
Sean Parker: “Little Startups Are Ridiculously OverFunded” - llambda
http://techcrunch.com/2011/11/15/sean-parker-little-startups-are-ridiculously-overfunded/
======
PabloOsinaga
I don't see what's wrong with larger companies having a hard time attracting
talent.

A good read: <http://en.wikipedia.org/wiki/Theory_of_the_firm>

As transaction costs go down (in general), it makes less sense for us as a
society to have production/value creation organized in larger organizations
(firms, companies, etc) - instead in a bunch of independent smaller groups.

Companies only exist to minimize transaction costs.

~~~
yummyfajitas
_Companies only exist to minimize transaction costs._

I think this is a bit of an overstatement. Another purpose of companies is to
provide the benefits of a command economy (e.g., the ability of a great leader
to jump from a local to global maxima) with less of the dangers of a command
economy (great leader robs/kills you, poor planning screws everyone over).

E.g., central planning in the food supply _can_ work reasonably well, but this
is hardly guaranteed. Market discipline gives us the benefits of McDonald's 5
year plan, but a McBankruptcy rather than Soviet Union style food shortages if
the 5 year plan fails.

~~~
justincormack
That is a bizarre argument though, you are saying that capitalism works fine
so long as companies are run as soviet states? The Soviet Union showed
basically no benefits to the command economy... And the great leaders of large
businesses look rather more like command economy leaders than products of a
free market.

I think you need a better argument than that that large corporations are here
to stay, not a passing fad due to factors like transaction costs... There have
been few great leaders running large corporates, although not none, and many
people just enriching themselves for doing little.

~~~
yummyfajitas
_That is a bizarre argument though, you are saying that capitalism works fine
so long as companies are run as soviet states?_

No, I'm saying that embedding command economies (structured as companies) in a
capitalist economy allows us to gain the benefits of a well run command
economy while mitigating their harms.

~~~
justincormack
Yeah thats what I meant. First prove there is such a thing as a well run
command economy then, and then that the company system will generate such a
thing...

~~~
yummyfajitas
Walmart serves as an existence proof for both your propositions.

------
spitfire
Each day, I thank god for all these useful idiots in SV. They're madly running
a rat race to build the next social widget. Throwing off useful technology I
can use to serve the vast wasteland ignored by them.

Thank you Sean Parker.

~~~
allantyoung
Care to elaborate? I just found your comment interesting but I'd like to know
what you're talking about.

~~~
robryan
Sounds like he means the open source tools startups are generating can be used
to target areas they are ignoring.

~~~
mdda
In that case "useful idiots" is a bit harsh (and not accurate from my reading
of [1]).

The creation of this much open source software is a true public good. The
people producing it (both at small companies and big ones) may be working away
at misguided projects, but it's wonderful that as a byproduct they're
producing software useable by everyone. In the future, it may be obvious that
the open-source side-effects of this SV generation were more value-creating
than the businesses created directly.

[1] <http://en.wikipedia.org/wiki/Useful_idiot>

------
MatthewB
Thinking in the most simplistic form possible - how about engineers just doing
what makes them the most happy? Forget about whether we could provide more
value at an established company. Maybe building our own products is our
passion. That alone will drive more value than doing something we're not
passionate about. Just a thought.

Whether early stage startups are overvalued is a different topic to be
discussed.

~~~
orblivion
Again that drains talent, though, if they're working on it full time.

~~~
jbjohns
Good. No one has the _right_ to having employees. If you want employees, you
pay what it takes to attract them. Parker is trying to manipulate the market
here to get prices down to what he wants to be paying.

~~~
orblivion
Yeah I was going to respond with a point based on economics, but I think you
have me here. The point I was responding to was about value for the engineer.
If the engineer creates a lot of value from working for themselves, it would
just take that many more dollars to pull them away from it. (This has applied
to me as well.)

------
psychotik
At Startup School, the Sequoia guy showed a bunch of slides which had two main
points highlighted:

\- Companies like Microsoft, Google, Yahoo, LinkedIn raised very modest
amounts of funding and has multi-billion dollar IPOs

\- Cost of creating a company (and associated technology) is down over 90%
from what it was back when a lot of these companies were started.

Given these two, it's amazing to see VCs pouring in millions into startups
that have nowhere near the valuation they invest at. Color is the most famous
example, but there are tons of other startups raising $2-5M at pretty
ridiculous valuations. If you consider that in light what Sean Parker says,
regardless of his vested interest in engineering talent going to companies
he's backed, it feel like what he's saying makes sense. Companies are
ridiculously over funded, and VCs are doing a disservice to their investors as
well as to their portfolio companies by giving more money than they need.

