LinkedIn and Reid Hoffman: Recession Ready

(page 3 of 3)

(The company is also profitable, according to chief executive officer Dan Nye.) These investments value the company at a bit more than $1 billion. Hoffman's goal is for LinkedIn to be "a major Web company" with a market value above $4 billion.

To guide LinkedIn, Hoffman and the board hired the veteran software executive Nye last year. Hoffman, who admits to a chaotic management style, stayed on as board chairman and director of product development. Part of his CEO job, Nye says, is "wrestling to get the thinking out of Reid's head, package it, and get it to the other people."

It was at the bleakest stage of the dot-com bust, in 2002, that Hoffman began to build his empire. He had been a key partner at PayPal, the online payment company ) bought that June for $1.5 billion. Flush with his share, he looked for next-generation investments—and found himself nearly alone. "The common wisdom was that the consumer Net was dead," he recalls, and "that it was controlled by Yahoo, eBay, and Google. I thought it was just beginning."

So he devised a strategy. He would start a company to run the business side of the social Net—LinkedIn—and he would participate in the consumer side as an investor. "The huge majority of things I have invested in are massively successful," he says. Many of the investments, of course, are still locked up in companies, including Facebook and LinkedIn, which haven't yet gone public. The return on Hoffman's holdings hinges largely on how they navigate the coming downturn. Still, he continues trumpet the economics of Internet businesses. "This is the only time in human history when, for somewhere between $5 million and $30 million of capital investment, you can create a sustainable ecosystem for 10 million-plus people," he says.

When discussing his career, Hoffman can sound positively utopian. He says, for example, that he left academia for business because he wanted more "scaled impact" in his quest to make the world "a much nobler place." He regards LinkedIn as a system where the good are rewarded by the community for their deeds, while liars and cheaters are exposed.

Despite lofty visions, his advice to entrepreneurs is hard-boiled pragmatism. Hoffman urges them to focus first on financing—and only later to hone a product or service. He describes the launch of a company as a sea crossing. The financing rounds are islands, where each venture can replenish its provisions. The goal of the product strategy is to carry them to the islands. In short, it's the financing, not the products, that keeps them alive. And in a Silicon Valley now chronicled by the DeadPool, survival is the game's new name.

Baker is a senior writer for BusinessWeek in New York.