linkedin's series b pitch to greylock_ pitch advice for entrepreneurs
DESCRIPTION
jhjhgTRANSCRIPT
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 1/49
ReidHoffmanEssaysonEntrepreneurship,CivicsandIntellectualLife
About
AtGreylock,mypartnersandIaredrivenbyoneguidingmission:alwayshelpentrepreneurs.Itdoesntmatterwhetheranentrepreneurisinourportfolio,whetherwereconsideringaninvestment,orwhetherwerecasuallymeetingforthefirsttime.
Entrepreneursoftenaskmeforhelpwiththeirpitchdecks.BecausewevalueintegrityandconfidentialityatGreylock,wenevershareanentrepreneurspitchdeckwithothers.WhatIvehonorablybeenabletodo,however,issharethedeckIusedtopitchLinkedIntoGreylockforaSeriesBinvestmentbackin2004.
ThispastMaywasthe10thanniversaryofLinkedIn,andwhilereflectingonmyentrepreneurialjourney,Irealizedthatnoonegetstoseethepresentationdecksforsuccessfulcompanies.Thisgavemeanidea:IcouldhelpmanymoreentrepreneursbymakingthedeckavailablenotjusttotheGreylocknetworkofentrepreneurs,buttoeveryone.
Today,IsharetheSeriesBdeckwithyou,too.Ithasmanystylisticerrorsandafewsubstantiveones,toothatIwouldnowchangehavinglearnedmore,butIrealizedthatitstillprovidesusefulinsightsforentrepreneursandstartupparticipantsoutsideoftheGreylocknetwork,particularlyacrossthreeareasofinterest:
howentrepreneursshouldapproachthepitchprocesstheevolutionofLinkedInasacompanytheconsumerinternetlandscapein2004vs.today
ReidHoffman
http://reidhoffman.org/http://greylock.com/http://reidhoffman.org/about/
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 2/49
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In2004,theconsumerinternetwasjustbeginningtorebound.Friendsterwasatitsheight,stronglybattlingMySpaceafterraisingitspremiumroundfromBenchmarkandKleinerinthefallof2003.Facebook,bytheway,wasnotyetonmostpeoplesradarsinthesummerof2004.
Friendstersvaluationsetthetonefortheentiresocialnetworkingspace.FriendsterandMySpacehadmillionsofusers,atonofengagement,andallthepressattentiontheywanted.PressandanalystscharacterizedLinkedIninoneoftwoways:LinkedInisaninterestingnichethatmightbeworthpayingattentiontoorLinkedInistheFriendsterforbusiness.Neitherisaparticularlygoodbackdropfor
Investorsseealotofpitches.Inasingleyear,theclassicgeneralpartnerinaventurefirmisexposedtoaround5,000pitchesdecidestolookmorecloselyat600to800ofthemandendsupdoingbetween0and2deals.Thegoalofanentrepreneuristobeoneofthosedeals.
First,understandyouraudience.Researchprospectiveinvestorsthoroughly.Whatkindsofbusinessesaretheylookingat?Whatmodel/criteria/triggersdotheyusetojudgewhetheraprojectwillbesuccessfulornot?Ifyoudonthavesomesenseoftheirpointsofview,yourlikelihoodofmakingthepitchgowellismorerandom.Youmayhappentoemphasizetherightpointsthatpiqueaninvestorsinterest,butyoushouldntleaveyourfinancinguptochance.
Second,understandthebroaderfinancingclimate.In
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 3/49
tryingtoraisecapital,because
1. wewerentthenaturalleaderofamarketortechnologytrendthateveryonewaspayingattentionto,
2. wedidnthavesubstantialorganicgrowth,and3. wehadnorevenue.
2004,investorsregainedinterestintheconsumerinternetagain.Friendsterraisedabigroundin2003MySpacestartedgainingtraction.Butwithsomanyinvestorsstilllickingtheirwoundsfromthedotcombust,manyfocusedonprovenbusinessmodels,suchasadvertisingorecommerce.Asaresult,weknewthatourpitchwouldneedtosteerintoinvestorsbiggestconcern:thelackofrevenue.
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Openwithyourinvestmentthesis,whatprospectiveinvestorsmustbelieveinordertowanttobeshareholdersofyourcompany.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 4/49
Inourfirstslide,weanswerthreequestions:
WhatisLinkedIn?Thegraphicwechoseemphasizesthatitisanetworkofpeople.Whyisitvaluable?Becauseyoucanfindandcontactpeopleyouneed.Howisthisdifferent?BecauseunlikeGooglesearchorothermeans,itinvolvespeopleyoualreadytrust.
Althoughweknewthattherecruitingspacewouldbeourinitialbusinessopportunity,webelievedthenandknownowthatLinkedInismorethanjustarecruitingbusiness.Thus,ourpitchframedLinkedInasaplatformforfindingthepeopleyouneed,whichwecalledprofessionalpeoplesearch2.0,makingtheparalleltoGooglebecauseinvestorsunderstoodthatGooglewasvaluable.(Onslide5,Ibeginexplainingtheimportanceofpitchingbyanalogy.)
IfweframedLinkedInasonlyajobs/classifiedswebsite,mostsmartventurecapitalistswouldnothaveinvestedbecausethatseemedtolackthepotentialtobeabroadplatformthatcouldsustainalargebusiness.Ultimately,GreylocksinvestmentthesiswasthatLinkedInwouldbeagreatrecruitingbusinesswithanoptionformore.
Yourfirstslideshouldarticulatetheinvestmentthesisingenerally3to8bulletpoints.Then,spendtherestofthepitchbackingupthoseclaimsandincreasinginvestorsconfidenceinyourinvestmentthesis.
Forexample,ifIwerepitchingLinkedInsSeriesBtodaywithwhatInowknowaboutsuccessfulpitches,theinvestmentthesiswouldbe:
1. Massivelyvaluablepropertieswillbebuiltoffnetworks.
2. Therewillbedifferentnetworksfordifferentdomains.
3. Theprofessionaldomainwillbeonemassivelyvaluablenetwork.
4. Wearetheleaderintheprofessionaldomainwithviralgrowth.
5. Greatbusinessescanbebuiltoffthisnetwork,startingwithmatchingtalentandopportunity.
6. Itsanetworkeffectsbusiness,whichmeansithasinherentdefensibilitywithanetwork.
Clearlyarticulateyourinvestmentthesissoinvestorscanofferfeedbackthathelpsyourefineit,eventuallygettingtoaplacewhereyoubothagreeonit.Anydisagreementwilllikelycauseseriousproblemsdowntheroad.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 5/49
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Normally,youdexpectustoexplainourproducti.e.,whatprofessionalpeoplesearch2.0is.Instead,ourstrategywastosteerimmediatelyintotherevenuequestionbecausethatwasthetopconcernofinvestorsin2004.Andremember,LinkedInwasaconsumerinternetplaywithmoderateconsumertractionandwithoutadimeofrevenue.
Toshowpotentialrevenuestreams,welistedthreeproducts:ads,listings,andsubscriptions.Theblueboxesidentifythecorrespondingmarketsforthoseproducts.Althoughtheblueboxesareequallysized,weknewthatthelargestportionofourrevenuewouldcomefromtherecruitingspace(the2ndblueboxlabeledJobs).
Whatwedidntknowwaswhichproductspecifically,listingsorsubscriptionswouldhavethehigherdollarvolume.Overthelongterm,weanticipatedthattheanswerwouldbesubscriptions,butwe
Thegeneralruleisonebusinessmodeldrivesthebusiness.Itstemptingtolistmultiplerevenuestreamsbecauseyouretryingtoprovethatyouwillbebig.Yetwhenconsumerinternetcompaniesdothis,investorsgenerallyseearedflag.
