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00:00This is my kitchen table and also my filing systemover much of the past three decades. I've been an investor the highest quality of mankind. I've often thought this privateequity. And then I started interviewing him while I watch your interview those I know how to do.I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine Ididn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don'tfeel inadequate now because the only the second wealthiest man. Was that right.One of the most successful investors and entrepreneurs in Silicon Valley is Reid Hoffman. As an entrepreneur he helped tobuild PayPal and he started LinkedIn as an investor. He's been an early investor in Facebook and Airbnb. N.B. And now he's apartner in one of the leading venture firms in Silicon Valley. I had a chance to find out what the unique qualities it takes tobe a great investor and a great entrepreneur. In my conversation with Reid Hoffman.The venture capital world today seems like it can never get any better. Everybody seems to be making money. The values are highbut returns are very high. Can it get any better than this. And are you worried about this being a bubble. Not unlike what wehad in the tech bubble burst in 1999 and 2000. Well I'm always worried about the markets getting over inflated amount ofstimulus. Everything else is part of making this happen. And so I do think that there is some risk within the the general marketof this. Now that being said technology is accelerating the transformation of all industries. There's what artificialintelligence can do. All industries is obviously you know that's the leading edge of software. There's things happening with Rand VR. There's things happening with crypto and fintech. And so all of this area I think is very much accelerating in thefuture. And so I think that's part of the reason why the venture industry has been so good is because technology is important inredefining many key industries. Right now Silicon Valley is not the only place in the United States where their technologyinvestments. But it seems like the Silicon Valley companies seem to be the most valuable and that's where the most activity isoccurring. Is there something about Silicon Valley that makes it unique and better than other areas. I'm interested intechnology. United States. There is Silicon Valley itself has a number of overlappingnetwork effects. It has a network effect of essentially being the the hub by which a lot of English speaking entrepreneursfrom around the world come to start their software businesses or key technology businesses. There is that hub for capital and theknowledge and investing that goes into it. There's a hub of talent for people growing these companies as part of the reasonI wrote this book. But scaling for. How do you how do you build technology companies at a global scale. Lightning fast and atech. The talent there. There's network effects of learning and of sharing of information. And it's part of the reason whySilicon Valley which you know has the whole Bay area has like three and a half million people tops. That's not the techindustry. And you know why half of the NASDAQ emerges out of Silicon Valley is for those kinds of reasons. And those networkeffects are what makes Silicon Valley great. What about around the world. Is China likely to catch up and pass Silicon Valleyas a leader in technology. I think it's one of the greatest concerns that Silicon Valleyknowledgeable people have because China is amazing. It has huge amounts of tech talent. Everyone's acting like an immigrant youknow with with with hunger. Large companies have this policy 9 9 6 9 a.m. to 9 p.m. 6 days aweek. Discoverable at your desk. And that's kind of like you know you know tens of thousands of people in technologycompanies and they're doing a lot of innovation. There is there's things that we learn from from China. And so I thinkthat China is going to have one kind of very strong creation of the technological future. It's one of the reasons why in blitzscaling we call it the land of blitz scaling. I think Silicon Valley has some edges too but I think it's very much of a gameon circumstance. Now some people would say that the technology world the United States is dominated by just a limited number ofcompanies Google Facebook Apple Netflix Microsoft. You for you're familiar with all this. Do you think thatthe United States is dominated by too many too few technology companies and their space ship should be done something shouldbe done to kind of weaken their power. Or do you think it's OK as it is. Well what I think that we're heading to is we're goingfrom five massive tech companies to 10. I think we're already naturally heading in that direction. You can see it with thingslike Netflix and Salesforce and you know all of these other companies which are continuing to also grow in strength andcreate a breadth of additional global very strong technology companies. And as respect him as an investor when you go aroundand you ask kind of what all the kind of venture capitalists are like no no we're we're having more and more startups more andmore ability to create amazing new tech companies. So like if anything I think we're already naturally on my transit of thattrajectory. Do you think that large Chinese technology companies Ali Baba 10 cent buy do by dance and so forth can have theirtechnology become very dominant or important the United States and around the world. And are we in a world now we're competingwith Chinese technology companies for market share outside the United States and China. So I think we're already in that world.I think that if you look at kind of things that Alibaba is doing in terms of spreading the the alley pay and everything else intoSouth