LinkedIn founder sees gold in connections

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 start-up 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, 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 start-ups.

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 website.

"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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