Reid Hoffman is a busy guy. Along with being the full-time CEO of LinkedIn, he’s an active angel investor, and has participated in the financing of over 50 companies. Since his time at PayPal, Hoffman has culled a classy list of angel investments: Digg, Facebook, Flickr, Friendster, Ironport Systems, Last.fm, Nanosolar, Ning, Six Apart, Socialtext, Tagged, Technorati, Tiny Pictures, Wikia, and more.
You’d think Hoffman would draw the line somewhere – and he recently tried to, saying he would wait out the current hypefest rather than take another pitch from “Joe photo site #23.” But he admits he can’t help himself, investing in Wikia and “a few” other unnamed startups this year. Hoffman was recently included in Business 2.0’s 50 Who Matter List, causing inbound requests for his angel money to balloon. He puts approximately $25,000 to $75,000 into companies that make the cut, and gives them his attention when he’s able. So far, Flickr is Hoffman’s only exit (Yahoo bought it last March), and a dyslexia therapeutics startup named Epoch Innovations is his only failure.
A while back, we asked Hoffman to give us a quick rundown of his web 2.0 investment strategy, and we just received his responses yesterday.
Q: You recently said the best way to invest in web 2.0 was to do it in 2003, yet you yourself haven’t called it a day and stopped making angel investments. How are you adjusting to the current web 2.0 frothiness?
A: Investing well is harder now, but not impossible. I’ve become much more selective on the true uniqueness of the idea, the talents of the entrepreneurs, and my ability to evaluate the space. Initially, I was thinking about sitting out altogether, but I’ve decided that the market has figured out that the consumer internet is here to stay. So, rather than waiting for the next downturn, I have been adjusting how I invest.
Q: What’s your shortlist (your really, really short list) of requirements that a company must meet to earn your investment?
A: First, customer acquisition: data, or a really good plan, on how to get to the first million users, then a good growth rate thereafter. Second: good pricing power and margins, for economics. Third: an ability to protect the business once you’ve created it through innovation.
Q: Have you ever invested in a startup that wasn’t initially recommended to you by someone you trust?
Q: Are there any holes in the consumer internet experience that you would like to plug?
A: Yes – but those are plans for future developments.
Q: On the flip side, are there any areas that are dead to you?
A: Nothing is dead for an innovative idea. Some areas seem very crowded – photosharing or social networking dating sites, for example. Others seem very open – like good applications on social networks.
We are thinking of making “Five Questions with X” a regular feature. Who else would you like to see us interview?