Because I am in an unusually chatty mood with the launch of our new site — memo to everyone, use the slash or don’t, it’s a free country! — I got on the horn on New Year’s Day to check in with Reid Hoffman.
I always find the well-known investor at Greylock Partners — who is also a longtime entrepreneur and executive chairman and co-founder of LinkedIn — to be one of the more thoughtful VCs around, with an ability to be self-critical about his own investments and the tech industry at large.
In the pumped-up-kicks world of Silicon Valley, this is no small thing.
Here’s our talk, during which I took notes:
Re/code: How do you assess 2013 from an investment perspective?
Reid Hoffman: I think 2013 was kind of a funny year.
On one hand, you could easily say it’s a bubble — look at those large valuations and look how much money people paid to get into the big deals.
On the other hand, there were definitely a large number of startups that were having difficulty getting to their next funding round, because there were some big important winners and many were very nervous that all of the returns would accrue to those winners.
So high prices and a lot of cash only to some, while others were more difficult to do.
What are some of the mega-trends you are seeing across the venture landscape?
Well, like I said, that selective set of companies with these oh-my-god, big-dollar deals is hard not to notice.
And, from my perspective, Silicon Valley seems again to have broadly drifted off biotech and continued to have a serious focus on software and an even more intense focus on those companies in Silicon Valley.
That said, I have noticed more deals being done globally, such as a bunch from Brazil, some more than usual in Europe. China, of course. And even across the rest of the U.S. there have been more deals that are not here within a short distance of Sand Hill Road.
In general, all the smart investors are still primarily reactive to hearing great things from entrepreneurs. I suspect that just about every firm will have to say they are in mobile and talk about the screen change, and every firm says it is focused on big data and file migration.
There’s also some sense that hardware investing is a thing again and the interest around the quantified self is interesting. But, for us, we still don’t think it makes it at a venture level.
If you avoided that, what did you avoid that you wish you had not?
I guess probably we have not gone as deep in the communications area as we should have and did not see that the cycle of tech change and evolution there was just really fast. For example, we were not quite serious enough about Snapchat. There are a lot of interesting networks developing like that and I think this new kind of communication really caught us off guard.
One of the things that is hard to get for any investor is when to speed up your game and when to slow it down.
What is your investing theory now?
We are definitely more cautious of growth rounds and are nervous about the multibillion-dollar investment. Those have a lot of market dependencies and I am glad we did not do those and glad we are not in them. Most of our investments are in the $20 million range.
How do you assess the IPO and M&A arena?
I think it is active, because the market is generating enough returns and there seems to be a lot of capital looking for diversity.
There are a fair amount of M&A deals, which I think will also continue to be brisk, because companies in growth circumstances still need to play strategic defense and offense. On the other hand, there is a max rate of acquisition that they can go through.
But, for the good investors, this is not a way to think. We want to invest at any shot to the big goal. You have to go for that and we don’t want to invest in entrepreneurs who have no shot at going long. All the top-tier firms generally strongly prefer the moonshot over M&A.
There has been a lot of seemingly dramatic turnover at well-known VC firms lately, such as Kleiner Perkins. How do you look at what’s happening?
One of the real issues for all firms is how do you effect good succession and change. Greylock did a pretty good job moving from an east coast firm to one based in the Valley and it was proof that good transformation can happen.
But it is a difficult game and a generally hard problem. How do you keep market confidence? How do you pick the right six or eight people? How do you make the tough decisions to let people go?
So, it’s easy to say firm X, Y or Z screwed it up trying to figure out the succession, even if it makes a better news story and it definitely looks like there is all this turmoil. The problem in these changes is that VCs are unproven until they are proven and you really don’t know the result of the changes until much later.
The issue of women in tech — or not enough women in tech — has gotten a lot of attention. How are you thinking about it?
It is a serious topic and one we have been talking about all year trying to figure out how to participate in improving the situation. It is an urgent situation. Clearly, there is a problem and we need all of our collective attention on it.
Generally speaking, when we partner with a startup and invest in it, we look for a range of diversity on the team and on its board. And, as important as it is that the gender topic gets aired fully, it’s worse when it gets to black and Hispanic employees. That’s really off.
I wish I had solutions and we have been trying to figure it out, especially how to create this pipeline of diverse people to get them into jobs. We have worked with recruiting groups and all kinds of organizations devoted to solving it.
At the very minimum, everyone should be playing the long game on it and when we ask this question year by year, it has to be front and center.
I wish there were a silver bullet, but there is not.
This article originally appeared on Recode.net.