Following the VC trek, a number of Kellogg students (including myself) visited startups in the Bay Area. The companies visited were Fusion One, Cubetree, Minekey, Terrapass, Hollrr, Widgetbox and Engine Yard. We then joined Kellogg's official Entrepreneurship Trek, visting Chegg, the Plug and Play Incubator, SnapLogic, Founder Institute, Sinexus, Yammer, EventBrite, Bump, and Meebo. What follows are some "lessons learned" that the entrepreneurs shared with us.

It is better to build a business that exits for $25M - $50M than one that exits for $1B. Building a $1B business is very difficult and requires extraordinary luck and/or skill. It usually also requires a lot of investment and dilution of your shares. The venture capital firms are looking to build $1B businesses, yet very few businesses ever become $1B businesses. In the meanwhile, there are many $25M - $50M exits where the founders have walked away with as much returns as those who have in a $1B exit. These exits are easier to execute. VC firms will not invest in a business that wants to exit at $25M - $50M, but it is a more realistic goal to create such a business.

Many successful firms start out doing one thing, with little success, but then discover they have acquired all the resources needed to do something else really profitably. As an example, Chegg started out as a Craigslist type classifieds service for students. There were many competitors doing similar things, but the growth of the business was small. They then experimented with renting text books and found this was proving to be a popular service. They suddenly found that the resources they had from the classifieds business, such as students lists and on-campus champions, put them in the perfect position to execute on this business. There were similar stories of experimenting, building resources and finding eureka monetization moments at other companies also.

Milestones are important. When building your business, you need to set milestones for when you are going to accomplish certain things, e.g. get FDA approval for a drug, release feature X or acquire 1M customers. If you don’t reach a milestone, you have to ask yourself why this is not the case – is it because of motivation? Because of resources or skills? If you are not able to address the shortcomings to reaching your milestones, you need to revisit what your business can accomplish. Milestones are paramount when it comes to fundraising; to obtain the next round of funding, you need to accomplish the milestones that give confidence to the next round of investors.

Networking is key. Several firms had obtained substantial expertise from others, people that the founders had worked with before. One particular firm had for its first two corporate customers two of the founders’ best friends from earlier in life. An executive from at another firm had previously roomed with an executive from yet another. The Bay Area seems to be full of incestuous relationships such as these – particular circles of people that control money and other resources, which ultimately enable the startups to succeed or fail. The difference was clear between those startups where the founders are "plugged in" to particular networks, and those where the founders seemed to continue to struggle with little success.

Viral growth. A lot of startups in the consumer internet space focused on building products that could create viral growth – this was the predominant growth strategy. If the product is good enough, the product will create huge engagement, as well as customer acquisition, purely from the way it works. Bump, the iPhone application, is an example of a product with huge viral customer acquisition.

Start with a core team. A startup needs a core team of 2 or 3 people who are extremely capable, work well together and can deliver and iterate the product quickly. This creates momentum and pushes the startup forward to funding and traction.

Don't spend time convincing people they have a problem. Instead, focus on finding the people who are already convinced that they have a problem. In sales, in hiring or anything else, targeting these people is the most effective use of your time. Convincing people from scratch that the problem exists consumes a large amount of time and effort.

Corporate IT departments are gatekeepers preventing SaaS from becoming a multi-billion dollar business. IT departments, threatened by the flocking of technology to the cloud (and consequent redundancy of their jobs), are proving to be resistant to SaaS adoption. Ultimately, in the long run, SaaS will win through, but their resistance is slowing the pace of adoption.

Laser focus on customers means competitors are not as important. If you focus on a particular segment and satisfy their needs really well, you don’t need to worry as much about competitors. Your product will simply be the best thing for the customers you are targeting.

The most important thing is getting traction. If your product is getting traction, everything else will be easy – getting investors, hiring, mentors etc. If users are flocking to your product, all these other resources and people will come and find you.

Doing a startup is an emotional rollercoaster. Experienced entrepreneurs become numb to the ups and downs. You just have to accept it and learn to manage it.

Realise the phases of a startup and do what you are naturally good at. E.g. the early phase of bringing an idea together versus the phase of building a business – know in which phase your capabilities lie and focus on that, handing over to other people for other phases.

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I spent two days on Kellogg's Venture Capital (VC) trek to the Bay Area. We visited a broad range of firms, from life science centric Alta in San Francisco to typical residents of Sand Hill Road, such as Battery. I've summarized my main take-aways from the trek into the broad areas of (1) startups and investing (2) hot areas of (high tech) investment (3) getting a VC job and (4) some other points. Many thanks to Windsor and Thupil for organizing.

Startups and investing.

If the area that you are looking at is trendy now, it is too late – the opportunity has already passed. You need to be ahead of the curve. The VC looks for people who have powerful market insights – people who know something more in the area than the average top tier person. The VC invests in people who they think can solve the problem in the area, not in a specific business plan.

Most sectors are cyclical. The question is how long is the cycle? For clean tech this could be 20 years, which is too long for a VC backed fund. When the VC invests, they have to believe the company can become a billion dollar company. They play for big hits, knowing only a small portion will become big hits.

Success happens to you. Only when you fail do you learn something. Doing something (e.g. a startup) and failing teaches you things that are invaluable about how startups work.

Hot areas of (high tech) investment.

Two areas of high tech investment stood out in particular across the firms.

Mobile: All the things that we needed on the Internet in 2000, we'll need on mobile in the not too distant future, e.g. payments, advertising, commerce. The opportunity is in figuring out how these things might work on mobile.

Enterprise: virtualization and cloud computing are hot in this area. In the past, to win money from enterprises, it was necessary to approach IT departments and win over large amounts of money for large contracts, e.g. a SAP implementation. What we are now seeing is individual business units buying SaaS software for small amounts of money, e.g. entry level SalesForce. Because the level of enterprise sign-off required for small amounts of money is low, it is easier to get these transactions done.

Getting a VC job.

Jobs at VCs usually open up as a need arises for particular skills or expertise. When that hole opens up at a VC firm, you have to be the right peg to fit that hole. Sometimes that openings won’t match your skillset. In the meantime, you have to keep developing yourself until the opportunity arises. You have to keep yourself at the top of VC’s minds, perhaps dropping them an email every quarter.

While you’re not yet working at a VC firm, you have to become an expert, perhaps in a particular domain or in human-issues of startups. You have to place a bet on what kind of skills will be useful in 2 or 3 years out, and start developing the skills for that area. Sales and operating experience are two generally very useful experiences for rounding out your skill-set.

Other points.

While fund sizes get bigger, the number of quality opportunities does not. In the future, the number of VC firms and the amount of money in VC will need to reduce if the industry is to return to reasonable returns.

In the meanwhile, VC firms are other ways to deploy this extra capital efficiently. For example, VC firms are building to Entrepreneur-In-Residence programs and using those to start businesses in which they own a much larger share than they might otherwise.

VCs come in all shapes and sizes, from very slick to the nerdy. The backgrounds of VC are very varied, and the stories of how they got into VC is just as varied.

For LPs, the most important thing to them is a VC being able to show them exits.

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