America into Africa I think that the the notion of the technological platforms of the future are in deep like there's afast moving competition between companies in Silicon Valley and companies in China. And I think that's part of like you knowwhich systems will be the systems that the world operates in is I think in deep competition. And that being said I think we'realready seeing a Chinese platform companies beginning to make strong head roads into the USA by dance and tick talk is anobvious one. But I you know I think you already see it in also like drone manufacturer and DGI. There's a whole bunch that arealready that are already getting massive global relevance and you cansee it already. And let's talk about the future some things that people are interested in right now. One of them is cryptocurrencies. Are you a crypto currency aficionado or not. I am. I actually if you go to YouTube and search for bitcoin rap battlethis is inspired by Alexander Hamilton. The musical crypto system will be our salvation. It needs to be centralized andneeds regulation. If I I.D. aided and then funded and produced a rap battle between Alexander Hamilton and Satoshi Nakamoto. Andthat's because I think there is a real role for crypto currencies in helping us evolve. So do you invest in cryptocurrencies yourself. I do. OK what about transportation. Are you a big believer in autonomous vehicles. I am. I've invested inAurora and Neuro because actually in fact it's literally a question of when notif and how soon for when we have autonomous vehicles that will make all of our societies better. It will save you know tens tohundreds of thousands of lives. It will enable a huge amounts of increase in productivity. And so I think it's it's it's a greatthing that we should be accelerating to as societies. Have you been in one of these cars where you were not the driver and youfeel safe. I do and I do. Look I think part of the thing that all of them not just a war not just narrow but all of them havesafety safety safety is the very first thing. So when I've been in these cars where there is nobody in the in the driver's seat.It's it's been good and fine. You wear a crash helmet when you're in those cars or. No you're not. OK. What about flyingtaxis. Is that something in our future. It is. As you know I also helped bring a jobs public buys back and it's moved thetransport grid from 2D to 3D. Re defined space in cities make commutes much less onerous be reliable and getting to theairport on time or be able to live you know kind of more dismally remote and then be able to come into the cities. And soI think the Jetsons is now no longer science fiction but en route to science fact. What about space. You invest in outerspace related investments. Not as intensely as some of my friends like Elonwho obviously are in it. I put some money in the space X. That's more because you know Elan and this amazing transformation ofthe world. But it's it's it's it's obviously an important area. I've kindof ended up in it sometimes just by who I know. So let's talk about how you became an investor and anentrepreneur. You were gonna be an academic and then I guess on a road to Damascus kind of epiphany you said I'm not going to bean academic. I'm going to be something more important than academic. I'm going to be a investor.We'll start with investor it started with a product creator. I wasn't even necessarily starting with entrepreneur. It was howdo we think and speak better. How do we make ourselves better as individuals and as a group. Well actually this medium ofsoftware this medium of constructing new products it was kind of I was just beginning to get that lens of what does the Internetmean and how do we all work together and play together and live together using the Internet to redefine our space and redefineour networks and already be better. And I should go create that. Well as you were starting this career you were invited to join acompany that was called Pay Pal and Pay Pal turned out to be a gigantic success later sold to eBay. What was your job atPayPal. Well so when Peter Teal and Max Levchin started PayPal they each invited their friend who most understood and had anentrepreneur experience they'd be on the board. So that was me for Peter. And then after about a year of being on the board Iwas thinking like going and starting another company. And Peter said no come joinPayPal full time and help us because you know you've been helping us so much on the board and you understand this stuff.And and we have so much to do because PayPal was an early blitz scalar it where it's theory was it was going to be a bank. Andthat was not that that was not a workable theory. So we had a great customer acquisition engine. But how do you redefined thepayments. OS was something that was all in front of it even as it was exponentially getting its burn rate. So. So I joinedPayPal full time stepping off the board. All right. So PayPal was ultimately sold as I mentioned to eBay for about a billionand a half dollars or so. You got your share of the profits. You then became an angel investor for those who don't know what anangel investor is as opposed to a devil investor. What does an angel investor.Well sometimes there may be investors that entrepreneurs think aredevil investors although it's usually more opposed backed. Angel investors are individuals usually with some expertise in thisarea or some knowledge of the entrepreneur that tend to invest the earliest stages of the company frequently. Walton's idea inthe back of a napkin or an entrepreneur just thinking about doing something although that has all like all investment hasprofessionally scaled and does so kind of individually not with a firm their resources and assets of a firm the platform thenetwork that a firm