~~~
jbjohns
>Companies are ridiculously over funded, and VCs are doing a disservice to
their investors as well as to their portfolio companies by giving more money
than they need.

No they're not. They're following the market. If they were doing a disservice
to their investors, do you think the investors would just sit back and lose
millions?

~~~
JabavuAdams
Yes.

~~~
jbjohns
You have a pretty low opinion of people who've managed to make large sums of
money. If they're as stupid as you think, maybe that money would be better
utilized by people who aren't?

~~~
JabavuAdams
Bah. The problem is that the feedback cycle is too long to penalize certain
behaviours. It's not about stupidity, etc.

------
ericd
This isn't just whining.

My theory is that 500 2 person companies have a worse chance at making a real
splash than if the 100 best ideas from that group had 10 good people working
on them. That's part of what he's saying - it's harder now for good startups
to grow when everyone wants to and is incentivized to make their own web
startup.

The other part he's saying is that people can have a larger marginal impact on
the world working at a place like Facebook than they could in their own
startup. For the median case, this is true.

~~~
a3camero
Facebook was once one of those startups.

~~~
ericd
The funding environment has changed quite a lot since then. YC didn't even
exist when FB started.

And FB would clearly be in that 100, given the massive growth it had. For
every potential FB, there are lots of borderline useless apps that get
funding, and wouldn't have when FB was first funded. Those people could have
instead been working on FB.

He's not complaining that startups are getting funding, he's saying that the
overavailability of funding is acting as a repulsive force, keeping engineers
from grouping up.

Whether that's a bad thing on the balance, I'm not sure, but it's not an
unmitigated good.

------
AznHisoka
I love it when someone who no longer has to participate in the rat race is
admonishing others to stay in it. So easy for them to say this..

------
tryitnow
Yes, he's right, but let's put this in context. There are probably a lot of
talented engineers who are doing startups now who shouldn't be. The problem is
how do we know who is going to be a good entrepreneur and who is not? We
don't. The only way we know is by doing it, which is what a lot of talent is
doing. I think many startup founders are a bit grounded in reality and know
that they face real possibilities of failure. Just as long as they keep this
in mind and don't become obsessed with caviar dreams, then I see no harm done.
Being an entrepreneur is one way for an engineer to develop non-technical
skillsets and learn something about himself in the process.

Let's not forget that this entrepreneurial activity is forcing the big guys
(Google, FB, etc) to be more innovative than they would otherwise be - either
to attract talent or to compete with startups.

------
tom13311321
So his argument is that we should start building the consolidated Internet
bureaucracy now?

The problem isn't overfunding small startups, it's going after markets that
are all hype and have little to do with innovation.

Our smartest engineers should be working on ARPA-funded energy projects not
how to create a new feature to keep Facebook relevant.

------
biggitybones
I was at an event in NYC several months back where a mid-stage VC said the
same thing (blanking on his name) but specifically regarding the NYC
community. It was an angle I hadn't thought about and initially had the same
negative reaction to as someone in the midst of an early stage company.

For later round investors it's undoubtedly in their interest to encourage
these engineers to join larger firms rather than being on their own. In NYC
it's especially competitive given the competition between more mature
companies, early stage startups and the money wielding finance industry. The
combination could lead to a 'glass ceiling' of sorts for larger companies
because of the inability to attract talent; that is, until some of the smaller
companies fail and these individual engineers likely end up at a larger spot.

It mirrors the consolidation of an industry. It just takes longer than some
investors (like Parker) would prefer, which is the inspiration for statements
like this.

