Nice Guys Can Finish First

Before Peter Thiel co-founded PayPal and became insanely wealthy, he was a hard-charging Stanford University undergraduate. One of his best friends on campus was Reid Hoffman, a good-natured philosophy major.

Whereas Thiel thought of himself as a capitalist, he viewed Hoffman as more of a socialist. That’s a funny thing to call one of the most successful entrepreneurs and angel investors of the past decade. After all, Hoffman—who joined Greylock Partners as a general partner a year ago this month—is the brains behind business-oriented social networking site LinkedIn and has personally funded many of today’s hottest startups, including Facebook and Zynga. See Table of Deals

But if you define a socialist as someone who places the good of the group ahead of individual glory, then the description starts to make sense for Hoffman. “One time at Stanford, Reid noticed someone wearing a T-shirt that said ‘He who dies with the most toys wins,’” recalls Thiel, who remains one of Hoffman’s closest friends. “He got really mad and said it was the most idiotic thing he had ever seen. He said he never wanted to be like that. He’s definitely not driven by narrow self interest. He’s more intent on changing the world.”

Video:

Reid Hoffman talks Settlers of Catan

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Even as a standout student in philosophy and cognitive science at Stanford, Hoffman was thinking about how he could make an impact. In a wide-ranging, 90-minute interview with Venture Capital Journal, Hoffman recalled how some of his friends were teaching underprivileged children in the crime-riddled city of East Palo Alto, just down the road from Stanford. “I was like, ‘How can I build a software program where thousands of people can do this?’” he says. “I guess I’ve always thought in terms of scale.”

While some people believe in changing the world one person at a time, Hoffman believes in doing it 10 million people at a time. In fact, if you’re an entrepreneur hoping to get Hoffman interested in your startup, you better be prepared to talk in massive numbers.

“If a company can get to 10 million-plus people, then I’m interested,” he says. “The No. 1 question I ask every company is, ‘How do you get to a million users?’ The second question is, ‘How will you get to 10 million users?’ If there are no answers for that, then I’m not the right person for it. If you want to become a household brand and massively improve people’s lives, 10 million is the number you have to start with.”

Coming out of almost anyone else’s mouth, this would sound arrogant and self-serving. But Hoffman is just being honest. Almost everything he touches—from Facebook to LinkedIn to Zynga—has become ingrained in popular culture, profoundly affecting the way we live, work and play.

Altogether, Hoffman says, he has made angel or Series A investments in more than 80 companies since 2000. Venture Capital Journal was able to identify 44 of those companies, which have collectively raised more than $2.5 billion in venture capital (see table). That list includes 10 companies that have been acquired, including IronPort Systems, an email services company bought by Cisco in 2007 for $830 million, and Last.fm, an online social music site bought by CBS in 2007 for $280 million (see table).

Making the Most of a Day

Greylock’s partners fully appreciate how lucky they were to land Hoffman, and they’ve given him plenty of latitude to define his role. He works just one day a week at the firm and spends the other four days at LinkedIn, a Greylock portfolio company where Hoffman is still intimately involved as the company’s executive chairman.

The No. 1 question I ask every company is, ‘How do you get to a million users?’ The second question is, ‘How will you get to 10 million users?’ If there are no answers for that, then I’m not the right person for it.”

Reid Hoffman

The firm has also allowed Hoffman to do what he does best: seed investing. In late September, Greylock carved out $20 million from its most recent $575 million fund specifically for seed stage deals ranging from $25,000 to $500,000. Any partner can make a seed investment from the fund, called theGreylock Discovery Fund, but Hoffman is the fund’s managing partner. Notably, investments from the seed fund don’t need to go through the traditional partnership approval process, so it should be able to move just as quickly as any other seed or angel investor.

“People are saying that venture as an industry is not very innovative, but I would argue that [Greylock] is,” says Hoffman. “By applying my angel model [to venture capital], there will be elements that are transformative there.”

While he is thrilled to continue doing seed deals, Hoffman is quick to point out that he “will participate in the whole stack,” including large, late stage investments. He’s also dismisses rumors that he will keep doing angel investments on his own. He insists that he has hung up his angel wings for good. “I am investing on behalf of our limited partners, so the only time I’ll make money is when they make money,” he says.

And while his duties at Greylock currently occupy less than 20% of Hoffman’s time, he has already made four investments since he joined the firm a year ago. He has backed Shopkick, which makes a mobile application that rewards shoppers for walking into stores, Swipely, a social shopping site, and two companies that are in stealth mode.

One of the stealth investments is an “Enterprise 2.0” startup. Hoffman believes the “consumerfication” of the enterprise—the application of consumer Internet principles to the way people and organizations work—is a large, emerging trend, and he’s starting to steer more dollars in that direction. He is also thinking hard about what “Web 3.0” really means and what the Internet of the future will look like.

He doesn’t profess to have the answer, but here’s his current operating theory. “Web 2.0 was about millions of people interacting with each other, and that became a platform for building massive companies and new applications,” he explains. “Web 3.0 might be about new applications that are built off data. Today you have millions of people who are all participating and who are all generating data. The idea is to use the data as a foundational platform on which new kinds of applications are built.”

