"I don't think that in the past decade there's been so much fierce interest from tech angels before," said Lombardi. "It's relatively easy to get outside funding right now."
That all makes investors like George Zachary nervous. Zachary, who runs the seed funding program at Charles River Ventures in Menlo Park and was an early Twitter Inc. investor, said the influx of cash means too many mediocre companies are getting funded.
The excess drives up the costs of engineers because everyone is chasing the same finite talent pool, he said. At the same time, dozens of startups are going after niche markets with a lot of hype and little revenue.
'Recruiting Problems'
"You have recruiting problems because of more money in the market," Zachary said. "You have other problems because now you have 20 competitors instead of maybe two, and there are still only going to be one or two breakouts in the field."
Technical talent in the San Francisco Bay area is expensive. Software application developers in Silicon Valley earned on average $117,150 as of May 2011, compared with the median national annual salary of $92,080, according to the Bureau of Labor Statistics.
Facebook spells out the hiring challenge in its prospectus, highlighting the battle for engineers and salespeople primarily in the San Francisco area. The company said its ability to offer equity incentives may not be as effective as in the past when it was an emerging startup. Add to that the difficulty of retaining millionaires who are set for life.
"We have a number of current employees whose equity ownership in our company gives them a substantial amount of personal wealth," Facebook said in the prospectus. "This wealth could affect their decisions about whether or not they continue to work for us."
As opposed to, say, becoming an angel investor.