Thecharitableinterpretation,whichwastrueinourcase,isthatthecompanysteamdoesntknowwhichonemodelwillwork.Thebadinterpretationisthattheteamlacksfocusanddoesntunderstandthattheygenerallyneedtodrivetoonebusinessmodeltosucceed.
Wemadethemistakeoflistingthree
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 6/49
didntknowhowlongitwouldtaketogetthere.In2005,welaunchedallthreeproductsintheorderoflistings,subscriptions,thenadseventuallydiscoveringtwosurprisinginsights:
1. Theprincipalmarketforourlistingsandsubscriptionsproductsbecametherecruitingspace,insteadofbusinessdevelopmentandnetworking.
2. Subscriptionsbecametheproductwiththehighestdollarvolumefasterthanexpected.
Todayin2013,themajorityofLinkedInsrevenuecomesfromanenterpriseversionofoursubscriptionsproduct.
differentrevenuestreams.Asithappened,wedidenduppursuingallthreelinesofbusiness.AndLinkedInprovedtobeanexceptiontotheruleofthumb:ourdiversebusinesslineshavebeenastrongplus.
Generalrulessometimeshaveimportantexceptionswhichcanbetremendouslyvaluable.Thatstrueinbusinessstrategy,entrepreneurship,andevenpitchadvice.
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Withtherevenuequestionoutoftheway,wewere
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 7/49
Withtherevenuequestionoutoftheway,wewerereadytoexplainourproduct.Wehadtwoquestionstoanswer:Whatistheproduct?Andwhyisitnew?
Wearguedthatthewayprofessionalpeoplesearchwasdoneatthetime(1.0)wasinadequate.Tomakethisargument,welistedthreeimportantprofessionalbusinessproblems(findingserviceproviders,findingjobcandidates,andreachingprofessionals)thatweretimeconsuminganddifficulttoaccomplishwithexistingtechnologies.
Thekeyproblemwithexistingtechnologieswasadverseselection,specificallyconcerningtheincentivesofparticipantsandthereputationsystems:
Intheyellowpages,peoplewantedtobefoundbutthewaytheyrepresentedthemselveshadnothingtodowithhowgoodtheywere.Inoldschoolresumedatabases,mosttalentedprofessionalsdidntwantorneedtoparticipate.Indirectories,professionalsonlywantedtoparticipateifothertalentedprofessionalsdid,too.
So,howdoyoucreateaplatformwheretalentedprofessionalscanparticipate,befound,andbecontactable?Ouranswer:anetwork.Anetworksolvesthisproblembecausealloftheirfriendsandcontactswouldbeonitandfriendsoftheirfriends.Creatingtherightincentivesandreputationsystemwouldleadtoadirectorypeoplewouldbeapartof.
Steerintoyourinvestorsobjections.Therewillbeonetothreeissuesthatarepotentiallyproblematicforyourfinancingaddressthemheadon.Youhavethemostattentionfrominvestorsinthefirstcoupleslides.Mostinvestorsarrivewithquestions,andifyouproactivelyshowyouunderstandtheirprincipalconcerns,youearntheirattentionfortherestofyourpitch.
Forconsumerinternetpropertiesin2004,becausewehadjustgonethroughthedotcomwinter,investorsprincipalconcernwaswhetherornotyoucouldmakemoney.Asyourecall,webeganourpitchbysteeringintotherevenuequestionbecausewedidnthavetensofmillionsofusersoragrowthcurveoffthechartotherwise,wewouldvestartedwithoneofthose.
In2013,itswhetheryoucanbreakthroughthenoise.Today,thereareprobablyathousandconsumerinternetstartupsfoundedeveryquarterhowdoyoubecomeoneofthe1to3thatmatterina7yeartimeframe?Thosearethekindsofobjectionsyouneedtosteerintoatthebeginningofyourpitch.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 8/49
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Mosttechnologyrevolutionsarefoundedononeortwosimpleconcepts.Oursimpleconceptwas:
Thenetworkprovidestheplatformforanewkindofpeoplesearch,whichcanbeaplatformtomanyotherbusinesses.
InordertobelievethatLinkedInwasagoodinvestment,ourinvestorswouldneedtobelievethattherewasabroadtrendofmovingfromdirectoriestonetworks(1.0to2.0),thatnetworkscouldbecomehugelyvaluable,andthataLinkedInpeoplesearchapplicationonanetworkwouldbeavaluableasset.
Wemayhavebeenthefirstfolkstalkingabouttheinternet2.0backinthesummerof2004,thoughTimOReillylaterpopularizedanddeepenedthemeaningofthephrase.
Show,donttell.Again,yourpitchinggoalsaretoincreaseinvestorsconfidenceinyourinvestmentthesisandleadthemtoasharedviewofyourcompanysproblems.Toaccomplishthis,youshouldshowratherthantellwheneverpossible.
Thewinningmomentforanentrepreneuriswhenaninvestorconcludesontheirownvolitionthataninvestmentthesisisworthwhile,ratherthanhavingtheentrepreneurtellthemwhattoconclude.
Forearlystagecompanies,itsimportanttoshowthatyoureonpath,thatyouhaveprospects,andthatyoucangettoyourvision.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 9/49
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Onceinvestorsbelievedthatprofessionalpeoplesearchwasvaluable,thenextquestionwaswhetherinternet2.0(themovetonetworks)amplifiedthatvalueconsiderably.Todemonstratethis,weshowedhowthe2.0transformationcreatedvalueinothermarkets.
First,welookedatgoodslistings.1.0isbusinesseslikeonlineclassifiedsfornewspapers,whichwereunsuccessful.eBay,ontheotherhand,wasreallyvaluable.WhatsthedifferencewitheBay?eBayhasanetwork.Ithasreputation.Ithastransactionalhistories.Addinganetworktoonlineclassifiedsmadeitvaluable.(JustthinkofhowvaluableCraigslistwouldbeifithadidentityandreputation.)
Pitchbyanalogy.Everygreatconsumerinternetcompanygrowsuptobeauniqueorganization.Butintheearlydays,youwanttouseanalogiestosuccessfuloutcomestodescribewhatyourcompanyisandwhatitspotentialcouldbe.Timeisshortithelpstorefertowhatthoseinvestorsalreadyunderstand.
ThebestpitchIknowwasinHollywoodforafilmcalledMansBestFriend.ThepitchwasJawswithPaws.InvestorsthoughtthatifthemovieJawswasahugesuccess,maybeasimilarpremiseonlandwithadogcouldbeahugesuccess.Themovieturnedouttobeterrible,but
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thepitchwasexcellent.
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Next,welookedatonlinepayments.Althoughonlinepaymenttransferalreadyexistedwithbanks,PayPalsmodelofanetworkofpaymentsiswhatmadeitunique.Theproblemwechoseforthisexamplewasfraud.Itisdifficultforbankstodetectfraudbecausetheydonthaveaccesstothewholepaymentsnetworktheyonlyhaveaccesstoindividualnodesinthatnetwork.
AnotherreasonweusedPayPalasanexamplewastoremindinvestorsthatIwaspartofPayPalsfoundingteam
Understandwhereanalogiesapplyandwheretheydonot.Pitchbyanalogybutdontnecessarilyreasonbyanalogy.Reasoningbyanalogy,whenyouredevelopingyourbusinessstrategy,isdangerous.
Instartupland,yourerunningacrossaminefield,sothedetailsmatterandyouhavetobecarefulwithyouranalogiesasyouconceivestrategy.Infact,whenImtheinvestorlisteningtoapitch,onedetailIconsideriswhethertheentrepreneurisbeingtoo
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 11/49
aminorexampleofshowing,nottelling. deludedbytheiranalogiesandnotthinkinghardenoughaboutexceptioncases.
