By Peter Delevett
San Jose Mercury News
Startups have made Reid Hoffman very rich and fairly famous. And, he told a roomful of aspiring entrepreneurs this week, there’s nothing wrong with that.
But Hoffman — an early PayPal employee and Facebook investor who later founded LinkedIn — made clear that a yen for wealth or fame alone won’t carry an entrepreneur through what he called the inevitable “valley of shadows” every fledgling company encounters at some point.
“Find an idea and a team you’re passionate about, so if it fails, it’ll still be a good experience,” Hoffman told a packed auditorium Tuesday at Mountain View’s Computer History Museum, where the annual Startup Grind conference was taking place.
He spoke from a stage that had just been vacated by rap star-turned-tech investor MC Hammer; other big names at the two-day event included venture capitalist Ben Horowitz and Intuit co-founder Scott Cook.
Hoffman, currently a venture capitalist at Menlo Park’s Greylock Partners, talked about PayPal’s own “valley of shadows” when, early in the company’s history, it was losing millions of dollars a month fighting fraud.
During an hourlong Q&A with Tagged CEO Greg Tseng, Hoffman likened building a startup to “throwing yourself off a cliff and assembling a plane on the way down.”
For that reason, he counseled the audience to have not just a Plan B, “but Plans B.” (He and Tseng both joked that Plan Z had been moving back in with their parents.)
Hoffman, 46, also preached the value of building a network, or “tribe,” of fellow entrepreneurs — who in his case range from PayPal co-founder Peter Thiel, Hoffman’s Stanford classmate, to Facebook CEO Mark Zuckerberg.
Such a network can help tap into Silicon Valley’s collective experience at building startups and its willingness to share advice.
Hoffman said good mentors can use their firsthand experience to advise on hiring decisions or negotiations with investors, issues that face every first-time chief executive.
“Try not to make the same old mistakes — make new mistakes,” Hoffman urged his listeners.
One’s network also provides valuable feedback when honing an idea. He recounted how Thiel and fellow PayPal co-founder Max Levchin came to him with a notion to encrypt mobile phone data. That famously morphed into a mobile wallet to send money between Palm Pilot devices, and ultimately into a way to remit payments via email.
But while being willing to toss out first drafts, an entrepreneur also should trust his or her vision. When he went to found his own company, Hoffman recalled, “Two-thirds of the people I spoke to about LinkedIn said, ‘This will never work. Without 1 million people, you’re dead.'”
Hoffman believed — correctly, it turned out — that the professional networking service’s viral nature would let it reach that threshed quickly. LinkedIn, where he remains executive chairman, claimed 259 million members in its latest quarterly earnings report.
Hoffman, whose net worth Forbes estimated last fall at $4.4 billion, also is an investor in and adviser to companies ranging from Airbnb to Zynga.
He’s on the boards of microlending site Kiva and of Mozilla Corp., which helps develop and promote the open-source Firefox Web browser, created as an alternative to Microsoft’s Internet Explorer.
Yet while he sees business plans by the bushel, Hoffman said even startups with good ideas and bright founders can fail if they don’t execute or time their markets correctly.
“The number of software companies that get created in Silicon Valley is in the thousands,” he said. “Only five or six matter every year.”
