LinkedIn's Reid Hoffman sits on his wallet

Posted by: Stephen Baker on April 21

Last Friday, I stopped by Reid Hoffman’s office at LinkedIn to ask him about the value of all those friends in his various networks. I’ll write up that interview later. But we also talked about LinkedIn, the investment climate, and how Hoffman himself, a leading angel investor, is riding this downturn.

First, Hoffman, who returned to CEO after the December departure of Dan Nye, has promised the company and board not to pursue new investments. “I have to focus on this company,” he says. Too bad, because he’s convinced that it’s a good time to invest.

Why? Less money is chasing good ideas. Venture firms, he says, are waiting for valuations to drop further, and angels (like himself), who invest as a sideline, have seen their funny money evaporate.

“Most people who do angel funding have a chunk of play money,” he says. “The problem is your portfolio goes down by 40%, all of a sudden your play money is gone.” Hoffman says he has taken a beating but would still be making new investments—if it weren’t for the commitment to LinkedIn.

He says companies that do get funding are sitting pretty: “If you can raise money, it gives you a competitive advantage. You have a wider open field to establish your footprint. You have lots of talent available, and can run for a while before a competitor enters the sphere.”

Where would he look? As a contrarian, Hoffman points to advertising-based businesses, which are now in disfavor. (Here’s a TechCrunch piece he published two days later about his three rules of investing.)

By the way, for many it seemed like overkill last year when LinkedIn raised nearly $80 million. But now the company is weathering the downturn with a comfy cushion. What’s more, activity on the site is booming—in part because more people are looking for jobs. Recommendations soared 65% from December to January.

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