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Inourthirdexample,wecontrastedAltavistaanditssearchalgorithmversusGoogleanditssearchalgorithmPageRank.PageRankisonemoreuseofnetworks:searchresultsthatleverageanoverallnetworkofpagesratherthanjustrelyontheoccurrencesofterms.
Whenpitchingbyanalogy,anchoryourbusinesstoothervaluablebusinessestosignalthatyourbusinesswillbevaluable,too.Ourunderlyingargumentwasthatthenetworkenablesrevenue.Tomakethispoint,weshowedhownetworksenabledrevenueforeBay,PayPalandGooglethreecompaniesthatanyonewouldvewantedtoinvestin.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 12/49
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Finally,wecontrastedLinkedInagainstbothMonsterandLexisNexisbecausewewantedtoshowthatLinkedInwouldaddvaluetoallvaluableapplicationsrelatedtoprofessionalpeoplesearche.g.,recruiting(representedbyMonster)andservicedirectories(representedbyLexisNexis).
HowvaluablecouldLinkedInbe?Well,wepointtoMonster,LexisNexis,andotherinformationserviceprovidersandsay,Whatevermultiplieryouappliedtothelast3slidesabouthownetworksamplifythevalueofcompanieslikeeBayandPayPalapplythatnowtoLinkedIn.
LinkedInwouldcreateanetworkedresumedocumentaresume2.0insteadoftraditionaljoblistingswithprivateresumes.WhenyourefindingpeopleonLinkedIn,yourefindingthemthroughanetworkasopposedtoaresumedatabase.Wealsoknewthatnetworkswouldimproveinformationreputationsystems,allowing
Avoiddebatingthevalidityofyouranalogies.Ifsomeonepushesbackandtriestochallengeelementsofananalogy,dontletyourselfgetdrawnintoabackandforth.Analogiesareaconceptualframework,sotheyrenotgoingtobe100%accurate.
However,somanyentrepreneurstrytopitchbyanalogythatsomeinvestorshavefatiguewhentheyseeit.Ifyouhaveagoodanalogy,useit.Butifyoudonthaveagoodone,dontincludeonejusttohaveone.Itsbettertohavenoanalogythanabadone.
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peopletofindthebestpossibleinformation.
Today,networksunderlietheinformationreputationsystemsofmanyconsumerinternetcompanies,includingLinkedIn,Facebook,andTwitter.
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Here,weremindinvestorsthatthisinvestmentdecisioncomesdowntowhetherornottheybelievethatanetworkcreateshugevalue.
Anygoodideahaslegitimatereasonswhyitwontwork.Inordertoachieverealsuccess,youneedtobecontrarianandright.
DuringLinkedInsSeriesA,whenwepitchedtheimportanceofbuildingthenetwork,theclassicobjectionwasthatthenetworkwouldntbevaluabletothefirstmembers,sowhy
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 14/49
Eventhoughweknewwewouldmonetize,wearguethatinvestorsshouldntbethinkingaboutourcurrentrevenuenumbers.Instead,theyshouldthinkaboutthenetworkweestablishedbecausethatswhatultimatelywins.WespentourSeriesAcapitalbuildingthenetwork,soweneededinvestorstoagreethatthenetworkwasmoreimportantthanrevenue.
Becauseourinvestmentthesiswasultimatelyunprovable,theargumentwemadeinslides5through9isoneofthestrongestpartsofthepresentation.
woulditgrow?Forthefirst500,000orsomembers,thevalueofthenetworkiszero.WhatIknewthatmanydidntwasthatacombinationofcuriosityandaviralgamemechanicwouldslowlygettoamillionpeople,atwhichpointthenetworkbecomesvaluable.
DuringLinkedInsSeriesB,GreylocksbetwasthatLinkedInhadgoodprospectstotransformtherecruitingindustry,andthatifwebuiltupabroadprofessionalplatform,wecouldpotentiallydomuchmore.GreylockinvestedinLinkedInatroughly$0.60pershare.Whenyoucomparethattoourcurrentpublicmarketprices,youseeanexampleofcontrarianandrightventureinvesting.
(TolearnmoreaboutGreylockssideofthisstory,readDavidSzespostattheGreylockblog.)
https://medium.com/@greylockvc/early-principles-of-linkedin-a-reflection-of-our-series-b-investment-20f95ff5feb5
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 15/49
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Inslides10and11,wecomparedwhatwepromisedinourSeriesApitchwithwhatweactuallydid.OuroverdeliveryagainstourSeriesApredictionsprovidedstrongevidencetonewinvestorsthatwecouldexecuteagainstourplan.
LinkedInsSeriesBwasaconceptpitchbecauseourdataatthatpointwasntimpressive.Atthetime,Friendsterhadabout10.5MMusersandMySpacehad2.5MMusers.LinkedIn,atthetime,wasstillapproachingitsfirstmillionusersanddidnothaveadimeinrevenue.
Yourinvestmentthesisiseitherconceptdrivenordatadriven.Whichkindyouarepitching?
Inadatapitch,youleadwiththedatabecauseyouareemphasizinghowgoodthedataalreadyis.Investorsthereforeevaluateyourcompanybasedonthedata.WhenLinkedInwentpublic,itwasadatapitchtopublicmarketinvestors.Weshowedinvestorsamultiyeartrackrecordofdata.
Ifitsaconceptpitch,ontheotherhand,theremaybedata,butthedatasupportsayetundevelopedconcept.Aconceptpitchshowsyourvisionforhowthefuturewillbeandhowyouwillgettothatfuture,soinvestorswillwanttobuyapieceofit.Thus,conceptpitchesdependmoreonpromisedfuturedataratherthanpresentdata.Whenyouredoingaconceptpitch,itsespeciallyimportanttoconsiderpitchingbyanalogy.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 16/49
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 17/49
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Inslides12and13,weassertedthreethings:
Theprofessionalspaceisvaluable,evenifyouthinkitslessvaluablethanotherspaces.LinkedIncanprovidethebestproductandbethestrongmarketleaderinthisspace.Wehaveevidencethatwereenroutetomarketleadership.
Backin2004,eachofthesecompanieshadacounterpitchtoLinkedIn:Ryzehadalotmoreactive,engagedusers.OpenBChadhigheractivityratesandrevenueperuser.AndSpokehadmorecomprehensivedatabecausetheywereuploadingentireaddressbooks.
Incontrast,wearguedthatthegrowthofthenetwork
Oneingredientthispitchlacks,whichInowthinkisessentialtomodernpitches,isourriskfactors.Experiencedinvestorsknowtherearealwaysrisks.Iftheyaskyouaboutyourriskfactorsandyoucantanswer,youvelostallcredibilitybecausetheyassumeyouareeitherdishonestordumb.
Dishonestifyouvethoughtabouttheriskfactorsbutchoosenottosharethem,whichisabadwaytobuildtrustandapartnership.Dumbifyouarentsmartenoughtounderstandthatallprojectshaveriskfactorsincludingyours.
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wasthekeyvariable,whichturnedouttoberight.AsLinkedIngrew,sodidourcompetitiveedge,asmoreandmoremembersinvestedactivityanddataintoournetwork.
Today,LinkedInhasasubstantialamountofusertrustwithitsmembers,whogiveuspermissiontousetheirdatabecausetheyhavetherightcontrolovertheirdataandbecausetheyvoluntarilyparticipateinournetwork.
Explicitlyidentifytherisksthatcouldthwartyoursuccessandhowyouwillmitigatethem.Andinsteadofwaitinguntilinvestorsaskaboutyourrisks,sharethemproactivelysoyoubuildtrust.
