Most of us know who Reid Hoffman is — I thought I knew a good bit about him before we did that episode on PayPal, but it was while researching that episode that I found out just how smart and how strategic he is. He was one of the first people in Silicon Valley to understand the potential of the internet to build social networks — he was one of the very first investors in Friendster and in Facebook, and of course he built LinkedIn, selling it to Microsoft for $26 billion. He was a founding investor in OpenAI, one of the first investors in Airbnb — this guy has had so much success, but it hasn’t been all plain sailing — he got caught up in his own Jeffrey Epstein story. It’s a cracking episode — enjoy.
Reid Hoffman was born on the 5th of August, 1967, in Palo Alto — the heart of Silicon Valley. His parents were both lawyers, but they split when he was a baby, and he grew up mostly in Berkeley.
He was big into role-playing games, and at twelve, he was editing content for a company in Oakland that developed Dungeons & Dragons offshoots.
In 1986, he went to Stanford University and picked an unusual degree called Symbolic Systems — a blend of philosophy, psychology, linguistics, and computer science — and he chose this because he had always been fascinated by how information flows through societies.
Stanford is where he crossed paths with Peter Thiel — a relationship that would prove pivotal, and complicated, for them both.
They met in a philosophy class, started arguing about the universe, and spent the next few decades taking opposite sides of almost every argument.
They remained friends right up until last year, when they had a very public falling out at a tech conference as a result of their opposing political views. Thiel, of course, was one of the very first in Silicon Valley to support Trump, while Hoffman has been a lifelong Democrat.
Before graduating, Hoffman had initially thought of pursuing a life in academia, but he realised that he wanted to do something that would have a different type — or a bigger type — of impact. With the emergence of the internet happening right at this time, he began to see it as a way to change how people live, directly, and at scale.
So he got a job with Apple and then with Fujitsu, working in product management, and then in 1997, at twenty-nine, he founded SocialNet.com. The idea was simple but radical for its time: use user profiles to connect people with shared interests — for dating, friendship, even roommates. Remember, this was five years before Friendster and seven years before Facebook.
1997 was the height of the dot-com bubble, but investors were obsessed with portals like Yahoo and AOL, search engines like AltaVista and Lycos, and with the hundreds of B2C online businesses being launched — like Webvan or Pets.com. So social networks weren’t anywhere on the radar of VCs, but Hoffman still managed to raise a few million and started building.
Differences in strategy and execution between Hoffman and his investors meant that the business never got off the ground.
In late 1998, while Hoffman was still trying to get SocialNet to work, he got a call from Thiel, who had co-founded a company called Confinity with Max Levchin. Confinity was eventually renamed PayPal — so I’m going to stick to the PayPal name.
Now, our episode on PayPal goes into much greater detail on this — it's a brilliant story, I think the best startup story ever — and if you want to read a book on it, then get Jimmy Soni’s The Founders — brilliant book, with great insights into all the main characters like Thiel, Musk, Levchin, Sacks, and loads more.
After an initial pivot, the basic concept of PayPal was to beam money between PalmPilots.
Hoffman started attending board meetings and very quickly pointed out an obvious flaw — what would happen if, say, you have three people at lunch, they split the bill, the idea being that one would pay and the other two would beam the money to the first person using their PalmPilot — kind of Revolut Mark 1. But as Hoffman asked — what do you do when one person doesn't have a PalmPilot? Levchin's answer to that was to create a very simple email money transfer system.
Bingo — that was the genesis of PayPal. They came upon it by accident, and when eBay sellers began adopting it, it took off.
In January 2000, Hoffman left SocialNet and joined PayPal full-time as Chief Operating Officer.
