LinkedIn Venture Capital Investment Commentary from Greylock

Tl;dr: Greylock invested $10 in LinkedIn at the Series-B in 2000. David Sze wrote a blog and shared some commentary on his investment memorandum 2004 which I found in the Wayback Machine. Read to understand how a venture capital investor thinks about investing in a company and how they communicate it to their partners and potentially their limited partners.

About the VC investment memo

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 nine years ago.

October 2004 was a strange time 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 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? Well, it had just been founded that 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.

About LinkedIn

LinkedIn is a professional networking site that allows its members to create business connections, search for jobs, and find potential clients.

The site also enables its users to build and engage with their professional networks; access shared knowledge and insights, and find business opportunities. It offers LinkedIn mobile applications across

various platforms and languages such as iOS, Android, Blackberry, Nokia Asha, and Windows Mobile; a public website that allows developers to integrate its content and services into their applications; and a set of embeddable widgets to allow web developers to include content from the company’s network into their websites and applications.

In addition, the company provides talent solutions, including LinkedIn Corporate Solutions that enables enterprises and professional organizations to find, contact, and hire qualified candidates; LinkedIn Jobs that allows enterprises and professional organizations to advertise job opportunities on the company’s network; and Subscriptions which enables recruiters and hiring managers to find, contact, and manage potential candidates. It also offers LinkedIn Ads, a self-service platform that enables advertisers to build and target their advertisements at its members; Enterprise, a marketing solution to target larger advertisers that receive dedicated account management and additional marketing solutions; and Sponsored Updates that enables advertisers to share and amplify content marketing messages.

Additionally, LinkedIn provides premium subscriptions for general professionals to manage their professional identities.

About Greylock

Greylock Partners invests in entrepreneurs that focus on consumer and enterprise software companies. The firm invests in companies that define new markets, including Airbnb, AppDynamics, Apptio, Arista Networks (NYSE: ANET), Cloudera, Docker, Dropbox, Facebook (Nasdaq: FB), LinkedIn (NYSE: LNKD), Medium, Nextdoor, Palo Alto Networks (NYSE: PANW), Pandora (NYSE: P), Pure Storage, and Workday (NYSE: WDAY).

It was founded in 1965 and headquartered in Menlo Park, California.

Greylock joined LinkedIn in the series-b round in 2004.

Announced Date	Transaction Name	Number of Investors	Money Raised	Lead Investors
Feb 15, 2016	Post-IPO Equity – LinkedIn	1	—	—
Jan 1, 2015	Secondary Market – LinkedIn	1	—	—
Dec 1, 2009	Secondary Market – LinkedIn	1	$51.6M	—
Oct 22, 2008	Series D – LinkedIn	4	$22.7M	—
Jun 17, 2008	Series D – LinkedIn	4	$53M	Bain Capital Ventures
Jan 29, 2007	Series C – LinkedIn	3	$12.8M	Bessemer Venture Partners, Global Founders Capital
Oct 1, 2004	Series B – LinkedIn	1	$10M	Greylock
Nov 1, 2003	Series A – LinkedIn	2	$4.7M	Sequoia Capital

Usual caveats

No investment memo made voluntarily public will ever be 100% as it was. The pressure is just too high for VCs to look smarter, and not make founders uncomfortable, etc. I highly praise the VCs that share their thought leadership so we can all learn.

If you’re learning to make a VC investment memo, don’t assume the memos are what you exactly need to do. Information will be redacted. Assume anything “delicate” or sensitive is not in the memos.

The only memo that is 1 to 1 is the Youtube memo because it was in a lawsuit.

This blog is only extracted from the Greylock investment memo.

Venture Capital Investment Commentary

• Mission. “LinkedIn’s mission is to create the leading, business-focused network site for people where they can “find and contact the people they need, through the people they already trust.”
• Business. “This is inherently a business with strong viral distribution and network effects… And because the whole context of the site is business networking, monetization areas are natural additions to the site, not diversions for users — many of whom at any given time are either looking for jobs, considering looking for jobs, looking to hire people/services/contractors, looking to do sales/BD oriented networking.”
• Path Forward. “Development in three phases: (1) grow the userbase and establish breakaway network effects and scale of user-base/database … ; (2) focus on improving user value, repeat usage, and habit building through (a) better improvements in UI and ease of use, and (b) by building value-added applications and wizards on the database to improve user-mining of value from the network; (3) monetization of the user/network asset through (a) “Opportunities”: …, (b) “InLeads”: …, and (c) “Network Plus”: …
• Monetization. “If the network remains robust, and they succeed in building value and habit, their monetization potential could be a significant portion of the existing Monster.com market as just a first monetization opportunity.”
• Challenge. “My belief (and theirs) is that they have much work to do cleaning up the UI, and packaging relevant applications and wizards on top of their database to surface high-value, simple results matched to the networking processes that people are trying to mine out of the system. I am focused on making sure they get this right before driving too much into mining the user base for money. There is a significant risk in ‘killing the golden goose’ before it’s fully hatched.”
• Scale. “One of the hardest/riskiest parts of this type of business is getting scale on building a large, high-quality user base at reasonable cost — and this is almost fully behind them already.”
• People. “I believe these are our kind of people. Bright, talented, aggressive/competitive, analytical, committed to excellence, hard-working, intellectually honest, and risk-taking.”
• Competition. In those days, Linkedin was one of a bunch of early business-networking startups such as Plaxo, Spoke, Ryze, Zero Degrees, etc. All of these companies were relatively small, though a number were larger than Linkedin.
• Summary. “I am very enthusiastic about this opportunity. I think they are well on the way to being impossible to catch in their space from network development, and they have the potential to build a much more addictive experience on top of that userbase, and to monetize it in ways that are relatively non-jarring to their users, and with large revenues and margin potential. I also think Reid is world-class in this type of business and am excited to work with him.”

Final Commentary on the LinkedIn Investment Memo

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.