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Entrepreneursoftensaytheyhavenocompetition,
assumingthatsanimpressiveclaim.Butifyouclaim
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http://reidhoffman.org/linkedinpitchtogreylock/ 19/49
Ourinvestorsdidntneedtoworryaboutthetopleftquadrantofcompetition(Friendster,Myspace,Orkut,andTribe.net)becausethosefocusedonthesocialside,whichweassertedwasanentirelydifferentspacefromLinkedInsprofessionalspace.OurinvestorsdidntneedtoworryaboutBranchIT,VisiblePath,etc.,becausethosemostlyfocusedonenterprisesinsteadofindividualprofessionals.
Instead,whatinvestorsshouldhavepaidattentiontowasthecompaniesintheblueboxRyze,OpenBC,ZeroDegrees,andSpoke.Ifinvestorsagreed,theirnextquestionwasusuallyWhatsyourcompetitivestrategyineachcase?Wethoughtwehadaviablecompetitivestrategyineachofthesecases.
assumingthatsanimpressiveclaim.Butifyouclaimthatyoudonthavecompetition,youeitherbelievethemarketiscompletelyinefficientornooneelsethinksyourspaceisvaluable.Botharefolly.
Themarketisefficient,eventuallyifavaluableopportunityemerges,otherswilldiscoverit.Tobuildcredibilitywithinvestors,youwanttoshowthatyouunderstandthecompetitiverisksandshowwhyyouregoingtowin.
Expressyourcompetitiveadvantage.Whyareyougoingtobreakoutofthepack?Whatisyouradvantage?Anunderstandingofproductmarketfit?Isitatechnologyadvantage?Whatsyourdifferentialbusinessstrategy?Yourdifferentialgrowthstrategy?Yourdifferentialproduct?Ifyouarentclearanddecisive,investorswontbelieveyouhaveanedgethatcanleadtosuccess.
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ThisslideisatestimonytoournervousnessaboutourorganicgrowthcomparedtoFriendsterandMySpace.Again,becausethispitchisaconceptpitch,wewantedtoconvinceinvestorstobetonourfuture.Thus,wewantedtoshowsuccessfulorganizationsthatwerecommittedtooursuccess.
Thisismostlyamistakeslidebecausecustomerslidesaremoreappropriateforenterprisepitches.Greatcustomersarepredictiveoffuturecustomersforenterprisebusinesses.Ontheconsumerinternet,however,thisisasignoftroublebecauseitindicatesthattheentrepreneurmaynotunderstandhowtheconsumerinternetworks.
Generallyspeaking,consumerinternetbusinessesneedgrassrootsandindividualadoptionratherthanorganizationspromotingit.Althoughweknewthisatthetime,weviolateditbecausewewerenervousaboutouradoptionandbecausewethoughtwemightbeauniqueexception.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 21/49
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Tobringhometheargumentthatinvestorsshouldbelieveinusinthefuture,weshowwhatweaccomplishedafterspendingthemajorityofourSeriesA$4.7MMfinancing.
AsIsaidearlier,youwanttoshowfocusinyourdecksbyemphasizingwhatyourereallybettingon.However,showsomemaneuverability.Dontjustsaythatyouhavefivedifferentoptions.Instead,saythatyouredoingone,butyoualsohavesomefallbackormaneuveringoptions.
Forexample,ifweweredoingtheSeriesBpitchin2004withmyknowledgeoftoday,wewouldemphasizethatLinkedInwouldstartbytransformingonebusinesstherecruitingindustry,byshiftingitfromapostingmodeltoasearchingmodel.Then,inourtalkingpoints,wewouldhighlightsomeoftheotherbusinesseswecantransformwithourplatform.
InvestinA,butheresBtoshowthatwecouldcontainthatrisk.Investorswouldappreciatethisbecauseyoureidentifyingareasonableriskanddemonstratingthatyouhaveactuallythoughtaboutwhatyouwoulddoiftheprimaryplandoesntplayoutasyouexpect.
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http://reidhoffman.org/linkedinpitchtogreylock/ 22/49
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Onepurposeofthisslidewastohedgeourbetongettinggrowth.Ifaninvestorthoughtnoneofthenumbersinthepriorslideweregoodenough,weaddedbusinessdevelopmentasanadditionalfactor.
Theotherpurposeofthisslidewastodemonstratemarketleadershipbyshowingthatimportantorganizationswerecomingtotalktous.
Ultimately,neitherofthetwodealsshownaboveendedupdeliveringsubstantivevalue.
Itsalwaysbettertohavelessslides,butitsmuchmoreimportanttohaveagreatdeck.Agreatdeckneedstoaddressallimportantconcernsandtellyourstoryeffectively.Sometimes,thatmeanssettingupanarrativeoverseveralslides.
Dontstressabouttheexactnumberofslides.Entrepreneursoftenhearadvicethattheirdecksshouldbeaparticularlength.I,forexample,recommendalengthof20to25slides.Buttheseareonlyrulesofthumb,whichmeansyoucanviolatethemifyouhaveagoodreason.
LinkedInsSeriesBdeckcontainedacoupleslidesthatwespentlittletonotimetalkingabout,butweincludedthembecausetheyhadinformationthatshowedinvestorswehadthoughtaboutalltheimportantdetails.Eventhoughweglossedoverthoseslides,investorsknewtheycouldcomebacktothoseslideslateranddigintothemifnecessary.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 23/49
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Bythispointinthepresentation,ourgoalwastoleadinvestorstobelieve:
1. Anetworkempoweredpeoplesearchapplicationcouldbereallyvaluable.
2. Wearethemarketleaderinestablishingthenetwork.3. Wehaveaviableplanforestablishingrevenueoffthe
network.
Here,wearguethatwehaveaviralproductthatcreatesanetworkthatpossessesnetworkeffects.Wedidnttrytoestablishtheviraldynamicwejustassertedit.Iexplainedmoreofthestrategyinperson,butwealsodidntwanttocoveritmuchinwritingbecauseviralitywasaprettydeepsecretintheindustryatthetime.
Today,giventhatviralityhasachievedbuzzwordstatus,you
WhenpitchingVCs,thinkabouttheindividualpartnerinthecontextoftheirpartnership.Makesuretheindividualpartnerhasstrongcohesionandtrustwiththepartnershipandisresponsibleforyourtypeofbusiness.
Inthefinancingprocess,theindividualventurepartnerperformstheduediligenceonthesubstancebehindacompanyspitche.g.,theinvestmentthesis,thecompetition,thepeople,etc.Thepartnerthenassertstheinvestmentthesisandwhytheybelieveittothepartnership.
Ultimately,youresellingthepartnership,sogivetheindividualpartnerthetalkingpointstobesuccessful.Whatwillthatpartnertelltheir
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usuallyhavetoshowevidencethatyouknowwhatviralityisandhowitworks.Surprisingly,therearestillfewpeoplewhounderstandvirality.
partners?Putyourselfintheirshoes.
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Earlierinthepitch,wearguedthatestablishingthenetworkwasourfirstprioritywithourSeriesA.OurSeriesB,however,wasaboutgettingtorevenue,sohowwerewegoingtodothat?Beforewedetailourrevenueplans,weremindinvestorswhythevalueofthenetworkcreatedgoodbusinessesacrosseBay,PayPal,andGoogleourpreviousexamplesofnetworkenabled2.0businesses.
Eachexamplegeneratesconsiderablerevenueoutofthe
Peoplefrequentlythinkthemostfundamentalstrategyofastartupisitsproductstrategy.Infact,themostfundamentalstrategyisthefinancingstrategy.Ifyourcompanyrunsoutofgas(finance),yourcompanywilldienomatterhowgoodyourproductstrategyis.Frequently,theproduct/servicestrategyishardertodevelop,butthefinancingstrategyshouldbetherefirst.