~~~
mdda
Or the market price of talent goes up : The value being created by engineers
is recognized by the financial institutions, so why shouldn't tech companies
pay up too?

[ And I'm thinking Facebook before people get on my case about financial
companies creating value in the real world... ]

------
jroseattle
What Sean left out was -- overfunded for whom? He implied it, but didn't say
it: the bigger dogs in the fight (Facebook/Twitter/Google) have to compete for
talent like everyone else.

The overfunding is mostly a problem for those larger tech companies, not the
little guys.

~~~
chwahoo
I suspect he means that _investors_ are overvaluing small startups (relative
to their chances of becoming successful). The consequence he worries about is
that having too much funding available makes the opportunity too appealing to
the best engineers, making it harder for ventures that will succeed to
keep/attract talent.

~~~
jroseattle
His arguments seem a big reach, though. Lots of investment means opportunity
recognition, and there are a finite number of engineers, so supply/demand
takes it course.

He's arguing against capitalism, and not making a very good one at that. While
trying to sell this as an industry-wide issue, I suspect his real concerns are
more immediate -- for his own ventures.

~~~
chwahoo
He's not arguing against capitalism. He's saying that the market is currently
overvaluing certain kinds of businesses, causing resources to be misallocated.
That's it.

You may be right that he is either wrong or making his argument for self-
serving reasons. Or he might be right.

------
AdamFernandez
So I wonder if Sean Parker actually believes this, or if he is just frustrated
by a lack of engineers available for his larger backed companies. Either way
he doesn't look great making comments like this.

------
sector
Startups are akin to an MBA.

Running a small but ambitious company forces a serious, motivated founder to
think about every business function. I don't see any meaningful downside for
the founders who choose to spend some time on this task, and I see a lot of
upside.

Parker's complaints strike me as absurd. If he really believes they can have
more impact at FaceBook, he should find a way to create special purpose
vehicles within FB that allow founders to get equity in the work of a small
team, rather than just getting .00005% of the sum of FaceBook.

------
chegra84
I think what happens is the price of an engineer has gone up. Engineer starts
a start-up, big company buys start-up at a million per Engineer - Everybody
happy.

------
StuffMaster
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.

Nice analogy. Time to move to Dantooine and work on my X-wing startup.

~~~
9999
Dude, are you sure you want to do that? I've got this buddy that's got this
crazy thing going on on some gas giant. They're way past angel stage, they've
got catered meals every day, a band practice room, a fooz ball table, and a
carbonite freezing chamber.

------
forgottenpaswrd
It is better to be the head of a mouse than the tail of a lion.

All good things in life comes from collaboration with others as much as
individual contributions, but there is nothing that says that collaboration
has to be imposed by a external force, like with a company. The world has
ruled before with open collaboration like science, and what we call "open
source", "open hardware" today.

BTW, if I could do anything to destroy the vision that all the world is going
to be controlled by oligopoly juggernauts and bureaucracies, I will, including
creating new companies or helping young people to renew the landscape, as
facebook or Google did(when companies success in a free market, next they want
to destroy it).

------
benmathes
If you think an engineer or product designer is better incentivized to do
their own thing and you want to hire them away to BigCorp, you need to change
your compensation offerings.

------
kirillzubovsky
_"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..."_

\- says Sean Parker, the guy who owns between 2 and 7% of Facebook. Well yes,
of course.

------
T_S_
Basically he's saying investors are dumb for making it hard for his now large
company to hire engineers. Get out the violins.

