Let me get this straight--you're bitter because you didn't get hired by a company that evidently doesn't even want you to have any ambition or initiative of your own? I would be relieved if I was in your position.
I don't think you know enough of his situation to say that. It might not be the best place in the world to work but I imagine after your startup runs out of money, you just want a paycheck.
A lot of companies have a policy of not hiring people that are significantly overqualified for a position. The reason for this is that those people are almost guaranteed to be unhappy and perform poorly. That means that if your company just needs some code monkeys to crank out code to spec then you need to hire people that are perfectly happy doing that because it matches their skill level and ambitions.
Someone with enough initiative to start their own company is not likely to do well in that kind of an environment, and the fact that they look at it solely as crap they need to tolerate in exchange for a paycheck doesn't help.
Fair enough - but then tell the candidate that: "Sorry, you're overqualified, you can find a better position, and be happier. We just need a code monkey for now". None of the BS about "free spirits" and "normal jobs" - I mean, come on.
To flush out this point, consider that hiring someone is not free. There can be significant costs of hiring someone who performs poorly (opportunity cost, training overhead, lost work).
After your business has gone so far into the red that you've decided to fold it and just get a job, you, too, might just want a paycheck. It's not necessarily a permanent condition, but surely no company hires thinking that the employee is going to be hanging around their company longer than 2-3 years anyway?
When I was interviewed for the last job I held, I was asked if I will leave the company and be self employee again. Thing is if I take up a job, I find it hard to sustain interest for more than 2 years.
I don't agree with the hiring manager by any means. But some companies are looking for longevity from employees. There are still some "career employees" who work for a single company for 30 or 40 years. People who are entrepreneurial by nature usually don't stick around that long and are always trying to build something on their own. The company I work for often hires entrepreneurial type people, and we often lose them because they go off to do start ups. But from my prospective they are inspirational and do great work while they are there.