Although the essence of venture capital can be said to have existed for many millennia, as illustrated by ancient traders and the early merchant banks, most historians agree that the founder of the modern venture capital industry was General Georges Doriot.
In 1946, Doriot founded the American Research and Development Corporation (AR&D), whose greatest success was the Digital Equipment Corporation (DEC). When DEC went public in 1968, it provided AR&D with an annualised return on investment of 101 per cent. The initial investment of AR&D in DEC of US$ 70,000 in 1959 had a market value of US$ 37 million in 1968. Another pioneering success story was the establishment of Fairchild Semiconductor in 1959, which many regard as the first ‘true’ venture-backed start-up.
Early venture capital investments were primarily funded by wealthy individuals and families. The first step towards a professionally-managed venture capital industry was the passage of the Small Business investment Act of 1958. This allowed the US Small Business Administration (SBA) to license private small business investment companies (SBICs) to support the financing and management of small entrepreneurial companies in the United States.
Since then, the venture capital industry has had a chequered history. During the 1960s and 1970s, venture capital firms focused their investment activity primarily on companies that were exploiting breakthroughs in computing, electronics, and data processing. As a result venture capital became almost synonymous with technology finance. It suffered a temporary downturn in 1974 with the stock market crash in the US, but by 1978 it had recovered, raising investments of around US$ 750 million.
In 1980, US legislation made it possible for pension funds to invest in alternative asset classes such as venture capital firms. 1983 was a boom year, with over 100 IPOs recorded for the first time in the US, marking the establishment of many of today’s largest and most prominent firms.
The ‘dot com’ era of the 1990s provided further growth for venture capital firms until March 2000, which marked the NASDAQ crash and technology slump. By mid-2003, many firms had been forced to write off companies that they had funded just a few years earlier, many funds were found to be ‘under water’, and the industry had shrivelled to about half its present capacity.
The revival of an Internet-driven environment, due to recent deals as eBay’s purchase of Skype, the News Corporation’s purchase of MySpace, and the very successful Google IPO, have helped to revive the venture capital industry.
Today, venture capital is thriving in its traditional markets of North America and Europe, and is making successful inroads into major emerging markets such as India and China.
In 1946, Doriot founded the American Research and Development Corporation (AR&D), whose greatest success was the Digital Equipment Corporation (DEC). When DEC went public in 1968, it provided AR&D with an annualised return on investment of 101 per cent. The initial investment of AR&D in DEC of US$ 70,000 in 1959 had a market value of US$ 37 million in 1968. Another pioneering success story was the establishment of Fairchild Semiconductor in 1959, which many regard as the first ‘true’ venture-backed start-up.
Early venture capital investments were primarily funded by wealthy individuals and families. The first step towards a professionally-managed venture capital industry was the passage of the Small Business investment Act of 1958. This allowed the US Small Business Administration (SBA) to license private small business investment companies (SBICs) to support the financing and management of small entrepreneurial companies in the United States.
Since then, the venture capital industry has had a chequered history. During the 1960s and 1970s, venture capital firms focused their investment activity primarily on companies that were exploiting breakthroughs in computing, electronics, and data processing. As a result venture capital became almost synonymous with technology finance. It suffered a temporary downturn in 1974 with the stock market crash in the US, but by 1978 it had recovered, raising investments of around US$ 750 million.
In 1980, US legislation made it possible for pension funds to invest in alternative asset classes such as venture capital firms. 1983 was a boom year, with over 100 IPOs recorded for the first time in the US, marking the establishment of many of today’s largest and most prominent firms.
The ‘dot com’ era of the 1990s provided further growth for venture capital firms until March 2000, which marked the NASDAQ crash and technology slump. By mid-2003, many firms had been forced to write off companies that they had funded just a few years earlier, many funds were found to be ‘under water’, and the industry had shrivelled to about half its present capacity.
The revival of an Internet-driven environment, due to recent deals as eBay’s purchase of Skype, the News Corporation’s purchase of MySpace, and the very successful Google IPO, have helped to revive the venture capital industry.
Today, venture capital is thriving in its traditional markets of North America and Europe, and is making successful inroads into major emerging markets such as India and China.
