Venture Capital - A surprisingly short history

Although there is some similarity between venture capitalists and some of the oldest forms of financing, the real story of venture capital began in the years following World War II.

There was a form of partnership agreement as practiced in medieval Islamic society that bears a striking resemblance to the current system of venture capital investment. Most experts, however, tend to start a discussion of risk capital with the formation of American Research and Development Corporation in 1946. AR & DC was founded by General Georges Doriot, a Frenchman born and Harvard educated businessman who recently left the U.S. Army with the rank of General.

Doriot AR & DC made an investment of $ 70,000 in 1957 to provide venture capital for the launch of Digital Equipment Corporation. This $ 70,000 investment ultimately grew to be worth $ 355 million dollars. When digital public when in 1968, has provided AR & DC with an annual rate of return of 101%. This amazing success story involves, in some way, the target business model of venture capitalists.

The Small Business Administration was involved with the idea to venture capitalists when Congress passed the Small Business Investment Act 1958. This law allowed the licensing of small business investment companies, called SBICs. In the years before the Second World War, it was primarily the eccentric rich family or support it has provided venture capital for projects that have been breaking new technological ground. Since the traditional lenders tend to shy away from such risky investments, Congress had recognized the need to encourage and enable the flow of capital investment in these areas to help maintain economic growth and the country technologically competitive.

The dawn of the information technology revolution and the later part of last century, has provided a solid ground for growth in venture capital. The emergence of Silicon Valley in California in San Francisco, a center for venture capital investments. The venture capital industry has been extremely sensitive to stock market activity due to the fact that their investments are usually in the form of stock ownership. The stock market decline of 1974 was a big set back for venture capital firms.

The dot com boom of the late 1990 followed by the NASDAQ and technology bust of early 2000 was another roller coaster ride for venture capitalists. However, today the industry is recovering and returning slowly to those initial levels of investment activities. As always, the venture capital financing is risky, but necessary for significant progress on the edge very sharp business. Today, alternative fuels and alternative forms of energy seem to be the areas where the Digital Equipment Corporation could emerge next .......