20VC Reid Hoffman on Investing in Airbnb and Passing on Stripe, The Different Styles of Truly Great Leaders, How To Think Through Ownership and Price in Venture & How To Ensure Venture Partnerships Always Have Trust and a Learning Mindset



In this episode of "20 minutes VC" with host Harry Stebbings, tech luminary and LinkedIn co-founder Reid Hoffman discusses his journey from academia to Silicon Valley, where he became a pivotal figure at PayPal and LinkedIn, and later a partner at Greylock. Hoffman shares insights into his investment philosophy, highlighting the significance of building trust and maintaining relationships in the venture world. He reflects on his successful bet on Airbnb, his missed opportunity with Stripe, and emphasizes the importance of continual learning and adapting in the fast-paced tech industry. Hoffman also touches on his future plans, which include generating content to share his extensive knowledge on tech investing, board dynamics, and strategies for a technology-forward society.

Summary Notes

Introduction to 20VC Podcast with Harry Stebbings

  • Harry Stebbings expresses excitement for the episode and introduces Reed Hoffman as an inspiration and role model.
  • Reed Hoffman is a partner at Greylock, a leading venture firm with a notable portfolio.
  • Hoffman has invested in companies such as Airbnb, Convoy, Coder, and Aurora.
  • As an operator, he co-founded LinkedIn and served as an EVP at PayPal.
  • Reed Hoffman is a co-author of "Blitzscaling" and two New York Times best-selling books, "The Startup of You" and "The Alliance".
  • Harry thanks various individuals for their question suggestions for the episode.

"This is the 20 minutes VC with me, Harry Stebbings, and I'm so excited for the episode today."

This quote introduces the podcast and the host, setting the stage for the episode.

Sponsorship and Product Endorsements

  • Harry Stebbings mentions sponsors and products including HelloSign, Affinity, and Zoom.
  • HelloSign, an eSignature solution, was acquired by Dropbox for $230 million.
  • Affinity is highlighted as a venture capital CRM used by top firms.
  • Zoom is emphasized as an essential platform for video conferencing and communication.

"And speaking of beautiful products there. And honestly cutting the crap, there are a few products I truly could not live without and use ten plus times a day."

This quote reflects the host's personal endorsement of the products being advertised, suggesting their importance in his daily routine.

Reed Hoffman's Background and Journey to Startups

  • Reed Hoffman initially aimed to be a public intellectual through academia.
  • He received a Marshall scholarship and studied at Oxford, seeking to impact society and humanity.
  • Hoffman realized the limitations of academia for large-scale societal impact.
  • His time at Stanford introduced him to software entrepreneurship as a medium for change.
  • Hoffman learned about software product development and business models, leading to his involvement in startups.

"Well, so I was originally thinking I was going to be an academic... and that the academic path was very challenging for doing that... And so I said, okay, I'll go build software, because software will have that way of having that evolution in humanity and so forth."

This quote explains Hoffman's transition from academia to software entrepreneurship as a means to achieve societal impact.

Reed Hoffman's Perspective on Leadership

  • Hoffman did not initially see himself as a leader or entrepreneur.
  • He describes his style as more of a problem-solver, akin to a "druid" archetype, than a traditional leader.
  • Hoffman emphasizes that leadership can take many forms beyond hierarchical positions.
  • He believes that content production, such as podcasts, can be a form of leadership by influencing ideas and actions.

"So if you had asked me as a young person, are you a leader? The answer would have been no... It's more like I want to ride in and solve particular problems... And so that's how I think of the kind of leadership thing."

This quote reflects Hoffman's self-perception as a non-traditional leader focused on problem-solving rather than seeking formal authority.

The Weight of Words in Leadership

  • Hoffman discusses the responsibility that comes with the impact of one's words, especially in leadership roles.
  • He shares an anecdote about inadvertently influencing an engineer's actions due to his casual comment.
  • Hoffman stresses the importance of being aware of one's role and the potential consequences of communication.
  • He also highlights the importance of recognizing the limits of one's expertise and the wisdom in acknowledging what one does not know.

"The thing that I do take very seriously is that when your words have impact, you have to choose your words... I think one of the really important things in leadership goes all the way back to Socrates, which is to pay a lot of attention to knowing what you don't know."

This quote underscores the importance of mindful communication and self-awareness in leadership.

