“Little startups are ridiculously overfunded. 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.”
- Sean Parker speaking at the Techonomy conference (quoted by TechCrunch)

The question whether Parker is Chicken Little afraid the sky is falling, or whether he’s thrust an issue into the spotlight that no one wants to talk about because the financing marketplace for start-ups is so robust and exciting these days.

Parker’s comments play into the growing discussion about whether there’s a start-up bubble happening, which is likely more pronounced in Silicon Valley. As much everyone is stoked that start-ups being financed, IPOs are happening and investors are getting returns, there is talk about whether the market is over-heated.

The question that has to be asked is whether a hot market is a bad thing. Can there be a downside to startups and entrepreneurs attracting growth capital, other than disappointed investors down the road?

In Canada, the growing amount of start-up financing can only be seen as a positive development for lots of reasons. Even if some or many of these start-ups fail, the experience gained by entrepreneurs and start-ups will be a major boost to help the Canadian start-up landscape evolve and grow.

Without capital to nurture an idea or a business, there is no way entrepreneurs can gain experience to be successful. At the same time, the only way VCs can make returns is by actively investing, even though many of their picks won’t pan out.

Can the market get overly frothy and over-heated? Absolutely. Should investors do their homework so reduce the risk of making a mistake? Definitely. Are these “little start-ups” over-funded? That’s difficult to say because it’s a sweeping statement that covers everyone start-up with the same brush.

My take is the more start-ups that get funded, the better – even if they are little ones. The onus is on investors to make smart decisions rather than jumping on the bandwagon. By investing in lots of little start-ups, the better the prospects of having one of them turn into a major success.

(For startups looking for marketing, content and communications service, my company, ME Consulting, offers cost-effective strategic and tactical services.)