------
kalvin_ridejoy
Pretty sure it's not a coincidence that Mark Zuckerberg emphasized a related
message at Startup School ("don't start a company unless you're really, really
passionate about it"). Facebook, like every other tech company in the valley,
is having trouble hiring enough engineers, and this is a campaign to make
would-be founders think twice.

~~~
earbitscom
I think they're very different messages. Sean Parker's message comes off as
more self-serving - saying don't start a company because it's not as good for
the world as joining one that can effect change to a greater degree.
Zuckerberg's comment was about not starting a company for the sake of it, the
same message PG had and a very good one. Start a company because they're the
most efficient vehicle to solve a problem you care about. Don't fabricate some
problem that doesn't exist because you want to start a company.

------
georgemcbay
I don't think he is completely wrong but I think this is just another (higher-
end) instance of the age-old tradition of companies saying it is too difficult
to find engineers while being unwilling to pay fair value for said engineers.

To be clear, I know that Facebook does pay quite well by industry standards
(offset somewhat by the bay area cost of living) for top talent, but if this
situation is causing them an issue then what they are paying (or offering in
general -- money isn't always the only thing) still isn't enough.

~~~
nestlequ1k
There's a certain type of personality (very prevalent in the valley) who won't
work for a big company like facebook, twitter, or google for any amount of
money. I would imagine these types of people make up the majority of the YC
class.

Maybe they'll get bought via a talent acquisition but as soon as their golden
handcuffs are off, they are out doing their own thing again. The reason they
allow themselves to get bought via talent acquisition is to be able to easily
raise money in the future.

I think Sean Parker is reacting to these types of people. I think the
misconception is that the increased funding sources is what is driving these
people. I would suggest that they were always there, but 5 years ago they were
just living poor and working their ass off to build a startup (usually
unsuccessfully).

I do believe I'm part of this group. There's no amount of money that would
compel me to take a corporate job. Sometimes money isn't what matters.

~~~
lansing
You claim that this class of people won't work for a "big company" for "any
amount of money," yet in the next breath you admit that they will work for
those companies in the context of a "talent acquisition."

What is a "talent acquisition" if not an alternate mode of compensation to
persuade individuals to "take a corporate job" who previously considered
themselves above such positions? Yeah, it sounds more impressive to tell
people "we got bought by X" instead of "I took a job with X," but either way
they've "gone corporate." You're still dealing with the same endless HR
meetings, PHBs, "culture," etc, as all the other "drones."

Yes, a good number of such "acquisition hires" leave after earn-out is
complete, typically two to four years. This is actually a fairly lengthy of
time for any high-value employee to hold any position in the valley these
days, startup or not.

~~~
nikcub
Exiting a company as soon as you can after a talent acquisition to go on and
become an entrepreneur again is very very very common. Most recently I can
think of Arrington, Levchin, Nguyen.

I would even guess that the majority of founders who are acquired by Google,
Yahoo etc. leave in the first 12 months.

It is either to get the first run on the board, or to give a startup that
would otherwise fail a graceful exit - but these people are entrepreneurs and
do not fit into large companies.

Sean Parker should be asking what is Facebook doing to attract these types of
people, not bitch about these people not wanting to join and blaming free-
market funding, of all things.

~~~
neilk
> I would even guess that the majority of founders who are acquired by Google,
> Yahoo etc. leave in the first 12 months.

That is absolutely not the case.

You often don't even hear about most Google acquisitions, or you don't know
what they were even working on until they get released as Google Egg Timer or
something. And even after vesting a lot of acquired employees still stick
around. Some of them have families by then.

Yahoo tries hard to make them quit in disgust, but even they hang on to
founders longer than that.

------
ghc
How exactly does he expect the internet to consolidate like the PC industry?
How _can_ the internet consolidate?

~~~
jbigelow76
What I'm wondering is, how do more and smaller startups equate to eventual
consolidation? His preference seems to be that engineers would elect to become
agents or enablers of consolidation by joining the very companies that have
the scale to consolidate a market.

