13 Comments

Summary:

LinkedIn … now here is a company, that came to the social networking trend early, stayed focused on the business market, and now is well on its way to clock $100 million in revenues. It has just crossed the profitability threshold and is making money pretty […]

LinkedIn … now here is a company, that came to the social networking trend early, stayed focused on the business market, and now is well on its way to clock $100 million in revenues. It has just crossed the profitability threshold and is making money pretty much every which way it can.

A valuation of $250 million is being put on the company … and yet it goes ahead and raises almost $13 million in fresh venture funding, and no one asks the question: why? Why does it need fresh capital from Bessemer Ventures and European Founders Fund?

Somehow I don’t buy the “new product experiment” argument made by Keith Rabois, LinkedIn’s VP for corporate and business development. Time to give Reid Hoffman a call, and ask for myself.

Update: Reid Hoffman has left a long response to what LinkedIn is going to do with the money in the comments. Here is a quick link, if you want to understand where LI is going.

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  1. Andreas (easn.de) Monday, January 29, 2007

    In my opinion they needed another funding, because they just started to enter the European and especially the German Market.

    I, as Xing user, don`t no anyone using LinkedIn to network with other German Business partners, so I guess LinkedIn will have to make a huge effort to convince people to use their system.

  2. andre taliercio Monday, January 29, 2007

    Unless we know exactly the true use of proceeds, it looks to me that some investors/founders are cashing out since valuation is good and there no exit yet for them.

  3. I also think that the founder are cashing out.
    Profitable Web 2.0 company and raising funds don’t go together.

  4. What.se IT NEWS Sweden Monday, January 29, 2007

    A previous promise from the VC:s?

  5. Marketing is a very expensive hobby which is not always possible to pay from cash flow, Germany is a hard market btw which costs will require more than 13 mio

  6. From the article:

    “For many, it’s become irresponsible to not invite business associates into your LinkedIn network,” says Mikolaj Jan Piskorski, an assistant professor at Harvard Business School who specializes in sociology and strategy. “When that kind of cultural inflection point occurs, which is what LinkedIn is going through now, that is when things really begin to take off.”

    And that’s the main problem with linkedin. Any yahoo you meet on the street sends you an invite. The quality of linkedin links is diminished by social people that spam others with invites. There’s no measure of quality of a link between 2 people on there.

    People – mainly the site’s 60,000 recruiters – pay an average of $3,600 a year for premium features such as sending messages to LinkedIn members outside their own networks. Corporate members pony up six-figure fees for access to the network.

    People pay for this service? Why on earth would they pay $3600 for it? Is that number even close to being accurate? What company pays $100k for access? What a snake oil scam, I wish I thought of it.

    At that point the average person with 20 contacts had access to about 40,000 members within four degrees of separation.

    And right there is the problem with schemes like this: what relationship do I have to those people 4 units away? Nothing. To say that I’m related to 40k is meaningless.

    Gutmacher has 3,500 people with whom he directly connects. That gives him access within three degrees to about 3.5 million people.

    I’m sure that’s very fruitfull. This also means that 3.5M people are within 3 links of one another, and they have no idea who the other person is.

    Honestly I can’t see the value of LinkedIn. That’s why I think Yahoo will buy it (and overpay) as they are desparate and will buy anything.

  7. $100MM in revenues? Where di that come from?

    TechCrunch suggests they did $10MM in revenues in 2006 and have 70 employees.

    http://www.techcrunch.com/2007/01/28/linkedin-raises-nearly-13-million-more/

    As an employee costs $125K/year or more (all costs baked in), they profitable, but barely so. In an intensely competitive market with little competitive edge. Um, maybe that’s why they raised money?

  8. Om,

    As much as I like talking with you, I thought that I might spare you the phone call since I do read GigaOm. There’s a lot here that does not merit comment – esp. the anonymous comments. However, I thought that I would help clarify why we raised money and why Bessemer.

    We raised money since (a) we will be expanding internationally this year and (b) we want to start marketing the Linkedin use cases – e.g. how every professional can use Linkedin today to make themselves more effective at their jobs.

