“There have been many fine scientists desperately trying to become poor businessmen.”Georges Doriot
Venture Capital pools resources and spreads risk and reward across multiple companies. This simplifies early-stage investing and makes early-stage investing more convenient for both investors and entrepreneurs.
General Georges Doriot is the “father of venture capital.” In 1946, he created the first modern venture capital firm, American Research & Development Corporation (ARD). Eventually, he listed it on the New York Stock Exchange.
Doriot is widely regarded as a founder of Silicon Valley despite that he never visited the region. Individual wealthy patrons typically funded startups before Doriot’s ARD.
Besides ARD, Doriot was a Professor and Dean at Harvard Business School for 50 years, from 1926-1966. Later in life, he also founded INSEAD. During WWII, Doriot took US citizenship, joined the army, and rose to the rank of General working in the military planning division.
Among ARD’s other VC investments, in 1957 Doriot purchased 70% of Digital Equipment Corporation (DEC) for $70,000. Eventually, in 1967, that investment alone was worth $183 million.
Doriot Struggles with Regulators
Regulators forced ARD to sell their DEC stock, arguing a VC firm could not hold founders’ stock for more than ten years. Oddly, they could buy and hold stock in companies they did not initially fund.
US Securities & Exchange Commission (SEC) regulations at the time forbid VC principles from holding stock options in their firms so Doriot, and other ARD principles, made little profit personally.
Finally, the SEC ruled no company that received investment from ARD could issue employee stock options. Since this meant no company would accept an investment from ARD the ruling effectively shuttered the firm and forced Doriot to sell it in Jan. 1972.
Venture Capital Flourishes
In 1959, Doriot student Gen. William Henry Draper started the first VC partnership, Draper, Gaither & Anderson, in Palo Alto, CA. Another notable student of Doriot’s is Thomas Perkins, co-found of Kleiner-Perkins. Arthur Rock, another student of Doriot’s, funded Fairchild Semiconductor and Apple.
Eventually, under President Carter, the SEC the rules to enable modern VC companies. Virtually all venture capital firms today remain privately held.
“Never go into venture capital if you want a peaceful life.”Georges Doriot