His two points don't seem to have any intersection that I can see.

~~~
forzano
"What I'm wondering is, how do more and smaller startups equate to eventual
consolidation?"

It doesn't, if anything it slows down any eventuality of it. He's saying it
does to try and scare talent on the fence and talent that has already gone the
startup route by saying its a misguided and futile effot.

Ask yourself this, if this big companies werent hurting because of these
loses, would they waste time making the comments in the first place? Its
cheaper to try scare tactics then to offer them more money.

------
donaldc
His complaint that more engineers won't go to work for larger tech companies
instead of either working for smaller startups or starting their own company
is rather hypocritical. A cursory read of his wikipedia page shows that he has
never joined a large tech company.

------
tomlin
Having trouble hiring talented people seems to be a pretty good problem to
have. The logic is flawed - from a guy who stuck his middle-finger at various
large companies while working at the helm of Napster.

I think the new economy (eventually, hopefully) will be many small companies
with a handful of people (read: democracy) calling their own shots, more
creative freedom and an interconnectivity with other small companies that
spits in the face of fear-based competitive angst and eventually creates a
real revolution that more of us are proud of rather than this disgusting idea
that we all should work for the Umbrella Corporation.

------
scottdw2
This is shit.

I heard something similar from Joel Spolsky not that long ago.

It's like a George Wallace speech. The old guard, giving speeches targeted at
the "do nothing class", urging them to help suppress a revolution.

------
tlogan
His comment about "go work at Facebook" is just talking his book.

However, he is right about that the internet will consolidate as it matures.
However, we should not forget as soon as consolidation happens in a certain
industry the very next thing what happen is disruption. So yes PC industry is
consolidated, but whoever got of the PC train and jump on iPhone/iPad/Android
did good.

------
jpdoctor
I think a point that got missed in the discussion: The reason that this
situation is occurring is that money is flowing into the sector at a fair
clip.

Make hay when the sun shines. It will start raining in the future, and there
might not be a lot of warning.

------
zackb
Here's the video.
[http://www.livestream.com/techonomy/video?clipId=pla_5c88e44...](http://www.livestream.com/techonomy/video?clipId=pla_5c88e446-0468-4f33-a7ee-721ff5176f68)

~~~
zackb
About 30 minutes in

------
rokhayakebe
_talented engineers and product designers who are now starting their own
companies could have a bigger impact at places like Facebook_.... then ....
_Whoever wins the revolution builds a bureaucracy.” And what will end up
happening is the big powers will control the tech industry_

In others, many talented developers are better off going to work for FB or GGL
and help them get quicker to a position of total control.

------
dylangs1030
I disagree entirely. Here's why:

1\. Social psychology shows us that, smaller, more focused groups perform
better and have superior productivity to larger groups, which tend to become
disorganized and derailed.
(<http://sgr.sagepub.com/content/40/2/247.abstract>) Startups tend to have
fewer employees (this is universal), and, even in hugely successful companies
like Google, work is divided into highly productive nuclei of coordinated,
amicable teams. This is a trend that repeats in very successful companies, and
when startups pick up and start gaining more employees, though they
decentralize, the "small team > big force" mentality remains.

2\. If you outsource all the miscellaneous things a company needs to do to get
a product out, you find that a) each of those outsourced functions is done on
a much more quality level than if the company tried to do it all on its own,
b) the company doing the outsourcing can focus more on its principal product.
This actually spreads the wealth and improved productivity for _every_ company
involved.
([http://www.industryweek.com/articles/breaking_the_rules__whe...](http://www.industryweek.com/articles/breaking_the_rules__when_business_needs_drive_the_outsourcing_of_specialized_business_processes_24780.aspx))

I could see why Sean Parker would be a bit concerned, but, really, I think the
explosion of new startups is fantastic for the overall quality of products.

~~~
gaius
_each of those outsourced functions is done on a much more quality level than
if the company tried to do it all on its own_

Ho ho ho. There is a long, long list of companies who have discovered to their
cost, the opposite. And amusingly, it's getting longer.

------
earl

      "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."
    

Obviously I just read TC's article and didn't see what Parker said, but what's
notably missing from that statement is any discussion about what is best, or
highest expected value, for the engineer or designer. It's obviously better
for Facebook/Google/Yahoo/et al if great engineers and designers have to work
for them because they can't get funding. It's not obvious this leads to better
outcomes for the people in question. It kind of feels like Parker is talking
his book.

edit: formatting

~~~
teaspoon
There's a rich tradition of self-interested complaint in this industry. This
reminds me of Fred Wilson's complaining about startup lawyer fees[1], Aaron
Greenspan's complaining about the Money Transmission Act[2], and pg's Patent
Pledge[3].

