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Sean Parker on How Startup Culture Diffuses Talent

In this session from Techonomy 2011 in Tuscon, Ariz., Sean Parker, Managing Partner at Founders Fund and a co-founder of Napster, argues that startup culture pulls critical talent into meaningless endeavors, instead of concentrating it on ideas that have true potential. Also appearing in this video: Jim Breyer of Accel Partners and Techonomy’s David Kirkpatrick.

Parker: I actually think that a lot of this is us drinking our own Kool-Aid, and in the absence of any good top down or government policy or sort of macroeconomic information which would indicate that we’re going in a good direction, we’re essentially—you know, it’s tempting to basically latch onto technology, and in particular technologies like social networking, which arguably accelerate productivity itself by allowing new businesses to get formed, and I think in truth, these little startups are ridiculously over-funded. It’s a complete reversal from where we were about eight years ago, when early stage capital was relatively scarce. It was extremely difficult to raise early stage capital, yet you still had some fairly large funds doing series Bs and series Cs and later stage deals. The market is ridiculously overcrowded with early stage investors.  There’s way too much early stage capital, and what happens is this results in a talent drain where the best talent gets diffused and they all go and work for their own startups, because it’s just too easy to get access to capital.

And a lot of these early stage investors, they’ll fund literally anything. I mean Ron Conway, great friend of mine, he’s an investor in pretty much every—I think every company I’ve ever founded. And he’s a fantastic guy. He still refers to his investment philosophy as the assembly line approach to investing. That basically implies that an investment comes in, it runs through an assembly line and then, you know, an opportunity comes in, an investment comes out. And there’s a lot of guys who are operating like this, and it’s fine if there’s a few guys doing this, but there’s so much capital now in the early stage, and we’re somewhat guilty of this because now the ecosystem’s changed. You actually now have institutionally backed venture funds who are funding early stage startups—I mean early stage venture funds, where venture funds are funding other venture funds in order to remain close to the deal flow. That’s never happened before. That’s actually a completely new phenomenon, as far as I know—

Breyer: And it will end very badly.

Parker: These companies are ridiculously over-funding. And this actually ties back kind of directly into this question what comes after the revolution. Well, what comes after the revolution is almost inevitably bureaucracy. In almost every case you have some sort of revolution, whether it’s in industry or government or whatever, and whoever inherits the fruits of the revolution inevitably builds a bureaucracy.

Kirkpatrick: Is that happening at Facebook?

Parker: I think Facebook’s still too young. But I think what we’re likely to see after this incredible boom in technology is basically the construction of a handful of very large, very successful companies that lead to a concentration of power similar to what we saw in the 1980s with the PC revolution. The PC revolution spawned a huge amount of creativity, huge number of companies, and eventually it consolidated into the Oracles and the Microsofts and the Intuits and a handful of mega players. I think we’re starting to see the maturation of the internet into a mature business. I mean the first bubble was kind of a joke. I mean it was like these were people we haven’t seen or heard from again, most of them. And they sort of didn’t know what they were doing, and the vast majority of those companies failed. We’re now at a point where there’s a handful of entrepreneurs, like Jack Dorsey, who was speaking here earlier. Jack is so incredibly talented, and has been through the ringer and has been around the block a couple of times, that he can reliably and predictably create great companies. I think ‘re going to see a lot of other serial entrepreneurs emerging who have sort of cracked the code, and they can reliably and predictably create great companies.

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