He became both strategist and stabiliser because there was a lot of internal conflict in PayPal. For example, when Thiel recruited David Sacks, another friend from Stanford, Sacks insisted that they focus solely on the email money transfer system. He was right, of course — the revenue and real opportunity were in that feature — but many of the PayPal team, including Levchin, had been putting all their time and effort into the PalmPilot beaming feature, and they were reluctant to drop what they’d been doing. Hoffman knew Sacks was right, but where Sacks was abrasive and confrontational, Hoffman was diplomatic and persuasive.
Then there was the “shotgun marriage” in March 2000, when PayPal merged with Elon Musk’s X.com, a company that had also hit on the email money transfer idea around the same time as PayPal.
As you’d expect with Musk, X.com had much bigger ambitions — Musk was trying to build a whole banking system, and the email money transfer feature was supposed to be just a tiny part of this business. But just like PayPal, the unexpected adoption of the email money transfer system by eBay buyers turned this part of X.com into a big revenue generator.
Because you’ve got to remember, at this time eBay was the most successful online company — it was a phenomenon. The eBay story itself is a fascinating one, and I will do an episode on it.
And just like Levchin in PayPal, Musk was almost reluctant to embrace the email feature because it was diverting him from his ultimate goal of creating this online banking powerhouse. And so, despite Musk and Levchin's reluctance, you now had X.com and PayPal locked in a fierce and expensive competition to win the eBay market.
So it made sense for them to merge.
PayPal already had some very strong personalities — Thiel, Levchin, Hoffman, Sacks — and now you had Musk coming into the fold. And Musk being Musk, he wanted to do things his way. His style — abrasive, relentless, often dismissive — alienated the PayPal crew.
Added to this, he pushed to rebrand everything to “X.com” and rewrite the PayPal code from scratch. Levchin and much of the PayPal crew pushed back. The tensions were sky-high.
Musk had only been CEO for four months when, in September 2000, he went on a delayed honeymoon, and it was then that the senior PayPal team, with the backing of their major investors, sacked Musk and reinstated Thiel as CEO.
The way this was handled was pretty sneaky — they waited until Musk was out of the country and then got rid of him. Perhaps, though, you could also see it as a compliment — an acknowledgment of the strength of Musk’s personality and forceful nature — that they probably knew this was the only way to get him removed.
Now, Musk was ripping, but he did cool down and wrote a very gracious letter to PayPal where he praised Thiel and remained on as a board member.
Hoffman’s remit widened, and one of his key roles was to manage the relationship with eBay, which had always been fractious. Of course, eBay could have kicked them off the platform anytime — they had already tried to copy PayPal’s system but fell short. And so they had offered to buy PayPal, but the offer was rejected.
Whenever they threatened to kick PayPal off, Hoffman worked the backchannels with a mixture of diplomacy and veiled threats — implying that eBay could face antitrust issues if they kicked PayPal off the platform. Hoffman admitted that the antitrust threat held little weight, but he also knew that eBay would have gotten a huge amount of flak from their buyers if they removed PayPal without having a suitable replacement — which wasn’t as easy as it seemed, because PayPal had put a huge amount of effort into building a system that outperformed all others and, crucially, because fraud had been a huge issue for them, they had developed groundbreaking security features.
Then in 2001, PayPal decided to go public, and now there was every chance that eBay could sully the waters by implying that they intended to kick PayPal off their site — this would be a huge risk for any investor. To counteract this possibility, Hoffman came up with a strategy — he re-enters negotiations with eBay, because if eBay are in negotiations with PayPal, then they can’t make any comments about PayPal to the market or they’d be breaking fiduciary responsibility.
So Hoffman’s strategy successfully silenced eBay until the IPO went through.
PayPal went public on February 15th, 2002.
But after four years of working tirelessly — fighting fraudsters, battling eBay, and battling each other — they were exhausted, and they were open to selling to eBay when they came knocking just a few months after the IPO with a price tag of $1.4 billion.
Musk was the largest individual investor — he got $176 million. Peter Thiel got $55 million, while Max Levchin got $34 million. Now, I couldn’t find out how much Hoffman got, but I’m guessing it was a few million.