brings. And so that was when I started doing. Mostly just because I was interested in other folks whowere building these great projects that I wanted to help out with and participate in getting. When you started doing that youdid it relatively prolifically and you became known as maybe the most active and maybe the most successful angel investor inSilicon Valley. One of the companies I think you invested in was at Facebook. Yes. So what did you see in the young MarkZuckerberg. And you say this was gonna be one of the great companies in the world or you just said I'll take a chance.So Facebook had already successfully launched a product that when it opened up a campus because when when I did theinvestment it was strictly only a kind of a university campus you know network not even not not the whole world. And but whenit opened up a campus in six weeks 80 percent of the campus was using it six days six times or more per day. And so you couldjust look at the usage curve and go this is interesting. The person who's created this is really interesting. And even thoughback then Mark was very quiet. So had a tendency to to not talk very much. Long pauses minutes long pauses in the conversationwe like as this conversation over. You could see that he was very smart and you could see what wasthe trajectory that Facebook was on was really interesting. So let's talk about this. You're an angel investor. You're doingpretty well. People are coming to you all the time with deals. And while you might miss one or two basically you're doing quitewell. Why did you join a firm called Greylock an excellent venture capital firm. But why did you need to be joining aventure capital firm. You're already your own venture capital. She had enough money to start your own firm. Why would you joinGreylock. So not again not surprising for the guy. Go ahead and then I think the networks and I think the networks as platformsand one of the things that I think those small number of very elite venture capital firms within Silicon Valley and otherplaces do is create a network. And I was originally think about building my own. And then DavidZee and Neil Butchery were then both general partners at Greylock came to me and said hey we're we're we're in theprocess of moving the firm from Boston to Silicon Valley where it's kind of a kind of a rebirth of the firm which has thisgreat set of investors and pedigree and culture and learnings and all these things that will be very helpful. But also thisidea of network amplifier for venture capital. We love it. We'd love to do it with you. And I was like why.These are these are people I would be delighted to be partners with these folks.So let's let's build the firm here. Now when you were starting it at Greylock even though you had already had a good career asa venture investor an angel investor I think one of the legends of Silicon Valley is the deal you wanted to do was A or B and Band the senior partner at your firm said look that's a terrible deal. It's going nowhere. So were you intimidated by that.Because you a lot of experience are in and how did you push that through. There's even more drama than your question suggestsbecause the partner the senior partner is David Zee who is a who's an amazing general partner was my board member fromGreylock at LinkedIn. Reason I'm at Greylock. And so I bring an Airbnb and B it's my first deal that I'm bringing into thepartnership. And David you know who I'm super close to. I have deepestrespect for has has returned billions of dollars. The fund looks at me and says well every V.C. has a has a deal that they canlearn from and fail from an air B and B can be yours. It's like oh David super smart. And so ultimately I kind of said well lookI have to have the conviction as a portfolio. I mean he he gave me the hunting license the permission to go do the deal. So Iwent and did the deal. Now to David's credit six months later the numbers hadn't changed at all. He came back to me and said Ithought about it a lot. I think you were right. I was wrong. What did you see that I didn't see. And I said well all of therisk factors that you saw were correct. I just realized that if you if you navigated through the riskfactors which I could see as able to do then you would end up with a redefining company of an industry. It would be you knowlike literally like you just it transforms the entire industry. And that's the thing I saw.You had some time. I don't know where you got the time from the start. A little company called Linked In.The goal was building something that enabled every individual professional to most that transform their career bycollaborating within a network. So in addition to venture investing you had some time I don'tknow where you got the time from the start a little company called Linked In.How did you have time to start a company called LinkedIn One you're a partner in a venture firm. Well actually I started itmuch earlier. And then Greylock that's actually how I met Greylock because David Z led my series B. So I was doing angelinvesting while I was A I was while I was the C the founding CEO and and co-founder of LinkedIn. But I didn't start ventureinvesting until after I'd hired Jeff Wiener to be the CEO of Lincoln. And LinkedIn ultimately was sold to Microsoft forroughly 26 million dollars or something like that. Did you ever anticipate something like that when you started the company orhelped start the company. So one of the things to think about when you're strategizing and it's like my first book The Startupfor You has this framework called ABC Planning which is part of it is to think about the spread of outcomes like what's thewhat's the great possible outcome. What's the worst outcome. What are the intermediate outcomes. What are the things thatchange the landscape