LinkedIn founder’s road to riches paved with golden connections

LinkedIn founder’s road to riches paved with golden connections


By MICHAEL LIEDTKE, AP Business Writer
Sunday, January 20, 2008

Mountain View, Calif. (AP) —
Few Internet entrepreneurs practice what they preach as
devoutly as LinkedIn Corp. co-founder Reid Hoffman, whose business
revolves around his belief that good fortune flows from good
relationships.

Hoffman, 40, has put that principle to work by mining his own
vast network of Silicon Valley connections to rake in one Internet
jackpot after another.

A college friendship led Hoffman to PayPal and his first
windfall when eBay Inc. bought the online payment service for $1.5
billion in 2002. Since then, he has become even wealthier by investing
in other Internet startups he discovered through friends and former
colleagues.

Along the way, Hoffman also used some of his PayPal proceeds
to help start LinkedIn, an online business-networking service that
helps professionals like him realize the value of their contacts from
the past and present.

With more than 1 million people joining each month and
projected 2008 revenue of $75 million to $100 million, LinkedIn Corp.
seems likely to deliver another big payoff for Hoffman.

"LinkedIn is a great expression of who Reid is," said John
Lilly, chief executive of the Firefox Web browser maker, Mozilla Corp.,
where Hoffman sits on the board of directors. "It’s really his brain on
the Web."

LinkedIn tries to help people who know each other elsewhere
more easily meet others who might help their careers. For example, if
Mary and Bob are both part of Fred’s online network, Mary could ask
Fred for a referral to Bob, who could then decide whether he wanted to
embrace a new relationship with Mary.

LinkedIn’s focus on professional networking distinguishes it
from social playgrounds like Facebook and News Corp.’s MySpace, where
users are encouraged to share their personal lives by posting party
photos and adding favorite bands.

Although it may not sound as much fun, LinkedIn appears to be
thriving. About 18 million people now have profiles on the site,
roughly twice as many as a year ago.

Hoffman, who remains LinkedIn’s chairman and largest
shareholder five years after starting the company, said the Mountain
View-based company will probably file for an initial public offering of
stock before 2010 if he isn’t first tempted to sell to one of the
suitors that have inquired about buying LinkedIn. Hoffman wouldn’t
identify the suitors.

"I know we are going to be much more valuable in a year or
two," Hoffman said. "We have had (buyout) conversations with all the
usual suspects, but I think an IPO is by far and away the most likely
outcome."

Nonetheless, LinkedIn has its share of detractors, who see it
as little more than a tool for job hunters and employment recruiters, a
slightly different twist on online help-wanted services like
Monster.com or Yahoo Inc.’s HotJobs. Besides selling ads, the site lets
employment recruiters and others pay for expanded access to LinkedIn
members.

Although former LinkedIn executive Keith Rabois isn’t as
harsh, he believes Hoffman needs to pursue an IPO as soon as possible
to create a bigger buzz about the service.

"Right now, LinkedIn just doesn’t seem to be at the center of
the Internet universe and an IPO would be an amazing marketing
opportunity," said Rabois, who left LinkedIn last year to join another
rapidly growing startup, Slide Inc.

LinkedIn so far hasn’t generated the same kind buzz as
Facebook Inc., which has been attracting many of the same users as
LinkedIn. With 60 million users, privately held Facebook already boasts
a $15 billion market value and has indicated it will pursue its own IPO
in 2009 or 2010.

Hoffman happens to have a stake in Facebook, underscoring his
knack for identifying promising Internet opportunities in their early
stages.

"It’s like he is able to look at the Internet and figure out
where all the pieces fit together," said Mark Kvamme, a partner at
Sequoia Capital and a member of LinkedIn’s board of directors.

While Facebook could produce Hoffman’s biggest investment
return, it threatens to become a thorn in his side if it diminishes the
amount of time people spend at LinkedIn.

As a countermeasure, LinkedIn in recent months has been
adopting more Facebook-like features. The changes have allowed LinkedIn
users to display pictures next to their personal profiles and opened up
the site for outsiders to post mini-applications, known as widgets,
designed to help people with common connections to share information.

Despite those copycat moves, Hoffman insists he isn’t worried
about Facebook, which he views as being far too casual and goofy for
the ambitious professionals drawn to LinkedIn.

Hoffman credits his own connections for his successful investment streak.

"Any time there were some really good people involved with a
potentially good product, I thought I should probably throw in at least
a little bit of money if I had the option," he said.

That doesn’t mean he invests in every venture started by people he knows, sometimes to his regret.

For instance, Hoffman hadn’t felt compelled to invest in
YouTube when he had the chance, depriving him of a huge payday when
Google Inc. bought the popular video-sharing site for $1.76 billion in
2006. Instead, LinkedIn provided some initial office space to YouTube
founders Chad Hurley and Steve Chen, who worked with Hoffman at PayPal.

Hoffman hasn’t been wrong too often.

Three of his startup investments have been sold since 2005
for more than $1.1 billion combined, although Hoffman got only a sliver
of that. They are the photo-sharing site Flickr, bought by Yahoo Inc.;
music network Last.fm, bought by CBS Corp.; and computer security
specialist IronPort Systems Inc., bought by Cisco Systems Inc.

Besides Facebook, the list of other promising prospects in
Hoffman’s portfolio include blogging software maker Six Apart Ltd.,
blogging search engine Technorati Inc., online content-ranking site
Digg Inc. and another online social networking service, Ning Inc. He
also holds stakes in a variety of lesser-known startups, too.

Hoffman’s connections and investments frequently have ties to
PayPal, where he accumulated stock as a director and then as a top
executive. He first met PayPal’s co-founder and chief executive, Peter
Thiel, while both were attending Stanford University in the 1980s.

Thiel, an early LinkedIn investor who is now a venture
capitalist and Facebook director, is one of the more than 1,500
connections that Hoffman lists on LinkedIn’s Web site.

"I pay a lot of attention to building relationships," he
said. "Part of how to create a lot of value and goodwill in the system
is by doing something that is a little bit of work for me and massively
valuable for you."

Thiel marvels at how well the philosophy seems to work for
Hoffman. "Everybody in Silicon Valley is no more than two degrees away
from being connected to Reid."

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