Self-Knowledge and Speaking on Boards

  • Importance of self-awareness in board members regarding their knowledge scope.
  • The value of asking questions rather than giving unsolicited advice.
  • Questions facilitate dialogue and have a catalytic impact on decision-making.

"But sometimes you're like, well, I know this about this, but not that. And so you have to bring that self-knowledge about what you know into how definitively speak."

This quote emphasizes the need for board members to be aware of their knowledge limits and to communicate accordingly.

"I will ask a question like, well, what do you think about this possible plan or this line of action?"

Reed Hoffman illustrates how asking questions rather than giving directives can be a more effective way to contribute to board discussions.

Personal Development and Entrepreneurship

  • The concept of viewing one's life as an entrepreneurial journey, not just a career ladder.
  • The importance of recognizing one's strengths and weaknesses in personal and professional growth.
  • Strategic thinking about compensating for weaknesses.

"Everyone should think about their life as the entrepreneurship themselves."

Reed Hoffman shares his philosophy that individuals should approach their lives with an entrepreneurial mindset, fostering continuous growth and adaptation.

"You can't fix many of your weaknesses. You can fix maybe one or two."

Reed Hoffman points out the practical limits of self-improvement, suggesting a focus on strengths rather than trying to fix all weaknesses.

"Play to my strengths and I should adjust my working circumstances to my weaknesses."

Reed Hoffman advises on leveraging one's strengths while making adjustments to mitigate the impact of weaknesses, such as hiring complementary team members.

Building and Trading Up on Trust

  • Trust as a fundamental aspect of business relationships.
  • The parallel between trust building and brand management.
  • The critical role of communication in establishing and maintaining trust.

"Building upon trust and the way of thinking about it in the business world is like a parallel to brand management."

Reed Hoffman draws a comparison between the process of building trust and managing a brand, emphasizing the importance of every interaction in the process.

"Trust is an extremely important part of life, an extremely important part of work."

Reed Hoffman underscores the significance of trust in both personal and professional contexts and the need to be deliberate in building it.

Trust Maintenance in Venture Capital and Startups

  • The consistent application of trust principles across different contexts.
  • The unique challenges of maintaining trust in VC and startup environments.
  • The necessity of transparent communication for trust maintenance.

"The fundamentals of trust the same, which is the fundamental of trust, is one angle of trust is kind of where a person sees you kind of doing what you say."

Reed Hoffman discusses the universal principle of trust, which involves meeting commitments and being transparent about one's actions.

"You have to go the extra mile in venture to communicating and doing stuff because you don't have that intermediate check in."

Reed Hoffman highlights the need for extra effort in communication within venture capital due to the less frequent interactions compared to startups.

The Airbnb Investment

  • The importance of direct communication with entrepreneurs for accurate understanding of their vision.
  • The experience of initially misjudging Airbnb's potential.
  • The role of personal conviction in venture capital decisions.

"I now no longer allow a third party to be the voice of an entrepreneur and their vision and what they're doing unless it's a highly trusted third party."

Reed Hoffman reflects on a lesson learned from his initial reaction to Airbnb, emphasizing the value of hearing directly from entrepreneurs.

"It's a disastrous kind of social circumstance. It has all the risks that renting a room has, but even less privacy and all the rest."

Reed Hoffman shares his initial concerns about Airbnb's business model, which he later realized were based on a misunderstanding of the company's concept.

Initial Investment Decision

  • Harry Stebbings is discussing his first venture investment at Greylock.
  • He was convinced to meet with the entrepreneurs after a friend vouched for them.
  • Harry was impressed within minutes of their pitch and decided to invest.
  • The investment session turned into a working session to be mutually beneficial.
  • Harry's decision was made despite David Z's warning that every VC needs a failed investment to learn.

"2 minutes into their pitch, I was like, oh, my gosh, this is amazing. You guys are onto something absolutely brilliant here. I'm going to make you an offer to invest."

Harry quickly recognized the potential of the entrepreneurs' pitch and decided to invest, demonstrating his ability to spot brilliance early on.

"And so we did that. I think we were talking on a Saturday. I brought them in on a Monday to pitch the partnership."

Harry acted swiftly to bring the entrepreneurs in to pitch the partnership, reflecting his proactive approach to investment opportunities.