of it. So I always knew that LinkedIn could be a network as a platform that would be transformative. And Ialso knew that it was the kind of thing that most aligned with Microsoft's mission. So did that mean that I knew that Microsoftwas going to end up buying it for a you know for its it's kind of the largest acquisition in its history or you. The answer isno. I thought it was a possibility. It was a was an outcome. It wasn't the goal. The goal was building. It's something thatenabled every individual professional to most that transform their career by collaborating within a network. All right. Whenyou sold the company to Microsoft you went on the board of Microsoft. Yes. And let me ask you about that. Microsoft was atechnology company that came out of nowhere became a dominant software company. Many people thought it would go south as itwas getting older and older and transformed itself. When Satya Nadella became the CEO were you shocked and surprised at how thecompany has become one of the most valuable companies in the world again. No. For a number of reasons. One is Microsoft hasalways had an enormous amount of talent throughout the whole company. The technology depth Microsoft you know has actuallycreated a whole range of products within not just the commercial side but also Microsoft Research. And so there's always this rawamount of talent. And then obviously having some key franchises like Office and Windows and other kinds of things and beingwilling to be bold and creation of X Box in the gaming franchise. Now that being said you know that I'd say that thething that Satya brought back with vigor to the company was a focus on earning the ability to to to build the next generationof products you know starting with his own background and his jaw but also kind of transforming across the come the company. Awe are only one company in this universe and we are doing our absolute best to surprise and delight our customers.So let's talk about the different skill sets it to be an investor union certain skill set. What does that skill set andwhat is a skill set and how is it different to be an entrepreneur.So we'll start with an entrepreneur because I think it's a little easier which. Well the game is hard but the definition iseasier which is you have a vision for where the world is moving towards where you can help build it towards you frequently. Inthe case of a new technology or a market shift or something that gives you that kind of market opportunity. You can assemblethrough your network the assets not just capital but talent the ability to build the new product or service. And you're drivenby kind of the cadence of a complete focus on how do you. And you know how do you navigate that path which can includepivoting includes risk management and a bunch of other things. But it's that build of of a building something from nothing. Andthen in kind of scaling getting it really large very fast as an investor what you're looking at is judging entrepreneurialtalent and that same kind of circumstance of can this set of people can she or he or you know sometimes better to have two orthree founders do that run this this kind of this race. And the key thing that's a difference between being the entrepreneurwhere it's kind of the all in focus is the thing I'm doing. And a an investor is that you're making the joke. You're not runningthe race is the investor the founders the entrepreneurs they are running the race. You're helping as much as you can but you haveto judge can they do that and then can you help them as best you can get there. But that's the key difference in skill. So tomake people feel good who aren't as successful as investors as you are. You have some failures. You can tell us about where youmade a terrible mistake. You lost all your money just to make up the rest of us. Feel good.Well. It depends on do we have days. I can go through the list and actually by the way the interesting question about theanalysis of here is not as much of the companies that you are that you invested in went to zero. There's a large list of thosecompanies that that did that. The real thing is the companies that you missed. So like missing Twitter. Missing Snapchat.Missing Pinterest. Those are. Those are much worse outcomes than you put in. You know one hundred thousand dollars or a milliondollars at ten million dollars. And this other company that went to zero. So final question. If somebody said I want to be thenext Reid Hoffman person who starting companies investing in companies doing good things for public policy. What would yousay is the best training ground to do that. And how it should somebody prepare to be the next Reid Hoffman.Well I'm still young enough that I'm still hoping to be the next Reid Hoffman myself. But that being said there's a number ofpeople who are like this within Silicon Valley who who bring an entrepreneur's mindset and entrepreneurial success together withan investing mindset and play a central role in the network. And many of these folks are folks that I work with you know. Youknow I could literally spend another hour listing names you know Ali Partovi at Neo or other other areas by which we collaboratewith these folks. And so I think there's a lot of people out there who are all going to be the next themselves you know withthis amazing kind of track record and luck.

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The David Rubenstein Show: Reid Hoffman

Reid Hoffman, LinkedIn co-founder and partner at Greylock Partners, talks about venture capital, Silicon Valley versus China, and why he was an angel investor in Facebook. He appears on "The David Rubenstein Show: Peer-to-Peer Conversations." This was recorded Aug. 18. (Source: Bloomberg)

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