Sean Parker hits out over “ridiculously overfunded” start-ups

Tech entrepreneur Sean Parker has hit out at US investors by labeling small start-ups as “ridiculously overfunded”.

In addition to his role as the founding president of Facebook, Parker is best known for co-founding online music store Napster.

Other companies Parker is involved in include The Founders Fund, fbFund, ooma, Causes, Plaxo, Yammer, Asana, Element Payment Services, Spotify and Airtime.

Speaking at a technology conference earlier this week, Parker sought to highlight the downside of the explosion of seed-stage start-ups, claiming “little start-ups are ridiculously overfunded”.

“The market is ridiculously overcrowded with early stage investors… A lot of these early stage investors will fund literally anything,” Parker said.

“This results in a talent drain, where the best talent gets diffused and work for their own start-ups.”

According to Parker, many of the talented engineers and product designers who are now starting their own companies could have a bigger impact at companies like Facebook.

Meanwhile, he believes the internet sector will eventually consolidate in the same way the PC industry did in the 1980s and 1990s, which could have dire consequences.

“What comes after the revolution is inevitably bureaucracy. Whoever wins the revolution builds a bureaucracy,” he said.

But Domenic Carosa, who heads up Future Capital Development Fund, says the start-up scene in Australia is still developing and flourishing.

“In terms of the size [of Australia’s start-up scene] compared to the US, it’s a drop in the ocean, so I think those comments don’t apply to Australia,” Carosa says.

“With start-ups these days, you can do a lot with a quarter of a million dollars or half a million dollars.”

“My view is that if you spend a little bit of money, you can get something up and running, prove the model and then go and raise the next round of capital.”

Carosa says while there is “definitely some heat” coming into the internet sector, as seen by Kaggle’s $11 million funding round, Australian start-ups shouldn’t get ahead of themselves.

“I think investors want to put in as little as possible for as much equity as possible and companies want to dilute as little as possible but secure the most cash,” he says.

“Market forces dictate the right equilibrium, but my advice to Australian start-ups is that it’s smarter to own a smaller piece of a bigger pie than 100% of nothing.”