Investors baulk at start-up spend-up

Jim Breyer and Sean Parker, who were early stakeholders in Facebook and had a falling out at the company in 2005, agree on one thing: there's too much capital flowing into Silicon Valley internet start-ups.

The two investors were interviewed yesterday at the Techonomy Conference in Marana, Arizona, by David Kirkpatrick, who chronicled their story in the book, The Facebook Effect.

Breyer is a partner at Accel Partners in Palo Alto, California, and Parker is a general partner at San Francisco-based Founders Fund, the venture firm founded by Peter Thiel.

Both are looking for deals in other markets and countries instead of focusing on social-media start-ups in the US, where Facebook, Google and Twitter are emerging as the winners.

"These little start-ups are ridiculously overfunded," said Parker, 31, who co-founded music sharing service Napster in 1999, and later became president of Facebook. "A lot of these early-stage investors will fund, literally, anything."

First-stage investments in start-ups jumped 68 per cent to US$1.6 billion ($2 billion) in the third quarter from a year earlier, said the National Venture Capital Association. That compares with a 31 per cent increase of total venture funding to US$6.95 billion.

Parker is an investor in Spotify, the European online music company that started in the US this year. He also recently rejoined Napster co-founder Shawn Fanning to start Airtime, a stealth start-up he said would "allow people who would not otherwise have met to find each other".

Breyer, 50, co-led Accel's investment in Facebook in 2005, gaining a 15 per cent stake and valuing the company at about US$100 million. Breyer also joined the board. Facebook is now valued at US$76 billion.

Later in 2005 Parker was arrested on suspicion of cocaine possession, Kirkpatrick said in his book. While he was not charged, Breyer insisted Parker leave the company, Kirkpatrick reported in the book. Bloomberg