The discussion comes as "unicorn" start-ups are seeing valuations climb well past $1 billion, and technology giants such as Facebook and Amazon continue to compete with upstarts across industries, raising questions on how entrepreneurs can best compete.
"You either become a really successful giant or after a few years the VCs are done with you," O'Reilly said.
Trying to compete with the big guys by raising a huge amount of money could unnecessarily dilute founders' stakes in their companies, O'Reilly said. He said that "aggressive bros" playing the "hyper-scale" game tend to get more funding than women of color, for example.
"This is a game, it is a horse race; by definition one or two players win, and all of the rest of them lose," O'Reilly said. "The mythology is you have to raise huge amounts of money in order to get to scale. But it's also possible for small companies to get to scale."
Hoffman conceded there are problems with raising money: It could wear away a founder's financial discipline and push the company past what's sustainable. But he said that large-scale technology businesses create productivity across the economy, and that should be encouraged.
"If you can raise money at reasonable terms — and that doesn't necessarily mean nosebleed terms — that capital can help you navigate appropriately," Hoffman said. "Raise more money than you think you need to be ready for all those things — everything from competition to pivots, to questions of suddenly exploiting opportunities."
O'Reilly said big technology companies should think about their role in enabling industries to be built on top of their platforms, versus just taking more profits.
Hoffman pointed to autonomous vehicles, which analysts predict could replace many jobs. But that could also create opportunities for new large-scale companies to create other jobs, from adult education to new industrial areas connected by the cars.
"Scale businesses can create a number of jobs," Hoffman said. "And one of the things you really have to pay attention to is: If you're competing with blitz-scale competitors, that will make your outcome, if you're not blitz-scaling, much more in doubt. ... That will happen more often and more often in tech businesses, and more businesses are becoming tech businesses."
But O'Reilly noted that not every business that's funded in Silicon Valley creates more value for society than it does for the founders.
"Many of your Silicon Valley entrepreneurs look a lot more like directors and actors — going hat in hand to Hollywood studios — than they do look like true entrepreneurs," O'Reilly said. "There's kind of a lack of diversity in the investment community, which is reflected in the kind of opportunities that they want to pursue. I think it's also this very idea that the only things that are really worth going for is the unicorns ... leads you to filter out many things that are very, very worthwhile businesses."