"David turned to me and said, look, every venture capitalist has to have a deal that they crater and it is a disastrous amount of work, and that doesn't work in order to learn, and Airbnb can be yours."

David Z warned Harry that failure is a part of the learning process in venture capital, preparing him for potential setbacks.

Learning Mindset in Venture

  • Harry Stebbings highlights the importance of a learning mindset in venture capital.
  • He discusses the need to share learnings and principles with others.
  • Harry acknowledges the potential risks and critiques associated with Airbnb but sees its transformative potential.
  • He emphasizes the importance of investing in founders who are infinite learners and who think about the business in unique ways.

"That learning mindset, I think is really important in venture, is really important in entrepreneurship, really important in partnerships, because you share learnings."

The quote underscores the value of a learning mindset in the venture industry, where sharing knowledge is key to success.

"And that's what I saw. And by the way, our venture bet is not about picking things that have a 90% chance of success. It's about picking things that have some more risk, but when they work, they're magical."

Harry explains that venture capital is about taking calculated risks on ideas that can be transformative, not just those with the highest likelihood of success.

Mental Plasticity in Venture Investment

  • Harry addresses the challenge of retaining mental flexibility and not letting past experiences overly influence future decisions.
  • He stresses the importance of continuous learning and being open to reconsidering past learnings.
  • Harry also differentiates between angel investing and venture investing, emphasizing the commitment required in venture.

"You have to think about that. You're always learning, right? And by the way, when you've learned something, don't treat learning as like it was bedded on the rock tablets."

Harry advises that learning should be an ongoing process and not treated as unchangeable truths, highlighting the dynamic nature of knowledge.

"I am year by year, a much better investor, a much better board member than I was the previous year."

This quote illustrates Harry's belief in personal growth and improvement through a commitment to learning.

Relationship Building and Time Management

  • Harry discusses the importance of relationship building and trust in venture capital.
  • He explains the need to set clear expectations with entrepreneurs about time commitments.
  • Harry outlines how he navigates time allocation between successful ventures and those that are struggling.

"And so what you do is it goes back to that trying to trust building, like part of the discussion I have with entrepreneurs."

Harry emphasizes the role of trust-building in venture capital, particularly in setting expectations for the partnership.

"I will have to prioritize my time more here. I won't leave the ship. I will actually, in fact, just to set expectations, if we're in that troll thing, my time commitment will shrink some."

The quote reflects Harry's approach to managing his time commitment with ventures that face challenges, ensuring he maintains support without abandoning them.

Reflection on Missed Opportunity with Stripe

  • Harry reflects on missing the opportunity to invest in Stripe.
  • He was referred to the Collison brothers by Paul Graham of Y Combinator.
  • Despite recognizing their potential, the investment in Stripe did not happen.

"So Paul Graham, who was a founder of Y Combinator, dropped me an email saying, there's two Irish brothers, Patrick and John Collison, who are literally spectacular and they're going to be reinventing banking and that you should meet with."

Paul Graham's recommendation to meet with the Collison brothers highlighted their potential to Harry, showcasing the importance of trusted referrals in venture capital.

The study notes cover all key ideas and topics discussed in the transcript, providing a detailed and comprehensive overview suitable for exam preparation. Each theme is followed by relevant quotes and succinct explanations to clarify their significance.

PayPal Investment Decision

  • Harry Stebbings reflects on a missed investment opportunity in Stripe.
  • He acknowledges the high risks in the payments industry and his decision based on risk-reward evaluation.
  • Despite the success of Stripe, he does not regret the decision, given his knowledge at the time.
  • He admires Stripe's founders, Patrick and John, and values his interactions with them.

"But one of the problems, and this is a little bit of know history can be a challenge, is that having know part of the five person executive team at PayPal through its dogfight existence of survival or death. I knew all of the landmines in the payment industry."

Harry Stebbings explains his hesitancy to invest due to his previous experience with PayPal's challenges in the payments industry.

"So they came to me and said, hey, we've got this deal which is you can invest a little bit amount of money on a very high. To my mind, I was wrong pre money valuation."

Harry Stebbings discusses being approached for an investment in Stripe, which he felt was overvalued at the time.

"I have regretted that call. But it's a little hard to say given what I knew about the payments industry of being brutally difficult and the fact that the risk reward on percentages, it's not clear to me that I actually made the wrong investment call."

