the tech industry. He paints a picture of “Google pretending to be Switzerland, but doing back deals with everyone, and Apple being left alone to build the Deathstar.” Guess where that will leave most startups.
Update: Here is the video of the session below. They talk about the overfunding towards the end.
Sean Parker is a serial entrepreneur and a managing partner at the Founders Fund. As one of the three founders of Napster, Sean helped architect and manage the peer-to-peer file sharing application to become one of the largest on the net. Parker subsequently helped found and manage Plaxo, a VC-backed contact management application company. More recently, Parker worked as the Founding President of Facebook before moving on to join up with Peter Thiel at The Founders Fund,...
Jim is a Partner at Accel and is the President of Accel Management Company. Jim has been an investor in over 30 consumer Internet, media, and technology companies that have completed public offerings or successful mergers. Jim led Accel’s investment in Facebook (FB) in April, 2005, and has served on the Board of Directors since that time. He is the founding Chairman of the Compensation Committee. Jim is also currently on the board of directors of Wal-Mart Stores, Inc...