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networkdespitenotchargingpeopletobeinthenetwork.Eachexamplehasanetworkpoweringitsrevenuegeneratingapplications.YoudontpayfortheeBayreputationsystemyoupayforthetransaction.YoudontpayforPayPalsfraudsystem,butthefraudsystemenablesthosetransactionstogothroughornotandtobeprofitable.YoupayforAdWords,nottheregularsearchresults.
LinkedInsfinancingplayedoutasfollows:TheSeriesAwasaconceptpitchforbuildingthenetwork.TheSeriesBwasaconceptpitchforgettingtorevenue.TheSeriesChadtobeadatapitchthatshowedeitherhowwecouldgettoprofitabilityorthatwewereprofitable.(Infact,ourSeriesCshowedprofitabilityandsowefocusedongrowth.)AndSeriesDendedupbeingWecanscaletoabigopportunity.
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Tothispoint,ourconceptualargumentforgettingtorevenuewasthis:Justas
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networksenabledrevenueacrosseBay,PayPal,andGoogleinthepreviousslide,thenetworkwillenablerevenueforLinkedIn,too.Butwealsohadaconcreteplan,whichwebegandetailinginthisslide.
Wereturntothethreerevenuemodelsfromthebeginningofthepitch,introducingtheproductnamesforthefirsttime:anadsproductcalledInLeads,ajoblistingsproductcalledOpportunities,andasubscriptionsproductcalledNetworkPlus.
Again,ourargumentisthatwehaveanetworkthatsvaluablewhichwillenablerevenue.ThisslidereinforcesthefactthatweachievedavaluableoutcomeinseriesA(buildingthenetwork),soitmadesensenottohaverevenueyet.Butnowitwastimetogettorevenue.
Alwaysthinkaboutthenextround.Theusualtempoforraisingmoneyfromventurecapitalisataminimumofayearbetweenfinancings.Everytimeyouraisearound,youshouldbethinkingaboutthenextround.Whowillbethenextinvestorsyoupitch?Whatwilltheirconcernsbe?Whatwillyouneedtosolvenext?Howwillyouraisemoneylater?
Expectthatfutureinvestorswilllookattodaysdeck.WhenIcreatedourSeriesAdeck,Ipresentedagrowthcurvethatwouldbegoodenoughtogetaninvestment,butIalsohadconfidencethatIcouldbeatit.IwantedtobeabletogointomySeriesBpresentationandsay,HereswhatIsaidbefore,andhereshowIdid.BecausewebeatourSeriesAexpectationsfornetworkgrowth,investorscouldcomfortablytrustourpromisetobuildrevenuewithourSeriesBfinancing.
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Aboveisanotherversionofsayingthatwebuiltanetworkanditstimetobuildtherevenue.
Tosomedegree,thisissomewhatanemptyplaceholderslide,butasthelastslideinthenetworkenablesrevenuesequence,itprovidesaclearvisualforunderstandingtheconcept.ImnotsureIwouldkeepthisslideinretrospecthowever,Irememberthatwetalkedtoitwell.
Reinforcekeyconceptswhendeliveringaconceptpitch.Diagramsareonewaytoaccomplishthis,helpinginvestorsvisualizekeyconcepts.Inourpitch,wewantedtomakesureinvestorsunderstoodthatyoubuildthenetworkfirstandthenyoucanbuildaplatformofbusinessesontop.
Itshelpful(butnotmandatory)toputyourthesisineachofthetitles.Ifaninvestorsequencedthroughthetitles,theydbeabletogetasenseoftheflowoftheargument.Thisisespeciallyhelpfulwheninvestorsaresharingthedeckswiththeirinvestmentpartners.
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Investorsfrequentlyask,Whatsanexistingbusinessthatslikeyourbusinessthatyoucouldoccupy?ThisiswhymanyentrepreneursincludeaslideabouttheirTotalAddressableMarket(TAM),theunderlyingrevenueopportunityforaproductorservice.
Smartventurecapitalistssawthatwehadinterestingcomparables,butdidntspendmuchtimeonthisslide.Themoreimportantquestionwaswhethertheybelievedwecouldbuildouttheseproducts.
Asahistoricalnote,wespentsometimethinkingaboutsearchads,butrealizedwecouldntreallymakeitwork.Thefirstproductwelaunchedwasjoblistings,thensubscriptionswhichwascalledNetworkPlus.NetworkPlusendedupbeingtargetedatnetworkersandoutboundprofessionals,whowere
Showafocusonbottomuptacticsforyourstrategy.Andshowthatyourefocusedonthemetricsthatmatter:revenuenumbers,engagementtraction,etc.
Frequently,youngentrepreneursputinslidesthatshowtheirbusinesstotaladdressablemarket(TAM)toestablishsomecredibility.Problemis,mostinvestorsdonttrustthesourcesofthatinformation,soentrepreneursarentestablishinghugecredibilitybysayingtheyveclaimedamarketwithahugeTAM.
TAMslidesquotepeoplewhohaveincentivesforartificialinflation,soentrepreneursriskdemonstratingthattheyhavenorealsenseofhowtotakedominanceofthemarket.Ifyoudochoose
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thenwillingtopaymoremoneyperperson.Itwasntforeveryprofessionalitwasforprofessionalswithoutboundneeds.
toincludeaTAMslide,dontlingeronitbecauselingeringsaysthatyoudontreallyunderstandthatthegameisplayedbottomup,notTAMdown.
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AboveisamockupofhowInLeads,aproductthatwasntbuiltyet,couldwork.ThepointwastodemonstratewhypeoplewouldpayforalistingonLinkedInasopposedtojustbuyingAdwords.
WeonlyusedinLeadsasabrandinthisdeck.BythetimewegotaroundtobuildingourMarketingSolutionsbusiness,wehadadifferentconceptofadvertisingthan
Showyourproductratherthansayingyouintendtobuildabestofbreedproduct.Ideally,youwanttohavetheproductbuilt.Otherwise,youshouldshowwhatyouhaveinmindwithamockup.
Amockupisbetterthannothingbecauseitincreasesinvestorsconfidencebyshowingthatyourethinkingconcretelyabouttheproductandallowsthemtoevaluate
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InLeads. yourplan.
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WeincludedthisslidebecauseoftheanalogytoGooglesAdwords,whichwasandisthemostamazingoftheinternetbusinessesthusfar.Obviously,therearemanyideasthatareconceptuallypossibleatLinkedIn,butwedidntbuildInLeadsbecausethesearchtrafficwasnthighenoughtogettheecosystemgoingatthetime.
Whenindoubt,leadwithwhatwillmakethemostsensetoinvestors.WeneverlaunchedInLeads,butweledwithitbecausein2004everyoneunderstoodthatAdWordswasagoldengoose.Sincewewerentdecidedontheexactsequencingofourrevenueplan,weledinthepitchwiththeonewhosevaluepropositioncouldeasilybeunderstoodbyinvestors.
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Theabovemockupreinforcestheideathatanetworkoverlayimprovesjobpostingsandreferencechecking.Forexample,thenetworkenablesjobseekerstogetintroductionstopeopleinthegrouptheyrebeinghiredinto,ortopeoplewhocouldtalktothathiringgroup,ortothehiringmanagerthemself.Thenetworkenablesjobseekerstoreferencecheckwhetheracompanyisagoodplacetowork,orfindsomeonetoperformaninformationalinterviewwith.
Fastforwardto2013andmostpeoplerecognizethatLinkedInhasapoolofprofessionalidentities/CVs/profiles,buttheydontfullyrecognizehowdeepthereferencecheckingcapabilitiesof
Inconceptpitches,youresellingastory,sonaturallytherewillbepeoplewhodontbelievethatstory.Thatsokaybecauseyoudontneedeveryonetobelieveityouonlyneedtherightpeopletobelieveit.Naturally,youwanteveryonetothinkyourbusinessisamazing,butdontgetdeludedbythat.Startupfinancingisnotapopularitycontesteveryonesayingyesisirrelevanttoyou.Itsmoreimportanttohavetherightpersonsayyesthanitistohaveeveryonesayyes.