Harry Stebbings expresses a nuanced view on his decision, balancing regret with the knowledge he had at the time.

Venture Capital Ownership Targets

  • Reed Hoffman discusses the rationale behind the classic 20% ownership target in venture capital.
  • He explains that ownership percentages are based on studies of average exits and IPOs.
  • Hoffman emphasizes the need for flexibility in ownership percentage based on the potential growth and impact of the investment.
  • He uses Airbnb as an example of a successful investment with lower ownership but high growth potential.

"The reason why this classic 20% kind of venture, canon ownership is that actually, in fact, people did kind of studies about what happens on average exits, companies, average ipos and so forth."

Reed Hoffman explains the historical basis for the 20% ownership target in venture capital.

"So, for example, when I did the investment in Airbnb, I think it was like six or 7% ownership. And so it's much lower."

Reed Hoffman cites his investment in Airbnb as an example where lower ownership still led to significant returns.

Venture Capital and Network Effects

  • Hoffman describes venture capital as a network-centric industry, leveraging connections to support portfolio companies.
  • He highlights the importance of designing venture capital firms with a network approach rather than just a recruiting approach.
  • Hoffman shares an example of using Greylock's network to quickly find engineers for Instagram, demonstrating the operational strength of a network.

"Venture capital should really be only on a maximum of, call it ten to twelve boards as a way of kind of working on them."

Reed Hoffman discusses the optimal number of board positions for venture capitalists to effectively contribute.

"We actually are running networks like we have a whole university recruiting program that we run for all of our portfolio."

Reed Hoffman explains how Greylock operates through a network approach, supporting all portfolio companies with recruiting and other needs.

Impact of Technology and Society

  • Hoffman stresses the importance of considering society as a customer, not just individuals.
  • He believes entrepreneurs should think about the broader social impact of their products and businesses.
  • Hoffman also plans to generate content on technology strategies for society and the role of boards of directors.

"So the one thing that I think that I would love to add to the culture and some people haven't, like, for example, the, you know, all of Brian, Nate and Joe, is not only to think about the success of your individual product and the success of your business, but also where you fit within society."

Reed Hoffman emphasizes the need for entrepreneurs to consider their societal impact in addition to business success.

Future Plans for Reed Hoffman

  • Hoffman intends to continue investing in technology companies that can change the world.
  • He plans to produce content that elaborates on his experiences and lessons from Silicon Valley.
  • Hoffman aims to explore topics such as technology-forward strategies for society and the functioning of boards of directors.

"But I'm also beginning, especially because of COVID time. And we're all sitting here through our video conferencing windows like we're doing this podcast is probably over the next couple years, I will be generating a bunch more kind of content."

Reed Hoffman outlines his plans to create content that shares his insights and experiences.

Hello Sign and Affinity

  • Hello Sign is highlighted as a company that prioritizes user experience, with a successful acquisition by Dropbox.
  • Affinity is presented as an essential venture capital CRM that enhances deal flow management and networking.

"Hello Sign is an effortless esignature solution used by millions to securely send and request legally valid digital signatures and agreements."

The transcript features a promotion for Hello Sign, emphasizing its ease of use and legal validity.

"Affinity it's a home screen app for me, and not just me. It's the number one venture capital CRM."

Affinity is promoted as a top CRM tool for venture capitalists, used and loved by many in the industry.

Zoom as a Communication Tool

  • Zoom is mentioned as a vital tool for communication and building relationships.
  • It is described as an all-encompassing platform for various communication needs, from video conferencing to phone calls.

"Zoom lets you connect and do business across town or around the world."

Zoom is promoted as a versatile communication platform that facilitates business interactions globally.

Personal Notes and Acknowledgments

  • Harry Stebbings expresses gratitude for the interview with Reed Hoffman.
  • He mentions his Instagram account for behind-the-scenes content.
  • There is a sense of joy and accomplishment in having completed the interview.

"I mean, a real bucket list item there ticked off for me with that interview with Reed."

Harry Stebbings shares his personal satisfaction in interviewing Reed Hoffman, marking it as a significant achievement.

"And I want to say huge thank you Tim, for taking the time to do it really did mean a lot to me."

Harry Stebbings offers thanks to Tim for the interview, indicating its personal importance to him.

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