One thing that came out of PayPal that most people will know is the legend of the PayPal Mafia — whereby a good chunk of the people involved in PayPal went on to form some massively successful companies, like Yelp and YouTube.
David Sacks sold Yammer to Microsoft for $1.2 billion, Max Levchin went on to create Affirm, and of course Musk founded SpaceX and Tesla. But as well as the companies they founded, a lot of them became early investors in some of the biggest and most influential companies of the last 20 years.
For example, Peter Thiel and Hoffman were the first outside investors in Facebook — Hoffman introduced Thiel to Zuckerberg. Hoffman invested just $37,500, while Thiel put in $500,000 for 10% of the company. Hoffman eventually cashed out sometime after the Facebook IPO around 2012, making $111 million, while Thiel sold in 2014 for $1 billion. So a fantastic ROI for both — but imagine if they’d held onto it until today. Hoffman’s stake would be worth somewhere between $10–15 billion, while Thiel’s $500,000 would be worth $185 billion.
Anyway, getting back to the successes of the PayPal Mafia — why did so many of them go on to build and invest in billion-dollar companies that have defined the last 20 years?
Hoffman believes it came down to timing in two key ways.
First, they’d already had a success. They sold PayPal in 2002 — a time when almost no one else in tech was making money. The dot-com crash had gutted the market; most internet startups were dead in the water. But suddenly, you had this small group of young entrepreneurs with both cash and confidence.
And that confidence mattered. Because while most venture capital firms were retreating from the internet and instead putting money into clean tech or enterprise software, these guys still believed the consumer internet was just getting started.
In a sense, Web 2.0 was born out of that conviction. They were the only ones still pushing the idea that the internet could be social, personal, interactive.
They had money. They had a tight network. And they had their fingers on the pulse — a better feel than the VCs for where the web was heading. That’s why they became so influential.
Hoffman himself saw it early — he was always plugged into the potential of the internet to create social networks, this belief that people would use networks built around identity and trust — which, of course, then led him to create LinkedIn.
So, let’s take a look at that.
It’s winter 2002. Hoffman and a small team — many of them from PayPal and his earlier startup SocialNet — founded LinkedIn. The idea was simple but clever — a “Six Degrees of Separation for professionals.” Users could create profiles, list experience, and connect through mutual contacts. As mentioned, VCs weren’t interested in this type of business, so Hoffman put up most of the initial $500,000 investment, but Thiel and a few other PayPal alumni did put in some money.
On May 5th, 2003, LinkedIn went live. Growth at first was sluggish — by the end of 2003, LinkedIn had 78,000 members, mostly recruiters, venture capitalists, and tech executives. They were drawn to the promise that this wasn’t about popularity; it was about credibility. Trusted introductions could make hiring and deal-making faster and safer.
Sequoia Capital, who had been PayPal’s main backer, came through with $4.7 million at the end of 2003.
The next year, LinkedIn hit one million users and raised $10 million. The following year, they launched premium subscriptions, and by 2006, with five million users, they’d achieved profitability. The following year, Hoffman stepped back as CEO.
He explained it simply: “LinkedIn needs a different leader to grow it further.” It was a pragmatic decision and it’s one of Hoffman’s key strengths — a sense of awareness, knowing your strengths and your weaknesses. He likes getting in at the start, strategising, getting it to the point where it can scale, and then bringing in the right people to scale it — with his input, of course.
By 2008, LinkedIn had 23 million users, raised $53 million, and was valued at $1 billion — making it one of the first true “unicorns.”
They weathered the 2008 financial crisis, and in many ways, it played into their hands — they were adding nearly two million members every month because there were a lot of professional people either looking for jobs or just looking at their options.
The company floated in May 2011, valuing the company at nearly $10 billion.
By this stage, Hoffman already had his foot in venture capital, having joined Greylock Partners, one of LinkedIn’s early investors, in 2009.
