With Facebook’s IPO and Accel’s obscene IRR, James Breyer may get the spotlight. Accel was first to the table but two unsung heroes who sniffed this one are Kevin Efrusy and Chi-Hua Chien. These two individuals sourced a “once in a generation” investment opportunity. Efrusy, who had served two separate stints as an EIR at Kleiner Perkins Caufield and Byers, joined Accel in 2003, and his primary directive was to find the ‘next big thing’ in social and new media applications. While Efrusy was on the hunt, he found his target two years into his career at Accel. This was largely due to Chi-Hua Chien, a graduate student doing research for Accel. He pointed out this opportunity to Efrusy, who relentlessly pursued Zuckerberg and Sean Parker.
“Social networks had this dirty name,” he was quoted saying in the book “The Facebook Effect” by David Kirkpatrick. But as soon as he saw Facebook, he could smell the potential. Here was an opportunity for marketers to reach a much-wanted demographic during their most impressionable years. This was 2004, when the number of Facebook users was fewer than 1 million. Efrusy called and e-mailed relentlessly—and was stonewalled or turned down. “We will move heaven and earth to make this a successful company,” Efrusy once told Mark Zuckerberg. But Facebook was not interested in talking to venture capitalists. “He was hounding us,” one Facebook executive would recall. Finally, Efrusy decided to walk over to Facebook’s offices and into a chaotic scene, where remnants of the previous night’s liquor party were strewn all over. One person, struggling to assemble a DIY table, had blood oozing from his forehead. Efrusy promised Zuckerberg, who was nibbling on a burrito: “Come to our partners’ meeting on Monday. We’ll give you a term sheet by the end of the day, or you’ll never hear from us again.”
Over the weekend, Efrusy did some intense calling around to find out more about the Facebook phenomenon. On Monday morning at 10 A.M., Zuckerberg, wearing his flip-flops, shorts, and a T-shirt, showed up at Accel’s offices with two cohorts. They didn’t bother bringing any slides. Five days later, after much song and dance, Accel had closed on a $12.7 million investment at a $100 million pre-money valuation, owning a 15 percent stake in Facebook.
Efrusy did not get a board seat – Jim Breyer did. “It hurt my feelings,” he would say. “But I understand.” It is not just Efrusy’s qualities that count—the firm also matters. Accel’s capital, track record, and the stature of Jim Breyer (who is firmly established in the “VC Champion” category) had an overall impact on closing in this opportunity with Zuckerberg.
But even more interesting is the fact that James Swartz, founder of Accel Partners, speaking prophetically of VCs investing in new technological waves, once said several years ago, “The older generation . . . better just get the heck outta the way, or if you want to stay in the game, get a kid and let him do his thing.” Words of the wise indeed!
Chi-Hua Chien has now moved to KPCB, once where Efrusy spent his days. One wonders if Facebook could have been a KPCB deal if Efrusy would have stayed on at Kleiner…
Mahendra Ramsinghani manages the First Step Fund and is the author of “The Business of Venture Capital.” Opinions expressed here are entirely his own.