A Micro History of Venture Capital

In 1946 American Research & Development Corporation (AR&D) was formed by Georges Doriot with the intention of investing in other companies. One of its famous investments was a $70,000 funding for Digital Equipment Corporation in 1957. Eleven years later, DEC went public with a valuation of $355 MM, or a return of over 500 times.

Doriot, who was a French immigrant and a Harvard professor, is much regarded as the father of venture capitalism and the first to teach entrepreneurship. In 1937 he taught a strangely named Manufacturing class which had nothing to do with manufacturing. Instead, he preached the principles of entrepreneurship, though he have always avoided that word. In his classes he would tell you how to dress, how to read a newspaper in less than a minute, and even what kind of a women to marry! Many would say that he taught a philosophy of life.

Despite all the investments that were happening at the time, many say that Arthur Rock was the first to coin the term Venture Capital. One of his first investments was when Gordon Moore and Robert Noyce approached him with the idea of creating a semiconductor company which we now know as Intel. At that point Arthur Rock was the business guru of the group so he wrote the business plan – a one page, double spaced business plan with few misspellings. They were seeking $2.5 MM for 50% equity. Rock was so well-networked in the business world that he secured the funding in two days. Two years later they went public, coincidentally the same day that Playboy went public.

Couple of years later and venture capital firms started to takeover Sand Hill Road (pictured above). Firms like Kleiner Perkins and Sequoia were some of the first purposefully structured efforts in that region. In 1977 Steve Jobs was working for Atari when he and Wozniak created Apple One. They offered Nolan Bushnell (founder of Atari) one third equity for $50,000 but he refused. Don Valentine (founder of Sequoia) was the first venture capitalist to meet the couple. He was very uncomfortable with the unkempt looks of the two, so he passes on their offer, only to join them in later funding rounds.

Fast forward to 1997 and 2000 and you get the dot-com bubble. At this stage the Silicon Valley is saturated with all kinds of venture capitalists and entrepreneurs. It was reported that during the dot-com madness many venture capital firms were automatically placing a pre-money valuation of $5 MM on startups so as to avoid the tedious ordeal of due diligence and valuation. They called this the “standard offer”.

Today, we are swamped with venture capitalists, angel investors, and screaming entrepreneurs. The term sheet have evolved into uncontrollable complexity and competition have never been more fierce.

In the future, my bet is on crowd funding platforms gaining even more popularity with an exponential maturity and spread of prototyping machines and collective innovation platforms. Can’t wait!