Thebestoutcomeisaninvestorwhocanhelpyoubuildthecompanyandrealizeamarketopportunity.Putanotherway,theidealfinancingpartnerisafinancingcofounder.Thisiswhyalreadywealthyentrepreneursraise
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ourproductis.YoucanusetheinformationonLinkedIntoidentifyreferentialinformation,allowingyoutoprioritizewhomyourereachingoutto.Youcanreferencecheckawidevarietyofprofessionalsincludingdomainexpertsandserviceprovidersbothbeforeandafteryoumeetthem.Plus,itgoesinbothdirectionsemployeescanreferencecheckprospectivemanagers,andmanagerscanreferencecheckprospectiveemployees.
Thedifferencebetweenagreat,agood,amediocreandabadhireareenormouslydisastrousintermofpotentialimpactonyourbusiness.Improvingthequalityofhiresorincreasingthespeedofthehiringprocesssavesprofessionalstimeandmoney.Thatsaworthyvalueproposition.
moneyfromexperiencedinvestorsfortheirnextstartup:theyknowpartneringwithangelsandventurecapitalistsisaboutmorethanjustthemoney.
Sadly,manyinvestorsactuallyaddnegativevalue,soaninvestorwhoaddsnovalue(dumbmoney)butwhodoesntinterferewiththeoperationalprocesscansometimesbeadecentoutcome.Butideallyyoufindaninvestorwhocanproactivelyaddvalue(smartmoney).
Howdoyouknowifaninvestorwilladdvalue?Payattentiontowhethertheyarebeingconstructiveduringthefinancingprocess.Dotheyunderstandyourmarket?Aretheirquestionsthesamequestionsthatkeepyouupatnight?Areyoulearningfromtheirfeedback?Aretheypassionateabouttheproblemyouretryingtosolve?
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Thisslideisoverkill,andinhindsightIwoulddeleteit.Weweretryingtoshowratherthantellinvestorsthatourjoblistingsproductwouldhavecustomersbydisplayingcustomerfeedback.Weusedquotesasevidenceofproductmarketfit,showingthattherewerepeoplewhowouldactuallyusethevaluepropositionsofournetworkbasedlistings.Butthiswasaweakeffort.Ifinvestorsdidntalreadybelievethis,thisslidedidnothelp.Andiftheydobelieve,thisslidedidnotincrementtheirbelief.
Internaldataispreferableoveranecdotalthirdpartydata.Sincewedidnthavedatatobackupvariousassertionsaboutourproductmarketfit,wehadtorelyonquotesfromcustomersandpresssources,whichweakenedourpitch.
Althoughusingquoteswasntparticularlyhelpfulinourpitch,itisimportanttoalwaysbetalkingwithsmartpeopletosolicittheirfeedback.Talktoyournetworktoevaluateyourideasandevaluateyourpitch.Halfthetime,thefeedbackisirrelevantevensmartinvestorsmaynotunderstandyourideabutyoushouldstillbelisteningcarefullybecauseyoumaylearnvaluableinsights.Ifyouarespeakingwithabunchofsmartpeopleandasimilarthreademerges,theressomethingtothatthreadandyoushouldpayattentiontoit.
Bewaryofconfirmationbias.Itsonlynaturalthatanentrepreneurwantstohearthattheirideaisgreat,butyoudontwantpeopletellingyouthatbecauseitdoesnthelpyou.Thequestionsyoushouldalwaysaskare:Whatswrong?Whatsbroken?Whywontitwork?Whatdoyouthinktherisksare?Peoplebydefaultwillwanttogiveyougoodfeedbackratherthanbad,soyouhavetoasknegativequestions.
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Asaplatformforchangingtheworldofworkandenablingindividuals,jobsisoneimportantapplicationbuiltuponLinkedInsprofessionalnetworkbutitsnottheonlyone.Webelievedthegeneraldiscoveryofpeoplewouldbereallyvaluable,whichiswhywesayLinkedInisnotonlyaboutjobsintheslideabove.
Thepurposeofthisslidewastoshowthatwewerefocusedontherecruitingindustryasakeymarket,butwewerenervousaboutbeingpigeonholedasajoblistingssite.AmongSiliconValleyinvestors,MonsterandHotJobswerenotconsideredgreat,investablebusinesseseventhoughMonsterhada$4Bmarketcapbecauseoftheconstantamountofchurnforjobslistings.Whatsmore,thesalesandmarketingcostsofacquiringlistingsareexpensive.
Takecompetitionagainstyourpotentialrevenuestreamsseriously.Beingdetailedaboutyourcompetition,especiallylistingthespecificcompanies,helpsincreaseinvestorconfidence.
Identifytherightmetricsforsuccess.FocusonrevenueandactivityratherthanmarketcaporTotalAddressableMarketnumbers.Althoughwehadsomerealgrowthinamonth,wehadnorevenue,soournumberswerenotyetimpressive.However,byhighlightingrevenueandgrowthasthemostimportantsuccessmetricsintherecruitingspace,weprovedthatwewereseriousandthoughtfulaboutthespaceandshowedthatweunderstoodthemetricsthatmatter.
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Aboveisthemockupforthesubscriptionsproduct,thencalledNetworkPlus.RatherthanjustsayingwewouldhaveaproductthatdoesX,wewantedtoshowaspecificproductidea,backedbymarketresearch,thatwastangibleindetail.Againweusedquotestoshowfolkswhowerealreadyfindingthisvaluepropositionuseful.
WhatwealsoshowedinthisslidewasthateventhougheveryLinkedInmemberhadtheabilitytosearch,therewasadifferencebetweenfreeandpaidaccounts.Wewereunderpromisingandoverdelivered,ultimatelygivingpaidaccountsvisibilityoftheentirenetwork.Today,LinkedInPremiumsubscriptionsprovidemorepowerfultoolssuch
Underpromiseandoverdeliver.Internally,ourteamexpectedthatpaidmemberswouldpotentiallygetaccesstothewholenetwork,butwehadtomakesurethatthenetworkwouldbecomfortablewiththis.Soweshowedfourdegreestoourinvestors,tobesure.
Showthatyourepayingattentiontothemarket.Insteadofmerelysayingthatweknewproductmarketfitiskey,wewantedtoshowthatwedidthe
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ascontactinganyonewithInMailMessagesandthefulllistofwhosviewedyourprofiletoeasilyfind,contact,andmanagetherightpeoplefortheirprofessionalneeds.
Designingthesubscriptionproductthiswaycreatedmorevalueforourmembers,whichmadethenetworkitselfmorevaluable.ThenumberonevaluefortheentirehistoryofLinkedInhasbeenMembersfirst.Evenwhilebuildingthesubscriptionproduct,itwasimportanttohaveaproductthatworkedforsubscribersandmembers.
work.Weusedquotestoshowthatweweretalkingtocredibleindividualsstrugglingtosolveourproblemwhoweregivingusfeedbackonourproducts.Thereareothermethods,ofcourse,suchasgraphsanddata.Butifwedsimplysaid,Werefocusedonproductmarketfit,thatdoesntshow,thattells.
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BecauseNetworkPluswasgoingtobeasubscriptionservice,wewere
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worriedthataninvestormightpointoutthatthiswasnothowMonstersjoblistingsworkedatthetime.Asacomparable,wepointtothemarketforpersonaldatingwhichhasasimilarvaluepropositiontoprofessionalnetworkingbecauseitusessubscriptionservicesandhaslargedollarspend.
Subscriptionswasoneofthemajorbusinessmodelswepitched,butin2004,fewinvestorsbelievedsubscriptionswouldwork.Mostinvestorssawtheinternetasanadvertisingmedium,eventoday.LinkedInisoneofthecompaniesthathasproventhatsubscriptionscanworkforconsumerinternetproducts.
