Internet, Investments

Key Learnings from LinkedIn’s Series B Investment Pitch by Reid Hoffman and Linkedin

Linkedin-logoChallenge, Excitement and Passion- are the three key words that define an entrepreneur in any part of the world. While starting up, a lot is told to them about the ‘How, What and Why’ of running a business, and in most cases taking inspiration from the existing successful business models is the key thought. However, most of the success stories go right to the end without unfolding the real part, i.e. How exactly was it done?

The most important part for any entrepreneur at any stage is to raise funds for his company, and for that, pitching the investors in a right manner is crucial.

Reid hoffman, Co-founder Linkedin, in his attempt to help entrepreneurs, has recently published their Series B Pitch Deck from 2004, which made the company earn USD 10 Bn at the time when it was still getting off the ground.

Talking about the current status, LinkedIn recently celebrated its 10th anniversary last May and is valued at around USD 24 Bn, with stock trading at over 5 times its 2011 IPO price of USD 45.

In this release, Reid Hoffman gave some valuable insights regarding company’s tactics and mistakes along with the myths and truths, which the upcoming startups can learn from.

The full presentation has been covered basically across three phases:

  • How entrepreneurs should approach the pitching process

  • The evolution of LinkedIn as a company

  • The consumer Internet landscape in 2004 v/s today

Below are the 7 key pieces of advice that Reid Hoffman gives in his blog:

1) Successful financing process is not only about money

Obviously, you are here for raising capital and only then will the financing process be perceived as successful. But here you should also keep the thought of gaining other things as well. Great investors can significantly boost the strength of your network. This process can result in a partnership that can further add value and deliver benefits beyond just money.

2) Open your pitch with the investment thesis

“You have the most attention from investors in the first 60 seconds of your pitch, so how you begin is incredibly important”. No matter how strong your team is, the investors are interested in one thing at first: the investment thesis. Your first slide should articulate the investment thesis in generally 3 to 8 bullet points. Then, spend the rest of the pitch backing up those claims and increasing investors’ confidence in your investment thesis — which includes the background of the team.

3) Decide the type of your investment pitching

Investment thesis is either concept-driven or data-driven. Wherein a concept pitch depends more on promised future data supporting the undeveloped concept, the data pitch emphasizes on how good the data already is. It also involves showing the investors a multi-year track record of data.

4) Sharing risks and getting credibility are correlated

Experienced investors know that the risks exist. To avoid sharing them can portray you to be either dishonest or dumb. So, instead of showing the non-existence of risks, you should identify the one to three risks that could thwart your success and how you will mitigate them.

5) Acknowledge Competition

Arguing that you have no prospective competition, can result in an impression that you either consider the market to be completely inefficient or no one else thinks your space is valuable. Both are folly. To build credibility with the investors, you want to show that you understand the competitive risks and show why you’re going to win.

6) Pitch by analogy

The time is limited and analogies help investors to understand from a perspective that they already know, especially for higher level pitches. One of the best was for a Hollywood film, ‘Man’s Best Friend’. The pitch was “Jaws with Paws”. The investors were told that if the movie Jaws was a huge success, a similar plot but on land with a dog could also be a huge success.

Pitch by analogy, but avoid reasoning by analogy, as it can be a blunder while working on your business strategy. Also, startups should take care that for them the details and clarity matter the most.

7) Always think about the next round

When you are raising money from venture capitalists, usually there is a time gap of minimum one year between receiving fundings. You must expect that when you go for the next round, the future investors will have an urge to look at today’s deck. So, putting in a growth curve for today as well as for the future, will show the investors your confidence of beating it. Once you achieve those expectations, you can always show in the next pitch, “Here’s what I had said before, and here’s how I actually did”. This could make investors increase their trust on your future endeavours.

Here is the actual pitch presentation that LinkedIn used in 2004 to raise USD 10 Bn in Series B. To see the full presentation explained along with the advices, click here.

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