LinkedIn founder Reid Hoffman may be the busiest man in Silicon Valley. Alhough he made former Yahoo exec Jeff Weiner the CEO of his company last June, his role as executive board chairman is very much a full-time gig. Yet Hoffman now has a second job. Last November, he became a partner at Greylock Partners, which led LinkedIn’s Series B round.
It’s no wonder Hoffman was recruited into venture capital. He’s led an astonishingly successful career as an angel investor throughout the past decade. Among his dozens of investments, he bought stakes in Flickr, IronPort Systems and Last.fm — sold to Yahoo for $35 million, to Cisco for $830 million and to CBS for $280 million, respectively.
Hoffman, who typically invested between $25,000 and $75,000, also has the hottest portfolio on the planet right now. Not only does he presumably have a sizable chunk of LinkedIn — expected to have a multibillion dollar IPO in the next couple of years –but he also owns pieces of Zynga; Facebook (which received its first check from Hoffman); and, through the sale of his portfolio company Mixer Labs, Twitter.
Ultimately, the question isn’t why Greylock pursued Hoffman; it’s why he said yes. Hoffman talked with me about that Friday.
Many of your industry friends argue that given the efficiencies Web entrepreneurs now enjoy, microfunds make sense while big funds do not. Meanwhile, you’ve aligned yourself with a firm that’s investing $575 million right now. What do you say to them?
The thought that you can fund successful software companies on much smaller amounts of capital is absolutely correct. But all the companies that get to scale and get to an interesting size — witness Facebook, LinkedIn, Twitter, Zynga — all go through a venture financing; they’re all part of the discontinuously high returns that make a VC firm interesting.
It’s not that I disbelieve in the micro VC market. I think there’s a good opportunity there. I just don’t think it cancels out the opportunity to effectively run larger funds.
So you don’t think follow-on rounds are an issue for smaller funds? Did you do many follow-on rounds when you were investing on your own?
Only a couple. I would have done more if I’d had more cash.
Is that part of what you find compelling about Greylock? Is it an opportunity to attract more backing to some of your strongest portfolio companies?
To be a good investor for LPs, you invest their money like it’s your own, but no, that would be a pretty bad plan. For me, I thought there was an interesting evolution in essentially how the [venture] practice can be done, partnering with entrepreneurs and folks who have deep operational and founding experience themselves. I think you build a new venture practice out of that — that was kind of my primary motivation. I think the fact that, when you have a fund of more scale, you can bring to bear more resources to help your investments, is also really a good thing.
You were interested in a new venture practice; why not create one, a la Marc Andreessen or Peter Thiel? Surely you could have.
In some sense, Greylock is a new practice. It’s in the process of becoming a Silicon Valley firm, and David [Sze] and Aneel [Bhusri] and the rest of the team embody the virtues that I’d want if I were building my own firm: they have deep operating experience, a strong ethic around how they partner with entrepreneurs, and multiple levels of experience in building multibillion dollar companies.
You backed the private, home furnishings Website One Kings Lane after joining Greylock. Does that mean that you’re still investing your own money in seed-stage deals?
No, all of my investing I now do for Greylock, but Mark [Pincus, CEO of Zynga] and Ali [Gelb Pincus, wife of Mark and cofounder of One Kings Lane] are good friends and when I joined the firm, I said: I have these three things I’ve been working on and I’d like to keep good relations with the entrepreneurs, and [Greylock] said they were fine with it.
What are the other two deals?
The others haven’t been announced yet.
So you’re a full partner at Greylock. How much time do you spend there?
I’m at Greylock on Mondays and at LinkedIn Tuesday through Friday.
So you’re there for the partner meetings and you’re paid as a partner? Are you an investor in its funds, as all GPs are expected to be, or are you trading on your early-stage deal flow instead?
I’m a partner just like any other and yes, I’m an investor in Greylock’s fund.
So how is venture capital different than you imagined, now that you’ve gotten a good inside glimpse of things? Or is it exactly as you’d imagined?
Most was stuff I was expecting. You know, as opposed to making a decision as an individual, you make it as partnership. You kind of work on the partnership, too, including helping some of the younger members of the firm and develop their practice. That’s something I hadn’t focused on [before]. You also do portfolio reviews at a regular beat, where normally I keep that stuff in the back of my head as an angel.
How long does it generally take for your partners to reach a consensus on a deal?
There’s no average time to consensus. Of course, all venture partnerships pride themselves on enjoying the paradoxical qualities of being both thorough and capable of speed. [Laughs.]
Won’t the process drive you crazy? How many deals will you be able to fund this year through the firm?
Given how busy I am at Linked In, I don’t have much time to do financings right now anyway. So there’s some likelihood that I won’t do any Greylock financings this year; it depends on how time sorts out.
Last questions: is it likely LinkedIn will go public next year, and do you care if you get out there before Facebook or vice versa?
I usually direct IPO questions to [CEO] Jeff Weiner. It doesn’t matter to me if LinkedIn or Facebook goes first.
What company do you regret not funding in recent years?
I passed on [the personal finance service] Mint [which sold to Intuit for $170 million after raising $32 million over three rounds]. I thought [founder] Aaron [Patzer] was really strong. I just thought it would be hard to get to sufficient size in that space.