Oneofthevirtuesthatentrepreneursgetfromtalkingtomanyinvestorsduringthefinancingprocessisawisdomofcrowdsthathelpsyoufigureoutwhattherealrisksare.WhenIwaspitchingSocialNet(myfirststartupcompanywhichwasadatingservicesimilartoMatch.com),whatIheardfromnumerousinvestorswasthisconcern:IfsomeoneusesSocialNettofindapartnerandsucceeds,thentheyrenolongeracustomer,whichmeansyouintrinsicallyhaveamassivechurnproblem.Asitturnsout,thatsignalwasabsolutelyright.Listingbusinesseshavetosolvethischurnproblembyfiguringouthowtohavelifelongcustomers,whichisalwaysatargetforgreatbusinesses.
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Again,weaddressrevenuetobuildconfidencethatabusinesswillcome.Wedidlistingsfirstbecauseitshowsallmembersthevalueofthenetwork.Next,wedidsubscriptionswithafocusonHR/recruiting/jobsbecausewerealizedthatwaswhatpeopleprimarilyusedoursearchfor.Wealsofiguredoutthatsubscriptionswouldbethemarketentrystrategyforourrecruitingproduct.
LinkedInhassuchavaluable,aspirationaluserbasethatthesubscriptionsproductisntjustpopularwithjobhunters,itspopularwithbusinessdevelopers,journalists,venturecapitalists,networkers,andmore.
AsIsaidearlier,weneverlaunchedInLeads.Whatwediscoveredwhilethinkingthroughthesearchadsproductwasthatpeoplearentlookingforpeoplewhoareadvertisingtothemtheyrelookingforthepeopletheyretryingtofind.Soweonlygottodoingselfserviceadvertisingmuchlater.Inthemeantime,wereservedaspacewithbrandadvertising.
Bedecisiveandship.Includingspecificdates,forexample,showsdecisiveness.Beingdecisivedoesntmeanthatyouhavetostickwithyourdecisions.Goodinvestorsexpectyoutoiterateoftenasyoufigureoutwhatproductwillgrowyourmarket.Greylockdidntmindthatwedidntfollowthistimelineclosely.Whatmatteredwasthatwemadeprogress,whilebeingdefinitiveaboutourcompanysplaybookanddemonstratinganabilitytomakedifficultdecisions.
Whileitsimportanttothinkcarefullyaboutyourfuture,dontthinktoofarintothefuture.Youwillchange,theworldwillchange,andthecompetitivelandscapewillchange.Itisuseful,however,tohaveastrategicdirectionsupportedbyconfidentprojections.Afterall,successfulbusinessesoutdotheircompetitionbybetteranticipatinglongtermstrategy.
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Finally,wegettopartofourinvestmentthesis.Wehaveviralityandgrowthforaprofessionalnetwork,andwehaverevenuethatcancomethroughthreepatterns.
Becausewehaveviralgrowthanddigitalgoods,wecanhavehighoperatingmargins.Andthehardestpartisestablishingthenetworkwhichthenhasnetworkeffectsasaplatformforvaluablebusinesses.Thatstheessenceofourpitch,whichweshouldhavestatedatthebeginning.
Bewaryofadjectivesandespeciallyadverbs.Anytimeyouusequalifierslikevery,youreoverstatingyourpoint,whichshowsthatyourenervousaboutit.WhenImbeingpitchedasaninvestorandIseesuchqualifiers,ImakesuretoaskquestionsaboutthoseareasbecauseIknowtheentrepreneurismostnervousaboutthem.Inthisslide,Ishouldhaveusedhighinsteadofveryhigh.Asyouknow,wewerenervousaboutthepathtorevenue,andthisshowedthatnervousness.
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Thekeyissueweweresteeringintowaswhetherwehadabusinessornot.
Havereasonablenumbersandassumptionsthatcanpasstheblinktestduringthepitch.Investorswanttomakeaquickassessmentthatyouhaveanintelligentviewofthemodelofyourbusiness,andtheyknowthoseassumptionscanlaterbevalidatedbyduediligence.Youdontwantinvestorstofixateonclaimsthatappearcrazy.
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Sometimes,inSeriesBpitches,aslidelikethiswouldbeanappendixslide.Asamatteroffact,forthevastmajorityofourpresentations,wedidntspendanytimeonthisslide.Credibleinvestorsweregladtoseeitbecausetheslideshowedthatwewerethinkingabouttherevenuequestion.
Again,wewerenervousaboutgettingthefinancingpastthelackofrevenuesowekeptshootingatitfromdifferentdirections.Hereweresaying,Look,withaSeriesBwecangettooperatingprofitability,which,bytheway,wedid.
Infact,whenLinkedInreceivedtheHBSAwardin2010forEntrepreneurialCompanyof
Asuccessfulfinancingprocessobviouslyresultsinyouraisingcapitalforyourcompany,butitalsoresultsinapartnershipthatdeliversbenefitsbeyondjustmoney.Forexample,greatinvestorscansignificantlyboostthestrengthofyournetwork,whichhelpsinrecruitingemployeesandacquiringcustomers.Greatinvestorscanalsobeasourceofnetworkintelligence,soyoucanbetterprepareforlikelychallengesandopportunitiesahead.
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theYear,ourSeriesAinvestorMarkKvammeshowedthatwithaoneyeardelay(whichwedeliberatelydidtogrowthenetwork)wecloselyfollowedtherevenuemodelwegaveinourSeriesA.ThatalmostneverhappenswithSeriesAprojections.
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Aftershowingwhatthemarketisandwhatyoucando,nowyoucanshowthepeoplewhocanmakeithappenthekeyleadersoftheteam.
Youhavethemostattentionfrominvestorsinthefirst60secondsofyourpitch,sohowyoubeginisincrediblyimportant.Onecommonmistakeisputtingtheteamslideearlyinthedeck.Theteambehindyourideaiscritical,butdontopen
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AftermyselfisSarah,whomadesureouroperationscouldruntoscale.NextwasAllen,whoshowedexperienceinthesocialspace.JeanLucshoweddeeptechnologycapabilities.Konstantinshowedstartupexperienceandanunderstandingofproductmarketfit.Ericalsoshoweddeeptechnologycapabilities,provingourtechnicalchops.AndMattwasatalentedgeneralistwhoworkedcloselyonthisdeckandfinancingprocesswithme.Additionally,Mattcametothemajorityofthepitches.
withthat.Instead,openwiththeinvestmentthesis.
Thisadviceappliestoseedfundingrounds,too.Yes,seedinvestorsunderstandthatearlystagecompanieshavemanyunknownsandtheideawillchangealot,sotheylookcarefullyatthepeopletoseewhethertheteamwillbeabletoadapt.Butevenatthisstage,leadwithyouroverallinvestmentthesis.Persuadeinvestorsthatyourinvestmentthesisisintriguing,thenshowwhocanmakeithappen.
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http://www.linkedin.com/in/jvaillanthttp://www.linkedin.com/in/sarahimbachhttp://www.linkedin.com/in/ericlyhttp://reidhoffman.org/linkedin-pitch-to-greylock/www.linkedin.com/in/mattcohlerhttp://www.linkedin.com/in/abluehttp://www.linkedin.com/in/konstantin
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Becausewehadzerorevenueatthetimeofthepitch,itwasespeciallyimportantforustogiveourinvestorsconfidencethatourteamwouldexecute.Tothisend,wemadesuretoincludebothathoroughslideofourteamandathoroughslideofthebroadernetworkofinvestorsandadvisorsbackingthecompany.
