LinkedIn co-founder and venture capitalist Reid Hoffman became a billionaire by making smart bets, and he's always on the lookout for a new worthy investment.
Hoffman, who co-founded the career-focused social network LinkedIn in 2002, made billions when the company sold to Microsoft for $26.2 billion in 2016. But, he's also one of Silicon Valley's most prolific and successful startup investors, including in his current role as a partner at venture capital firm Greylock Partners. He was among the earliest investors in Facebook and he's held stakes in companies like Airbnb, news aggregator Digg and Groupon.
As a sought-after investor in the tech world, Hoffman's in-box is regularly flooded with pitches from start-ups and hopeful entrepreneurs looking to become the next Mark Zuckerberg. In fact, Hoffman receives anywhere from 100 to 200 "cold pitches" from entrepreneurs every week, the LinkedIn co-founder told The Wall Street Journal in a recent interview.
Hoffman tells the Journal that he only looks "seriously" at between six to eight of the ideas he receives each week, and he says there is a tried-and-true formula for successfully pitching your start-up idea.
"In good pitches, [Hoffman] says, entrepreneurs don't just boast of their credentials and competitive edge; they clearly articulate the risks and challenges and how they will overcome them," The Journal's Chris Kornelis writes.
In other words, don't just highlight your strengths and the reasons why you believe your idea will be successful — it's just as important to be up front about potential obstacles and solutions to them.
Hoffman believes that identifying the risks your startup will likely face up front is an essential element of any successful pitch to potential investors or partners. In 2013, Hoffman posted one of LinkedIn's early pitch presentations for investors online, along with his own notes explaining why the successful pitch (LinkedIn raised $10 million in Series B financing in 2004) worked, as well as some ideas for what the company still could have done better.
One thing the 2004 LinkedIn pitch lacked, Hoffman admits, is that the company did not clearly lay out its risk factors. "Experienced investors know there are always risks," Hoffman wrote in 2013 in his notes on the pitch. "If they ask you about your risk factors and you can't answer, you've lost all credibility because they assume you are either dishonest or dumb."
So, even though the LinkedIn pitch clearly worked out in the end, Hoffman says that as an investor himself he now wants to be sure that entrepreneurs both understand the risks their ideas might face, and that they are trustworthy enough to be honest about them, before he decides to hand over his money.
"Explicitly identify the risks that could thwart your success and how you will mitigate them," Hoffman said. "And instead of waiting until investors ask about your risks, share them proactively so you build trust."
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