Money Schmoney

As successful as he is, Hoffman isn’t very concerned with money, his friends and colleagues say. “Reid is a positive-sum person,” Thiel says. “He wants to do things that are good for everyone. He doesn’t play to take all the marbles.”

Mark Pincus, founder of social gaming company Zynga, offers an illustration. Recently, the two friends were trying to figure out exactly how much Zynga stock Hoffman owned. They had worked out a number back in 2007, when Hoffman joined the board, but it was never formally documented. Hoffman casually said, “I’ll go with whatever you remember,” Pincus says. Given that Zynga was recently valued at $3.3 billion by NeXt Up Research, most people would likely have argued over a single share of the company. “But that’s just Reid,” says Pincus. “He’s not sharp-elbowed at all.”

In September, Forbesmagazine estimated Hoffman’s net worth at $340 million and named him to its “Forbes 400 Farm Team,” a group of 15 people the magazine believes will see their net worth exceed $1 billion each in this decade. But unlike other high-flying Silicon Valley operators, Hoffman eschews the trappings of success. He lives in a modest home with his wife and drives a 10-year-old Acura. He almost upgraded to a $75,000 Audi A8 a few years back, but then he came across an intriguing cleantech company called Nanosolar. Hoffman confesses he knows little about solar technology, but he asked himself: Would I rather take a gamble on this cool startup or purchase a shiny new car? Bye-bye, Audi.

Reid is a positive-sum person. He wants to do things that are good for everyone. He doesn’t play to take all the marbles.”

Peter Thiel

At his core, Hoffman is a people person. Those who know him say he’s a loyal and committed friend who takes the time to listen. He is always happy to recommend and refer people in his network. And he enjoys meeting new acquaintances, and then connecting them with others who share similar interests. Sound familiar?

Hoffman is LinkedIn and LinkedIn is Hoffman, say his many friends and colleagues. “LinkedIn has become an expression of Reid’s brain,” says John Lilly, CEO of theMozilla Corp. and a venture partner at Greylock. “Anytime you sit down with Reid, he rattles off a list of people you should talk to,” Lilly says. “It’s shockingly similar to the ‘People You May Know’ feature on LinkedIn. It’s so funny that he found a way to automate his own brain.”

Today, Hoffman is up to his eyeballs in friends. But in the early days of LinkedIn, well before it hit 75 million users, Hoffman was eager to expand his online network. Sometimes, he would even befriend people who reached out to him randomly. One of those people was Cyriac Roeding, a mobile advertising executive in Germany. Six years ago, he sent a message to Hoffman, not really expecting a response. Not only did Hoffman respond, but he also invited Roeding to breakfast the next time he was in Palo Alto.

Roeding took him up on the offer, and the pair would meet several times a year over the next few years—whenever business brought Roeding to town. “I have no idea why Reid ever took that first meeting,” he says. “He is so insanely busy, but he always manages to find the time.”

The burgeoning friendship was an inspiration to Roeding, leading him to found his own Silicon Valley startup, Shopkick, which makes a mobile application that rewards shoppers for walking into stores. Hoffman led Greylock’s $15 million investment in Shopkick and took a board seat, his first since joining the venture firm. See Table of Greylock Investments by Hoffman

Roeding is honored to have Hoffman on his board, but what’s even more important is his friendship. “If I had to make a choice, I would take his friendship and leave the business partnership on the table,” he says. “Why? Because I think Reid is a truly good person with a broad view on life who truly cares about other people. He has taught me that you can be extraordinarily successful in Silicon Valley and not lose your soul.”

Ahead of the Curve

Hoffman’s extraordinary success didn’t happen overnight. His startup career got off to an inauspicious start with the launch ofSocialnetback in the 1997. When the company was finally sold in 2001, Hoffman pocketed a grand total of $40,000. “There was a whole stack of stuff that went sideways at Socialnet,” he says.

Ironically, for a people person, Hoffman says he made all the classic hiring mistakes and failed to assemble a solid board. He also messed up on the viral marketing piece. He thought if he built a great product everyone would come. “I never had a plan for how people would discover and use the site,” he laments.

But one thing he did get right was the name. “Socialnet was successful if it did nothing else but get Reid to think about social networking,” says Thiel. “It’s really amazing that he nailed the name back in 1997. Then, over the next decade, we figured out the businesses.”

Anytime you sit down with Reid, he rattles off a list of people you should talk to. It’s shockingly similar to the ‘People You May Know’ feature on LinkedIn. It’s so funny that he found a way to automate his own brain.”

John Lilly

One of those businesses, of course, was LinkedIn. Another was Facebook, whose co-founder Mark Zuckerberg was 13 years old at the time Socialnet was founded. When Zuckerberg teamed with Napster founder Sean Parker to raise money for Facebook in 2004, one of the first doors they knocked on was Hoffman’s. He gladly invested. Two years later, when David Szewas thinking of investing in Facebook on behalf of Greylock, Hoffman was one of the first people he turned to for advice. At the time, Facebook’s pre-money valuation of $522 million seemed inflated to many venture firms. But Hoffman convinced Sze that the worst that could happen was he’d get his money back. Sze ultimately did the deal.