Time magazine called him one of the most influential investors in technology. At Greylock, he looked for what he called “network effects” — systems that grow stronger as more people use them. He led Greylock’s early investment in Airbnb, and I dug into this one a bit to find out why Hoffman decided to go in so early with what was a pretty out-there idea.
Now, Hoffman wasn’t the first investor in Airbnb — the company started off in Y Combinator, and they first raised $600k from Sequoia Capital — but Hoffman decided that Greylock should invest after just two minutes of Airbnb’s founder pitch. The reason, he said, and I quote:
“Part of the entrepreneurship game is deciding what league to play in. There’s the junior league, the varsity league, and then there’s the big leagues. Generally speaking, as investors and entrepreneurs, you want to go after ideas where, if you succeed, it transforms an industry or even the world. Those two minutes showed me that Airbnb’s founders wanted to play in the big leagues.”
Now, in a subsequent interview, Hoffman acknowledges that he could have been way off, and there was a very big chance that Airbnb wouldn’t have worked. What I like about Hoffman is that he doesn’t pretend to know everything — he realises this could have been a huge flop, but he also knows that going after massive opportunities like this can result in transformative businesses as well as, of course, huge ROIs — and so it was with Airbnb.
While I couldn’t find exactly how much Greylock invested — because it was done together with Sequoia — the total investment in that round was just $7.2 million. Let’s say they went 50/50, so a $3.6 million investment for 22 million shares, which were worth $3.2 billion based on Airbnb’s IPO — so about 1,000 times the ROI. Pretty good.
Getting back to LinkedIn, by 2016 it had 106 million unique monthly users, revenue of $2.6 billion, and then in June of that year Microsoft announced it was buying it for $26.2 billion — the biggest acquisition in Microsoft’s history. Hoffman’s 10.9% shareholding meant he cashed out at $2.7 billion. He also became a Microsoft board member.
So a nice payday, but like any billionaire, it hasn’t all been plain sailing, and Hoffman has been involved in his share of controversies. Now, most of them have been pretty minor, but there is one that needs to be addressed — and that’s his connections to Jeffrey Epstein.
In 2019, it emerged that Joi Ito, the director of MIT’s Media Lab — one of Hoffman’s favourite philanthropic projects — had accepted donations from Epstein. Hoffman had funded the Lab’s “Disobedience Award” and sat on its jury. So when the scandal broke, he got pulled right into the fallout.
At first, Hoffman tried to manage it quietly. Another jury member, the journalist and author Anand Giridharadas, later said that Hoffman “hid behind bureaucracy” and the usual “ongoing investigation” excuse to avoid releasing emails about Epstein’s ties. He accused Hoffman of being part of elite networks that “protect each other above all, common good be damned.” Business Insider put it bluntly: Hoffman, by association, was “implicated in the cover-up.”
It also emerged that in 2014 Hoffman visited Epstein’s island with Ito, and that in 2015 Hoffman had hosted Epstein at a dinner, and the guests included Elon Musk and Mark Zuckerberg.
The scandal put Hoffman in an awkward spot — in many ways, he had put himself forward as the left-leaning moral conscience of Silicon Valley, and here he was associating with a convicted child sex offender.
The issue was further amplified when Elon Musk, who had once been on pretty friendly terms with Hoffman, started hinting on his platform, X, that there was “more to the relationship” than met the eye.
Hoffman has called Musk's intervention slanderous. He publicly condemned Epstein’s crimes and admitted he’d “helped to repair” Epstein’s reputation by introducing him to other tech figures, but he also maintains that he knew nothing of Epstein's previous convictions and had trusted Ito’s word that Epstein had been vetted. “My lesson,” he said, “is I should go do my own research.”
