New CEO at LinkedIn

In June of 2008 LinkedIn raised $53 million in venture funding from a blue chip group of VCs that included Bain, Sequoia, Greylock and Bessemer. This round brought the total venture investment to $80 million. At the time LinkedIn had 23 million users and a reported valuation of $1 billion.

Today the New York Times reported that the CEO who raised the money has been replaced, roughly six months after the deal closed. Users are reported to be 32 million.

While I have no inside information, here is what I think happened:

1. The $53 million round was the pre-IPO round and there is no IPO market in the near future. Now the VCs have no quick flip on their investment and have to live with the company for several years (grumpy VCs)
2. Remember those pitch books and promises you make to the VCs--they remember. Mr Nye, the now former CEO of LinkedIn, probably did not fulfill his plan
3. LinkedIn has a large, fast growing membership, but the members do not use the site very often (I have not been there in six months for any amount of time)
4. By the nature of its membership model and "closed community", LinkedIn missed the trend toward sharing information
5. Most of its new features on LinkedIn are me-too copies of things that have been on Facebook for a long time
6. With several failed initiatives, LinkedIn has no real, believeable go forward strategy. The recent hire of a senior Google executive to take charge of product development at LinkedIn supports this conclusion

Lessons to be learned:

1. It is not the number of users, subscribers or members but the number that are active and the amount of time they spend on the site
2. First mover advantages can be fleeting as LinkedIn failed to innovate and update their site to meet user needs
3. When the VCs get grumpy (no IPO) beware--your job as CEO may be in danger
4. Given the quality of the VCs involved, they all probably knew at the time of the funding that the CEO was going to be replaced in the near term. He gave them a reason for sure.

Mr. Nye, who I do not know, is a graduate of my alma mater Hamilton College. I commend him for his work at LinkedIn. Building a company with a valuation of $1 billion is an incredible accomplishment.

Note: I found the NYT story on Twitter posted by skap5.