Reid Hoffman Is Silicon Valley’s Newest Billionaire

Posted: 19 May 2011 07:25 AM PDT

In 2006, Reid Hoffman was a self-described "embarrassment," after watching his fellow PayPal founders translate their winnings into even larger fortunes. Even though he made millions from the deal, three other PayPal founders had launched YouTube and sold it to $1.65 billion.

: Bloomberg News

Meantime, Hoffman was struggling with a start-up that few could understand.

”It’s kind of embarrassing,” Hoffman told the New York Times in 2006. ”You started a year or two earlier, and they start after you and then this thing zips right past you and gets the golden results.”

Today, it's Hoffman who's getting the golden results. That start-up that no one could understand was called LinkedIn. And today, LinkIn has become the largest supernova of personal wealth creation since the financial crisis began in 2008.

LinkedIn is now trading at more than $80 a share (despite having projected profits of zero this year). Hoffman's stake is now worth more than $1.6 billion – easily topping his fellow PayPal founders take from YouTube.

Everyone expected Hoffman to net huge paper wealth today. But earlier valuations put his stake at a mere $800 million. Now, he has a new prefix in his name: “Billionaire.”

This battle of the rich versus super-rich in Silicon Valley will continue in the coming months, with more possible IPOs from Facebook, Zynga, Groupon and others. As Marc Pincus of Zynga lamented to the New York Times several years ago:

"There's an A-list [in Silicon Valley], and then there's everyone else—and I'm not on the A-list."

After today, he and the other social-mediafounders are now at the top of the A-list. At least, until the bubble bursts – or the next A-list comes along.

The Rich Are Moving More Money Overseas

Posted: 18 May 2011 12:03 PM PDT

If there is one overwhelming investment trend among the American rich, it is capital flight.

Rather than investing in the U.S., they are putting more and more of their money abroad.

: Associated Press; The U.S.S. Capital heads for foreign markets.

A new survey by the Institute for Private Investors of families with $30 million or more of investible assets showed that the families have one third of their assets overseas. One in five wealthy families has more than half their investments overseas. Most of them are buying overseas stocks, while they also are buying into hedge funds and private equity with exposure abroad.

Additionally, wealthy investors are moving away from the U.S. dollar. The IPI study showed that one quarter of respondents are managing currencies or hedging currency risk.

Spectrem Group, of Chicago, shows a similar outmigration of money from the rich. More than 60% of investors with $25 million or more are investing overseas, Spectrem found.

You can't blame them, of course. Capital follows growth, and the strongest economic growth is in the so-called BRIC (Brazil, Russia, India and China) nations and other emerging markets. Some may talk about the broken “social contract” of the American rich, who are taxed at low rates on capital gains and dividends in order to encourage them to invest in the U.S. and create jobs.

Yet the rich don’t sign any social contracts when they get rich. And so far, the flight of wealthy investors hasn't stopped the U.S. stock market from roaring back to life after the recession. In fact, wealthy investors are at the forefront of the current tech bubble.

Since the wealthy control an ever larger share of the country's wealth and investments, their aversion to the U.S. could create a vicious cycle–the wealthy don't reinvest in the U.S., so the U.S. suffers from underinvestment and slower job creation, which slows economic growth and drives the wealthy to invest even more overseas.

What do you think would reverse the overseas investment craze of the rich?