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LinkedIn valued at $2bn, IPO expected soon?

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LinkedIn is valued at over $2bn, following Tiger Global Management hedge fund’s $20m investment in LinkedIn.

LinkedIn’s valuation of $2.26bn was calculated by Bloomberg following Tiger Global’s $20m investment, which gives it a one per cent stake in the professional networking site. These shares were acquired from an existing investor, rather than LinkedIn taking on new investment.

Bloomberg’s source hasn’t been named – as the sale hasn’t been officially disclosed yet – but the news reflects the upturn in hedge funds’ interest in private tech companies, eager to benefit from IPOs.

Tiger Global previously also purchased shares in Zynga Game Networks, another online tech company which is a candidate for an IPO. “It’s relatively low risk for these companies to buy pre-IPO and gives them the benefit that generally they’re going to trade up,” Ted Hollifield, from law firm Dorsey & Whitney, told Bloomberg.

It’s interesting that LinkedIn is now a multi-billion dollar business. The calculation stems from multiplying LinkedIn’s outstanding 105 million shares by the $21.50 price that Tiger Global paid per share.

Set up in December 2002 by internet entrepreneur Reid Hoffman, LinkedIn launched five months later in Mountain View, California. LinkedIn turned profitable in 2007, the same year it hit one million members in the UK. It secured funding from several VC firms, which paid $53m for a five per cent stake in June 2008, valuing the group at $1bn.

Hoffman – who has also invested in Facebook, Flickr and social gaming group Zynga – stepped down as LinkedIn’s CEO last year, replaced by former Yahoo! manager Jeff Weiner. He remains LinkedIn’s chairman. 

This most recent $2bn valuation is significantly lower than Facebook’s circa-$30bn valuation, but definitely enough to keep Reid Hoffman happy. After all, this new valuation is double the $1bn valuation given after the 2008 fundraising.

LinkedIn has a strong model. Arguably the singlemost important social network for professionals (research shows LinkedIn members have more brand loyalty to LinkedIn than any other network, including Facebook), it is miles ahead of the competition. LinkedIn earns revenue through its premium subscription business, ad sales, and via its corporate recruitment solutions. In 2008, LinkedIn was on track to earn revenue of $100m, and Jeff Weiner revealed that the company’s ad sales were up 50 per cent year-on-year in 2009.

Having recently announced that it has passed the 70 million member mark, Jeff Weiner added that this has spared a rise in inquiries from bankers looking at the company – and the rumours are definitely circulating about a forthcoming IPO. 

Is the $2bn valuation too high? As always, there’s a big difference between what a company is worth and how much people are prepared to pay for it. Do you think that LinkedIn is worth $2bn? Or is the valuation too high/too low? Leave your comments below.

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