Onebenefitofgoingwithtoptierventurecapitalisthattheytendtohavegoodpredictiontrackrecords,whichhelpsestablishcredibilityforearlystagebusinesses.GiventhatSequoiaCapitalisatoptierVC,wegaveSequoiaprominentplacement(includingtheirlogo)onthisslide.AsapartneratGreylock,IveencouragedmyportfoliocompaniestodothesamewithGreylock.
Peoplefrequentlysaythatyoushouldworkyourwayuptotheinvestorsyoumostwanttoworkwith.Instead,identifytheinvestorsyoumostwantandtheinvestorswhoaremostlikelytosayyes.Thesearenotnecessarilythesamepeople(thoughitsexcellentiftheyare).Approachyourlikelyinvestorsandyouridealinvestorsatthesametime,becauseyourlikelyinvestorsprovideatemporalforcingfunctionbywhichyoumightendupwithyouridealinvestors.
AlthoughIhadidentifiedDavidSzeandGreylockastheinvestorsImostwanted,Ipitchedanotherfirmfirst.TheyrespondedbyrollinginwithanofferbeforeIpitchedGreylock.SinceDavidandthepartnershipatGreylockknewIhadanoffer,theygavemeatermsheetthedayafterIpitchedthem.
Stayaboveboardsoyoukeeptrustwithprospectiveinvestors.Iwasforthrightwiththefirstventurefirmaboutmyintentions,tellingthemthattheyreceivedthefirstlook,andthatIwouldtalktoafewmorefirmstoputtimepressure.AndGreylockknewIhadgottenatermsheettoacceleratetheirdecisionprocess.
Naturally,thefirstfirmwasdisappointedwhenIturnedthemdown,buttheywerentsurprised.Whiletheyworriedtheirearlyofferwouldbeshopped,sometimesfirmsendupgettingthedealthatway,orsometimestheygettoparticipateinthedealbecauseoftheirearlyoffer.Investorsknowthatsmartentrepreneursintendtogetagoodtermsheetearly,buttheyhavetotrytowinthedeal.
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AswerewrappinguptheSeriesBpitch,wewantedtoremindinvestorsthatwespentthe$4millionfromourSeriesAandaccomplishedalot,toincreasetheirconfidenceingivingus$10milliontoturnthenextcard.
Whenyourestartingout,youwanttoshowinvestorsthatyoucanbuildintoagreatbusiness,whichsometimesleadstohyperbolicstatements.Itsokaytobehyperbolic,tobeaggressive,tobevisionary.Avoidadverbsandadjectiveswhenpossible,butyouwanttoshowthatyouhavestrongforwardmotion.Inthispitch,wewantedtoshowthatwebelievedthiswouldbeahuge,valuableplatform.Intheend,whatmatterstoinvestorsisthattheinvestmentturnsoutwell.
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Thereasonwereusedthisslidefromthebeginningofthepresentationwastoindicatetheendofthepresentation,whilereturningtothehighlineofhowtoconceptualizethebusinessandremindinginvestorsofthevalueproposition.Weleftthisslideuponthescreenwhiletakingquestions,soitservedasabufferfortheappendix.
ThereasonwedidntkeepanAppendixslideupwasthatwedidntwantinvestorstoseethatwehadanappendix,requiringustogothroughallourpreparedslides.Wewerehappytogototheappendix,butweonlywantedtogettoitifwewereaskedthepertinentquestions.
Youshouldendonaslidethatyouwantpeopletobepayingattentionto.AplaceholderslidethatsaysonlyAppendixorQ&Aisneverthat.Instead,closewithyourinvestmentthesis.Weshouldhaveblendedthisslidewiththepreviousslide(#36)toendononeinvestmentthesisslide,whichwouldbeleftuponthescreenwhileansweringquestions.Youwantthatslidetoremindyourinvestorswhytheyshouldinvestinyourcompany.
Inowbelieveyoushouldbeginandendwiththeinvestmentthesis.Thebeginningiswhenyouhavethemostattention,andtheendiswhenyoushouldreturntothemostfundamentaltopictodiscusswithyourinvestors.Plus,asyoutalkabouttheinvestmentthesis,youlearnfromyourinvestorshowtoimproveit.Smartinvestorsshouldaddtoyourthinkingabouttheinvestmentthesis.
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 47/49
Context
Advice
Ourpresentationincludedfiveappendixslides,whichweveomittedforbrevity.
1.AbetterwaytofindprofessionalsonlineThisslideshowedamockupofwhataprofessionalsearchproductcouldlooklike.
2.Professionalnetworking,notsocialnetworkingThisslideaddressedthequestion:Isntsocialmuchmorevaluablethanprofessional?Weshowedhowthetwodomainsworkdifferently.ThiswasparticularlyprescientwhenFacebookcamealong.Socialversusprofessionalascategoriestookalongtimetoestablish,buteventhenwithFriendsterand
Youdonthavetohaveanappendix,butifyouanticipate
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 48/49
others,thetwodomainsworkdifferently.
3.KeyassumptionsbehindfinancialsWeshowedthisslidetoaddresstheassumptionsbehindourfinancialmodelsgoingtoprofitability.
4.LinkedInInLeadsimprovesonGoogleAdWordsmodelThisslidewasincaseinvestorsfocusedonadvertising,sincewehadledthepresentationwiththatandmanyinvestorsassumedthatconsumerinternetcompaniesrequiredadvertisingmodels.Fortunately,wealmostneverusedtheslidebecausesmartinvestorslikeGreylockpickedupthattherewasanHRspace.
5.ReputationbasedprioritizationofcandidatesThisslideshowedhowLinkedInsOpportunitiesmodelwouldimprovethetraditionaljobsitemodel.
seriousquestionsfromthekindsofinvestorsyouwant,preparingappendixslideswithstructuredanswersisimpressive,showingthatyouveconsideredallofyourbusinesschallenges,opportunities,andcomparisons.Appendixcontenttypicallyfallundertwocategories:providingadditionalinformationoraddressingobjections.
ClosingReflections
Today,LinkedInseemslikeanobviousinvestmenttohavemadein2004.ButatthetimeoftheSeriesBfinancing,LinkedInhadspentits$4millionfromSeriesAbuildinganetworkthatwasmuchsmallerthanFriendster,MySpace,etc.Wehadnorevenue,orevenrevenuecapableproducts.
Thejourneyfromfounding,tomultipleroundsoffinancing,toIPO,wasnoteasy.AllstartupsgothroughrealValleyoftheShadowmoments,inwhichtheywonderwhytheyeverthoughttheirbusinesswasagoodidea.AtLinkedIn,wehadthesemoments.Asanentrepreneur,IfoundDavidSzeandGreylocktobeatremendousallythroughtheprocess.And,DavidhadthevisiontoinvestinLinkedInwhenitlookedtomostoftheinvestingcommunitylikeanoddniche.
HowdidIgetGreylockonboardinthefirstplace?Itstartedwiththispitchdeck.Agoodpitchhelpsgetgreatinvestors,becauseitbuildsastrongrelationshipthroughclearcommunicationandvision.
Sogoodfortunebuildingyourownpitchdeck.AndIhopeitmarksthestartofanexcitingentrepreneurialjourney.
Wechangedsomeofthetexttobelesshyperbolicallyambitiousonslides9,1214,18,19,31,and36.Apubliccompanyshouldavoidpublishingforwardlookingprojectionsandambitionseveniftheyrefrom2004.Asanentrepreneurpitchingaprivatecompany,itisofcoursecriticaltobeforwardlookingandambitious.
ThankstoIanAlasandBenCasnocha,amongothers,fortheirhelpandfeedback.
2015ReidHoffman.
About
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3/9/2015 LinkedIn'sSeriesBPitchtoGreylock:PitchAdviceforEntrepreneurs
http://reidhoffman.org/linkedinpitchtogreylock/ 49/49