🎧 Over 20 Years of Venture Capital Investing Lessons

From the Investor Who “Found” Facebook

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The Power Law, the renowned book on the history of Venture Capital, has an entire chapter dedicated to the story of how Kevin Efrusy “found” Facebook.

This week I sat down with Kevin to understand what a prepared mind is in Venture, how investing in Facebook shaped his investment philosophy and him personally, and why he has been dedicating more time to philanthropy rather than venture capital.

Kevin joined Accel Partners in 2003 and was the lead investor in companies like Groupon, Couchbase, and Facebook. He also began Accel's Latin America initiatives, leading to investments in Despegar, Gympass, Nuvemshop, and Quinto Andar. A long-time advocate for LatAm's startup ecosystem, Kevin has invested in leading regional venture funds Kaszek and Monashees and has supported numerous founders.

Learn about his philosophy for investing today:

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🗒 Show notes:

[15:40] The Cycles of the Technology Business

[18:04] - What’s The Prepared Mind 

[22:44] - Why Facebook Crushed Their Competition

[43:07] - There’s No Single Way to do Venture Capital

[44:16] - How the Mediocre Venture Capitalists Do It

[48:33] - Why Focus on Latin America?

[52:24] - Transferable Skills Between VC and Philanthropy

[58:13] - Is VC the Right Model for Latin America?

🧠 Key Takeaways

#1 The Prepared Mind: In this practice, you ask yourself:

• What are you looking for? 

• What do you think will happen in the next few years? 

• What do you think the next set of brilliant companies will be?

• What will make them successful?

The idea is to prime your brain to recognize opportunities that match your predictions so you can prepare to act on them. Kevin did this around what the next internet would be like, and it helped him recognize the potential of Facebook. He then persisted in investing in the company, even when it wasn't open to investors.

#2 The intuition is most important: Kevin points out that many people want to ask the consumer what they want and then build a product around that. But the consumers don’t know what they want, so they can’t tell you, and you end up with a terrible product. Instead, Kevin suggests that you need to have a point of view and develop your product around it. This point of view needs to look different and be a little scary to have the potential to be incredible.

#3 How to make up for a small market: Kevin pointed out that if you dominate a particular market and become the #1 player, market size won’t prevent you from having a good business. He also stated that the entire LatAm market is only a fraction of the US, so there is not enough market share for several competitors to thrive. Because of this, Kevin recommends that other funds invest in later rounds of the existing companies in a market. If they invest in various companies in the same market, none will dominate it.

😲You won’t hear this anywhere else

“A typical young person who gets into Venture Capital wants to know: ‘How do I become a partner in the firm? What do I need to do to ‘succeed’?’. They think: ‘I need to make investments, one of those has to work, and hopefully I don’t lose any money.’ But that’s how they keep doing these bad deals. They never make the great ones because those are scary. 

My advice to young people in jobs looking to get promoted is ‘Don’t try to get promoted.' Instead, focus on doing amazing stuff. If you focus on what you believe is amazing, everything else will work out. If you do something just because you think it’s what your boss wants, it won't work. If you’re not doing something where you’re a little afraid that you might get fired, then you’re probably not doing anything interesting.”