    For International, we don’t anticipate serious problems. Across Europe, we are already the largest professional network and this is with no local presence, no local languages, etc. It is true that we’re currently the second player in Germany and would need more local help there. This is one of the many reasons that we let the European Founders Fund invest. (We were heavily over-subscribed with interest.) Half of our current 9M+ members reside outside of the U.S. However, we want to make sure that we have the funds to invest appropriately in the international business. We are just beginning to form several major partnerships with international entities.

    For Linkedin’s use cases, we have been working on a set of marketing campaigns that show how to use Linkedin. There are a number of people who do not realize the extent of how their Linkedin network can help them with their job and career. Using Linkedin for finding a job, finding a recruit, or reference checking is generally obvious to most. For business development or sales professionals, using Linked to find an “in” to a company is also obvious. For entrepreneurs, using Linkeding to find co-founders, investors, advisors, customers, and employees – again, fairly straightforward. However, most professionals have yet to realize how reaching out to other professionals and asking them professional expertise questions can help them accomplish their job faster and better. Currently, you can use Linkedin to search and find the right individual – say if confidentiality was important. Alternatively, you can use Linkedin Answers to post the question and get some amazingly good answers.

    We’re going to use some of the money to help elucidate how Linkedin can be helpful to everyone.

    We selected Bessemer as a firm, since they are use to global businesses that offer awesome new utility to professionals lives – like Skype.

    Let me know if you still need that phone call – or if we accomplished enough in the blogosphere way.

  9. Will be interesting to see how quick the people in Germany pick up the above comments… Will look at Xing Stock Chart tomorrow :)

  10. Dennis Howlett Monday, January 29, 2007

    I’m still a bit flummoxed as to why LinkedIn needed to raise capital. If it’s moved into profit then surely that’s reflected in cash flow which could be used for operational reasons – such as this?

  11. Naysayers of LinkedIn simply do not understand the business of social networks(SN). It is nearly impossible to replicate their model. LinkedIn is an invite type SN that has reached a massive scale. This takes years to accomplish. LinkedIn was one of the first SNs. Yahoo’s 360 is a pale shadow to LI.

  12. LinkedIn should have no problem putting $50 million to good use, not to mention $13 million. There are:

    • existing customers to monetize
    • untapped markets to tap (particulary overseas)
    • new product and service offerings to develop & market
    • companies to buy

    If you anticipate capital is going to become more expensive as the economy slows, some web 2.0 companies start to fail, etc., it’s also a good time to raise money, even if you don’t spend it.

    I’d be interested to know if anyone’s seen a report on how much LinkedIn has spent on customer acquisition so far. I don’t recall ever seeing any advertising. Have consumer-to-consumer “link-to-me” requests been the only / primary way they’ve grown to 9 million accounts?

    Also, most people in my network are on the coasts. Has anyone seen a geo-breakdown of their global user base?

  13. LinkedIn rüstet sich mit 12,8 Mio. gegen Xing und Reid Hoffman muss sich rechtfertigen : WebWorkBlogger Saturday, July 26, 2008

    [...] Der Kampf um Europa geht in die nächste Runde. Das US-amerikanische Business Social Network LinkedIn erhält von Bessemer Venture Partners den Löwenanteil der Investitionssumme von 12,8 Mio. USD. Der Rest kam von der European Founders Fund (EFF), hinter der die Samwer Brüder (Alando, Jamba) stecken. Als Reaktion auf die Investition wurden Kritiken laut, die Reid Hoffmann, den CEO von LinkedIn, zu einer kleinen Stellungnahme bewegten. Einige Blogger stellten die Investition in Frage, da LinkedIn bereits laut eigener Aussage profitabel arbeitet und für 2008 etwa 100 Mio. USD an Einnahmen erwartet. Die zahlreichen kritischen Kommentare, teilweise unbegründet und schlichtweg falsch, motivierten Reid Hoffmann zu einer Begründung. [...]

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