By David Sze
FORTUNE -- The best early-stage venture capital investments appear obvious in retrospect, however very few of them are actually obvious when you make them. In fact, we reviewed our process at Greylock and discovered that the best investments are non-obvious enough that they result in a mixed vote by our partnership. Such was the case with LinkedIn (LNKD) nine years ago.
The context of the investment
October 2004 was a strange times for the pioneers of what would become social networks.
The signs of Friendster's decline into irrelevance were already evident. Although it would limp on for a number of years more, Friendster was clearly destined to be a tale like Icarus, not Sir Edmund Hillary. Its investors licked their wounds and those that hadn't been investors counted themselves lucky, given how white-hot the investment had been. One thing that both groups had in common is that they vowed to learn from history.
MySpace was the new upstart. Founded in August, 2003, MySpace would go on to be the most visited social networking site in the world from 2005 until early 2008. In June 2006, it would pass Google (GOOG) as the most visited website in the United States. But in October, 2004, though growing rapidly, it was still relatively tiny — seeing roughly 5 million users per month. Obviously, it too would have an Icarus-like ending, but that's a different story.
And what of Facebook (FB)? Well, it had just been foundedthat February by an unknown kid named Mark Zuckerberg at Harvard. It was called "thefacebook" (onewordalllowercase) and It was a small, closed college network at Harvard, Yale and Stanford with members numbering in the low thousands. In fact, at that time, the next biggest social networking site after MySpace and Friendster was likely Orkut, an internal passion-project launched by Google in January, 2004.
And it was on a Monday in August of that same year that LinkedIn co-founder and CEO Reid Hoffman visited Greylock to present to the team. You may think LinkedIn was an obvious investment in 2004. At the time, however, there were legitimate concerns:
Fast forward to today and, with his usual focus on transparency in the interest of helping entrepreneurs, Reid has now published the pitch deck he used at Greylock that day with additional perspective, commentary and advice. It's a great read whether you are a founder of a company, thinking about becoming one, or simply a student of innovation and start-up history.
I thought it would also be interesting to provide some perspective from our vantage at the time, so I dug out the investment memorandum that I circulated to the partnership prior to Reid's presentation to complement and summarize my compiled due diligence. What follows are excerpts of the arguments I gave to support Greylock's and my investment thesis in LinkedIn.
Some last reflections
Re-reading our memo, I noticed that I didn't even use the words "social network." This was still a relatively new concept overall, and certainly not one yet applied to business networks.
With 900,000 users, I was bold enough (crazy enough?) to assume that the hard work of getting to scale may have been behind them. Clearly the ensuing nine years showed that they had plenty of hard work left to build a dominant platform for business users. Did I mention we are all ex-entrepreneurs and operators that are prone to optimism and falling in love with our companies and founders?
And finally, most importantly, though extremely enthusiastic about Reid, I still managed to underestimate the remarkable company-builder, innovator and person that I have been privileged to work with, first at LinkedIn, and now at Greylock as well.
The rise of Linkedin has been well documented, but it's still easy to underestimate on paper Reid's ceaseless determination and focus on the first two points made above: grow the user base, and increase value to our users. And his obsession with building a truly world-class team for every phase of the journey, punctuated by his lack of ego in finding the right long-term partner for the business in Jeff Weiner, remain an unparalleled lesson for me.
David Sze (@davidsze) is a partner with venture capital firm Greylock, and a director on the LinkedIn board.
The SEC showed up late to the social media party with its new guidance, and investors now have more questions than answers about how companies can share material information.
By Cyrus Sanati
FORTUNE -- Wall Street will need a bit more clarity on the SEC's new social media policy before anyone feels comfortable enough to hit the "like" button. While many on the Street accept that social media has become a MOREApr 4, 2013 12:29 PM ET
More smoke than fire behind a VC firm's plans to dump LinkedIn shares?
Bain Capital Ventures this week revealed in a regulatory filing that it plans to unload its entire remaining stake in LinkedIn (LNKD), as part of the social network's previously announced secondary offering. That works out to 3.7 million shares, or around $277 million based on yesterday's closing price. The firm, an affiliate of buyout shop Bain Capital, also sold MOREDan Primack - Nov 16, 2011 10:48 AM ET
A venerable VC firm keeps poaching from its high-profile portfolio company
Venture capital firm Greylock Partners is soon going to have to rename itself LinkedOut Partners.
Greylock was one of the business-focused social network's earliest investors, leading a $10 million Series B round in late 2004. When LinkedIn (LNKD) went public this past summer, Greylock held around a 15% position.
But Greylock's relationship to LinkedIn now goes well beyond investor/investee. The VC firm has been MOREDan Primack - Oct 7, 2011 9:59 AM ET
Yet another LinkedIn veteran joins venture capital firm Greylock
Josh Elman has been a project manager with some of Silicon Valley's hottest companies, including Facebook, Twitter and LinkedIn (LNKD). Now he's becoming a venture capitalist.
Fortune has learned that Elman will become a principal with Greylock Partners, a firm that is no stranger to LinkedIn vets. It recently added both Adam Nash (ex-VP of product development) and D.J. Patil (ex-chief scientist). LinkedIn MOREDan Primack - Sep 15, 2011 1:35 PM ET
Pandora shares closed barely above their IPO price. Who's going to blame the bankers?
Last month, Morgan Stanley (MS) was among those banks accused of intentionally under-pricing the LinkedIn (LNKD) IPO, as a way to generate easy returns for its wealthy clients. In case you forgot, here was the argument from Joe Nocera:
"LinkedIn was scammed by its bankers. The fact that the stock more than doubled on its first day of trading — MOREDan Primack - Jun 15, 2011 4:12 PM ET
LinkedIn went public last week, with investors falling over each other to buy shares at a market cap that now exceeds $9 billion. But it wasn't always so easy for the social network to raise money.
By Lee Hower, contributor
LinkedIn went public last week. As a shareholder and part of the founding team, I'm obviously pleased with the investor reception it has received. It's a great milestone for the company we MOREMay 26, 2011 5:00 AM ET
Russian search engine Yandex proves that LinkedIn didn't suck up all the public market oxygen for Internet IPOs.
What a month for Internet IPOs. First came RenRen (RENN), dubbed "the Facebook of China, which raised $740 million on May 4. Then last week's blockbuster offering for LinkedIn (LNKD), whose shares more than doubled on its first day of trading.
But that was all a prelude to Yandex (YNDX), the Russian search engine MOREDan Primack - May 24, 2011 11:57 AM ET
Jonathan Marino, current proprietor of peHUB, wrote the following on Friday:
"Remember the whining worrywarts who wondered about SecondMarket's odds of getting sued after a LinkedIn IPO? It's pretty certain that they won't be piping up anytime soon."
I'll narcissistically assume that I'm among those Jonathan chose to alliteratively malign. Two points:
(1) I don't recall anyone worrying that SecondMarket itself would be sued. It's just an exchange. Those who could be sued MOREDan Primack - May 23, 2011 3:56 PM ET
LinkedIn's IPO success is certainly important to the company and its backers, but the more lasting impact will be within technology at large.
By Jonathan Tower, contributor
In the 72 hours since LinkedIn went public, we've heard sweeping re-assessments of technology markets in general, and the prospects for consumer web/social media IPOs in particular.
It's hard to argue with success, and LinkedIn (LNKD) was nothing if not a wildly successful offering. Capital markets MOREMay 23, 2011 10:04 AM ET
|The medical marijuana ad that never aired, despite contrary media headlines|
|2 million students missing out on college aid|
|China to fight pollution with drones|
|GM raising Corvette prices|
|Boeing reports wing cracks on Dreamliners|