Sean Parker: “Little Startups Are Ridiculously Over-Funded”

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.