US$600m payday for Silicon Valley veteran

Silicon Valley is where the young and thin dream of making millions on the next hot tech startup. Reid Hoffman is portly, "old" and far more successful than most can ever hope to be.

LinkedIn is the first United States social network to go public when it joins the New York Stock Exchange today, as increasingly frenzied investors clamour to get in on the new generation of internet firms.

The 43-year-old serial entrepreneur seems to be behind nearly every social media firm now heading to market. He founded LinkedIn eight years ago and owns 20 per cent of the company. Hoffman's cash helped start Facebook, Zynga and Flickr.

In 2009 he joined venture capital firm Greylock Partners, where he has led investments in Groupon, among others. Twitter was about the only major social media pie in which he didn't have a finger. But, in 2009, Twitter bought a geo-location business, Mixer Labs, funded by Hoffman, and he got shares in that too.

California-born Hoffman went to Stanford University, where he got a BA in its university's "symbolic systems programme", an inter-disciplinary study that, says the university's website, "focuses on computers and minds: artificial and natural systems that use symbols to represent information". Then he did an MA in philosophy at Oxford.

Hoffman's original plan was to become an intellectual. "When I graduated my plan was to become a professor and public intellectual. That is not about quoting Kant. It's about holding up a lens to society and asking 'who are we?' and 'who should we be?'. But I realised academics write books that 50 or 60 people read and I wanted more impact," he told Director magazine in 2009.

The academy's loss was the business world's gain. After stints at Apple and Fujitsu, Hoffman struck out on his own, setting up one of the earliest social networking firms, He quit after a disagreement with the board and joined Peter Thiel at PayPal, the online payments company. Hoffman was to become a made man in what's become known as the PayPal mafia.

Auction giant eBay bought PayPal in 2002 for US$1.5 billion and made fortunes for PayPal's execs. Thiel got about US$68 million and has gone on to become one of tech's most successful investors. He was one of the first people to back Mark Zuckerberg at Facebook, putting in US$500,000 after an introduction from Hoffman. That stake is now worth about US$1.7 billion.

A year after the PayPal sale, Hoffman set up LinkedIn. According to the company, LinkedIn now has more than 100 million members in 200 countries and is adding about one million a week. The company makes money by selling its hiring and marketing software offline, and from members who subscribe to its premium services. It posted a profit of US$15.4 million in 2010, after operating losses from 2007 until 2009. But it doesn't expect to be profitable in 2011 because it is investing in technology and international expansion.

In a filing, LinkedIn cautioned that it "may not be able to generate sufficient revenue to sustain our profitability over the long term".

Investors can be fickle. Shares in RenRen, China's answer to Facebook, soared 29 per cent when they debuted on the NYSE this month. They are now below the US$14 initial price. Who's to say what's in store for LinkedIn, Facebook, Zynga and co? But there are plenty of other Hoffman-backed firms to take their place, should they flame out.

An executive at one of Hoffman's firms, speaking anonymously, says his secret is that he is "a really nice guy. He's very smart and he knows everyone." Middle-aged, chubby, nice and soon to be unbelievably rich. It's one of the weirdest combinations Silicon Valley has ever seen.


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