Now, I’ve gone deep into Hoffman’s ties with Epstein. And as I said in the Leon Black story — anyone who had dealings with Epstein after his 2008 conviction deserves scrutiny. But context matters. Leon Black met Epstein roughly a hundred times. Hoffman met him three times, and as far as we know, each of those meetings was linked to fundraising for MIT.
Unless new evidence surfaces, those are the facts. Anything beyond that — well, it’s speculation.
Probably Hoffman's main interest over the last ten years has been in AI — he was a founding investor in OpenAI, and then in 2022 he co-founded Inflection AI with Mustafa Suleyman — DeepMind’s co-founder.
It raised $225 million in initial funding from Microsoft, Hoffman, and Greylock, and its first product was Pi — short for “personal intelligence.” Unlike ChatGPT, it wasn’t built to code or write essays. As Hoffman explained in an interview, Pi was set up to be a kind and collaborative personal assistant.
At the same time though, he sat on OpenAI’s board, which he left in 2023 to avoid conflicts. Inflection then raised $1.3 billion at a $4 billion valuation, with backing from Microsoft, NVIDIA, Bill Gates, among others. It built one of the world’s largest AI clusters — 22,000 of NVIDIA’s top chips — so a big statement.
But the costs were staggering. Inflection would need another $2 billion by 2024 and possibly $10 billion after that. Hoffman saw the writing on the wall: tech giants like Google, Microsoft, Apple, and Meta — with deep pockets — were moving into the space and would dominate. As he said: “The economics of AI have changed the equation for startups in the Valley.”
Microsoft considered buying Inflection but faced regulatory hurdles. Instead, in early 2024, it hired Suleyman and most of the Inflection team to lead its new consumer AI division. Hoffman, a Microsoft board member, helped broker a $650 million deal for Microsoft to license Inflection’s model and repay investors. The company has since shrunk and pivoted to selling an enterprise version of its AI assistant, Pi.
Now, throughout all of this and up to the present, Hoffman has written five books — three of them on business and entrepreneurship, focusing on how to build or scale a business — and in the last few years, he’s released two books on AI. He also has the Masters of Scale podcast, which is hugely popular and has been going strong since 2016. I’m not a fan of the podcast — just not my type of format. It was only when researching for this episode that I found out he has a second podcast called Possible, where Hoffman and his co-presenter interview people with a view to examining the brightest version of the future — and what it will take to get there. It’s already won two Webby Awards, so I might give it a shot.
I’ve dipped into some of his writing — never read any of his books — but I’ve read articles, listened to interviews with him, and overall, from a business point of view, I find that what he has to say is very good.
So, you know, with his books and his podcasts, Hoffman has a platform and has become one of the more vocal tech people in Silicon Valley — much like Marc Andreessen, half venture capitalist, half public thinker. But, of course, his opinions and politics are the polar opposite of Andreessen’s. I think listeners to this podcast will, by now, know where I stand — I find Hoffman more reflective, a deeper, more nuanced thinker and far more empathetic than Andreessen. But I know that there are lots of other people who find Hoffman to be a pontificator — and look, each to their own. We don’t all have to like the same people. It’s OK to hold different opinions and still get along. Surely.
And whether you like him or not, if we look at Hoffman's influence and impact on business over the last 25 years — from being part of the PayPal Mafia (or as he liked to call it, the PayPal Network), to being Facebook's first investor with Thiel, to founding LinkedIn, to being the second investor in Airbnb, to being a founding investor in OpenAI — you’ve got to give Hoffman his dues. His is a remarkable business story.
And with that, we come to listener emails — and this one I love because it comes from Elizabeth, and she recommended a story that I’d never come across. It’s about Christopher Skase, a very successful Australian businessman who, in 1989, made a bid to buy MGM Studios — but it all fell apart, and after fleeing the country, he became Australia’s most wanted fugitive. It looks like a cracking story, so thanks, Elizabeth.
And remember, if you have any comments, any corrections, or any story that you’d like us to cover, email us at info@gbspod.com
All the best, folks.