Hoffman has an uncanny knack of making it all look so easy. If you think he’s just lucky, you might be surprised to hear that even Hoffman thinks there is an element of luck involved in his success. “Things do fall in your lap, but good things can only happen if you are in the game,” he says.

As “the most connected man in Silicon Valley,” as many call him, Hoffman has rare access to many great deals. He funded photo-sharing site Flickr the same day he got pitched because the founders had reached him through some of the most trusted people in his network.

But luck is only a small part of the equation. The truth is that Hoffman is also one of the hardest working people in Silicon Valley. He toils around the clock, almost never taking a day off. “I recently went to Reid’s house on a Sunday, and I had the 2 p.m. slot,” says friend and angel investor Jeff Clavier. “There was a team of entrepreneurs walking out the door when I got there. They left and Reid and I had a nice chat for an hour. And right when I was getting ready to leave, his next appointment was coming in. So, from 8 a.m. until 6 or 7 p.m., he was booked solid. And this is a Sunday we’re talking about!”

Hoffman is also scary smart. “He is constantly playing three-dimensional chess in his head,” says Mark Kvamme, a partner atSequoia Capitaland a LinkedIn board member.

As far as being a good investor, Hoffman says the key has been learning to trust his gut. “The hardest investments for me are not the obvious no’s,” he says. “The hardest ones are the, ‘Wow that’s pretty cool, but this or that thing makes me nervous.’ Most of us want to get involved and help create something great. So the danger is talking yourself into it. When you have uncertainties, you should listen carefully.”

Can Hoffman’s remarkable winning streak continue? Or does he possess some fatal flaw that is bound to drag him down? Perhaps the worst you can say about Hoffman is that he can be stubborn, even when he’s wrong. For several years, LinkedIn users and Hoffman’s fellow board members tried in vain to convince him to add photos to the site. But he resisted, arguing that it could lead to discrimination suits against companies that use LinkedIn as a recruiting tool.

“It took us months—OK, maybe years—to get him to change his mind on that one,” says Kvamme. “He’s definitely a listener and is receptive to all points of view, but once he makes a decision he sticks to it.”

No Limits?

It’s also no secret that Hoffman isn’t exactly the healthiest person in the world. He works insane hours, doesn’t exercise much, and wolfs down junk food. This has not gone unnoticed to his closest friends, who want him to take better care of himself. At one point, they all chipped in to get Hoffman a personal trainer. “He is working the equivalent of two or three full-time jobs,” says Clavier. “Sometimes I wish he’d chill out a little and regain time for himself. His schedule is incredibly draining.”

I recently went to Reid’s house on a Sunday, and I had the 2 p.m. slot. There was a team of entrepreneurs walking out the door when I got there. They left and Reid and I had a nice chat for an hour. And right when I was getting ready to leave, his next appointment was coming in.”

Jeff Clavier

But Hoffman himself shrugs off these worries. He says he loves his job, and doesn’t even think of it as work. “My work is my hobby,” he says. Besides, he can kick back just as much as the next guy. He loves the board game “Settlers of Catan” and has taught many of his friends how to play. (Watch Video of Hoffman Talking about Settlers of Catan) He’ll even space out and watch some mindless TV every now and then. His favorite show is the discontinued NBC cop drama “Life.” “It’s good to scrub your mind to a clean slate so you can attack problems fresh again,” he says.

But the one thing he loves above all else is changing the world. “Reid is a big believer in the Archimedean lever,” says Greylock’s Lilly. “His point of view is that if you stand in the right place you can move the world.” He’s already proven it’s possible.

SIDEBAR: Why an Angel Gave up His Wings

When Reid Hoffman joinedGreylock Partnersin November 2009 a lot of his peers scratched their heads.

“I was definitely surprised,” says one Silicon Valley angel who asked not to be named. “It’s hard to work in a venture partnership and come to a unanimous decision on every investment. Reid has done very well as an angel investor. I thought he would have preferred doing what he loves without having to deal with all that partner crap.”

Dave McClure, an outspoken angel who once worked with Hoffman at PayPal, is blunter. “Reid is a defector,” he says with a laugh. “I think Reid took the money and ran. I think that his job [as a VC] is not nearly as fun as it used to be [as an angel].”

McClure was only half joking. He is an outspoken critic of traditional VC firms, infamously calling them “pathetic dinosaurs” who should “hurry up and die already.” McClure believes Hoffman, who has financed more than 80 startups, is finding it a lot harder to pull the trigger these days. “Reid has to run things by a lot more review than he used to as an individual,” McClure says. “I told him he should just send me all his early stage deal flow.”

So why did one of the world’s most successful angels give it up to be a VC?

“Did I defect?” Hoffman asks himself. “Well, I would say that I evolved. I wanted to evolve the game of how to grow massively important companies. And doing that at scale is what attracted me to moving to the more muscular side of investing. Sure, I could have raised my own fund, but I think I can do better things by coming here. The people at Greylock are the people I would want to start a fund with, so why not just join them?” —Tom Stein