LinkedIn Corp.’s founder Reid Hoffman and its three top venture backers own a combined stake of about $5.14 billion after an eight-year wait for the first initial public offering by a major U.S. social-media site.
Venture capitalists have led more than $100 million in investments in Mountain View, California-based LinkedIn since 2003, with Sequoia Capital amassing a holding now worth $1.59 billion, and Greylock Partners, a $1.32 billion stake. Hoffman, LinkedIn’s chairman and biggest shareholder, holds $1.8 billion and Bessemer Venture Partners has a stake worth $431.5 million.
The almost decade-long wait for a LinkedIn windfall compares with less than five years for the biggest investors in Google Inc. and just a year for top backers of Yahoo! Inc. and EBay Inc. (EBAY) LinkedIn’s debut on the New York Stock Exchange today at $45 a share, or a valuation of about $4.25 billion, brightens prospects for the venture capital industry, which has lost money over the past 10 years amid a dearth of IPOs.
“Any solid returns like this are clearly a great thing and there’s been too few of them in the past decade,” said Eric Risley, founder of Architect Partners, a technology merger-and- acquisition advisory firm in Menlo Park, California. “This was not an overnight success by any means.”
LinkedIn more than doubled, rising $49.25 to $94.25 at 4 p.m. New York time, after earlier soaring as high as $122.70. At the stock’s closing price, LinkedIn’s market valuation is $8.91 billion.
Venture investors are barred from selling shares during a so-called lockup period that lasts for six months after an IPO. Venture capital firms typically keep 20 percent to 30 percent of profit for their partners after portfolio companies get acquired or go public. They distribute the rest to the pension funds, endowments and foundations that invest in their funds.
Hoffman, a former PayPal Inc. executive, is selling less than 1 percent of his stake. Hani Durzy, a spokesman for LinkedIn, declined to comment, as did Mark Dempster, who heads marketing for Sequoia.
Venture capitalists are counting on gains from LinkedIn and other Web companies such as Pandora Media Inc. and HomeAway Inc. Social-media companies Facebook Inc., Twitter Inc., Zynga Inc. and Groupon Inc. have yet to announce IPO plans, even with multibillion-dollar valuations on private markets.
Among the venture firms, Sequoia stands to be the biggest winner from the LinkedIn IPO. The firm led a $4.7 million investment in November 2003 and increased its funding later to accumulate a 21 percent stake.
Mike Moritz, who led Sequoia’s early investments in Google, Yahoo and PayPal, joined LinkedIn’s board in January. He replaced Mark Kvamme, who left Sequoia for a job at the Ohio Department of Development.
Greylock Partners led the second round of funding, a $10 million investment, in 2004. Greylock’s David Sze, who’s also an investor in Facebook and Pandora, is a LinkedIn director. Hoffman joined Greylock as a partner in 2009.
Bessemer, a century-old firm that made an early bet on Skype Technologies SA, led a $12.8 million round in 2007.
Buyers of LinkedIn shares on the secondary markets are also poised to profit. A $1 million purchase of LinkedIn stock on Dec. 10, 2010, would now be worth more than $2.68 million, based on the median secondary bid price that day, according to a report today from Nyppex LLC, which specializes in secondary transactions.
Nyppex, based in Rye Brook, New York, tracks the value of LinkedIn, Facebook, Zynga, Twitter and Groupon, which have surged in the past year as some early investors and employees sold equity. The valuations of leading consumer Internet companies surged by a combined 51 percent in the first quarter from the previous three months.
“The LinkedIn IPO valuation thus far is a good omen for secondary buyers in certain other privately held social-media companies,” Nyppex said.
LinkedIn trades under the ticker symbol LNKD. About 62 percent of the 7.84 million shares in the offering were sold by LinkedIn, which said it plans to use the proceeds to fund existing operations and to expand the business, possibly including buying other companies or technologies.
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