Not that people shouldn't speak for the causes of their choosing, but you do
lose some rhetorical impact if you only do so once you have a horse in the
race.

[1] [http://www.avc.com/a_vc/2011/03/a-challenge-to-startup-
lawye...](http://www.avc.com/a_vc/2011/03/a-challenge-to-startup-lawyers.html)

[2] [http://www.quora.com/Aaron-Greenspan/In-Fifty-Days-
Payments-...](http://www.quora.com/Aaron-Greenspan/In-Fifty-Days-Payments-
Innovation-Will-Stop-In-Silicon-Valley)

[3] <http://www.paulgraham.com/patentpledge.html>

~~~
pjin
Don't forget the classic _Open Letter to Hobbyists_ [4].

[4] <http://www.blinkenlights.com/classiccmp/gateswhine.html>

------
pitdesi
I think he's right, for the most part. It's also interesting that a lot of
these startups end up with "successful" exits where their technology isn't
used at all (ie talent acquisition for FB/Goog, etc). I don't know if there
should be a correction for that, but I sometimes feel that it leads to people
building for the sake of building until they get acquired.

Interestingly, we (<http://feefighters.com>) had 2 of our 4 interns leave us
in the past week because they got accepted to YC (2 different projects). I
guess we should feel good because we're picking smart people who want to work
for us, but we'd rather have them with us!

~~~
robryan
Even if the product isn't used on many occasions, the best aspects of it and
the teachings from running it often are. I think the aquihires allow
experimentation that would be hard to achieve within the acquiring company.

The aspect I dislike is when startups say that they are in for the long haul
then sell a few months later. Makes it hard to trust a startup that the
investment in time you spend to get up and running on their product will be
worth it.

------
101000101
Sean Parker is ridiculously overfunded.

~~~
doorty
That's the right answer.

------
freemarketteddy
What he is basically trying to say is that your chances of achieving "success"
or "making an impact" is better if you work for Mark Zuckerberg than try to
become (someone like)Mark Zuckerberg.

Wow what a narrow definition of success!For example by working for facebook
how can I get every child in third world countries to get a decent
education?How can I get every woman in rural india to break free from male
dominance?

My respect for Parker just took a strong hit!

------
wavephorm

      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.
    

Why? Why does the future have to be like the past? As rich and well connected
Sean Parker is, he cannot predict the future. Coincidently given his stature
it makes him probably the least qualified to predict what will ultimately
happen in the computing industry.

There is no reason the computing industry cannot be more flat than it has in
the past. I believe it is highly likely the industry will continue to
fragment. Android, IOS, Windows7, BBX... there will be more platforms in the
future, not less. More diversification, not less. The game has changed
forever, as it should.

~~~
biggitybones
The issue with fragmentation that ultimately leads to consolidation is the
cost incurred by companies and developers to support all of these platforms.

I can't tell you how much it pains me as an android user to see an app only
available for the iPhone. As a developer, it's magnitudes worse to have to
send messages to my users saying "we'll be getting to an [x] platform app
soon!" when realistically it just stunts our growth to develop the same thing
3 times.

I can't wait for the end of this native app nonsense.

~~~
freemarketteddy
> I can't wait for the end of this native app nonsense.

As an iOS developer I recommend that you try to understand how much more
intellectually satisfying developing for the iphone is than android or HTML5!

~~~
biggitybones
I was coming strictly from the standpoint of time being the scarcest factor
and thus the most important; I completely agree with you on the intellectual
satisfaction of developing native apps :)

------
shareme
more interesting concern..

What happens when all the developers with extremely low debt loads are snapped
up by the Big firms to start-ups attempting to acquire tech co-founders and
dev talent?

It is not that anyone is over funded, its that those with low debt loads and
dev talent is in fact a finite amount and when its gone from the market prices
adjust upwards..

