The modern venture capital industry emerged in the mid-20th century, and its origins can be traced to the establishment of the American Research and Development Corporation (ARDC) in 1946. Georges Doriot, along with Ralph Flanders and Karl Compton, founded ARDC with the primary objective of fostering private-sector investment in businesses led by soldiers returning from World War II.
Key Facts
- Georges Doriot, along with Ralph Flanders and Karl Compton, founded the American Research and Development Corporation (ARDC) in 1946.
- ARDC was the first modern venture capital firm.
- ARDC aimed to encourage private-sector investment in businesses run by soldiers returning from World War II.
- Prior to ARDC, wealthy families such as the Vanderbilts, Rockefellers, and Whitneys were the main source of risk capital for private companies.
- ARDC proved that there was interest from institutional investors to invest in venture capital firms, expanding the sources of risk capital beyond wealthy families.
- ARDC’s major success came from its investment in Digital Equipment Corporation in 1957, which provided a significant return on investment and set the mark for the potential high returns that venture capital funding could achieve.
- Georges Doriot’s impact on the venture capital industry can still be seen today through former employees or students who went on to form successful venture capital firms.
ARDC: The Pioneer Venture Capital Firm
Prior to ARDC’s formation, wealthy families such as the Vanderbilts, Rockefellers, and Whitneys were the primary source of risk capital for private companies. However, ARDC’s establishment marked a significant shift in the venture capital landscape. It was the first modern venture capital firm, raising capital from sources other than families, including universities, insurance companies, and investment trusts.
Institutionalizing Venture Capital
ARDC’s innovative approach proved successful, demonstrating the viability of institutional investment in venture capital firms. This expanded the sources of risk capital beyond wealthy families and laid the foundation for the institutionalization of the venture capital industry.
ARDC’s Legacy: Digital Equipment Corporation and Beyond
One of ARDC’s most notable investments was in Digital Equipment Corporation (DEC) in 1957. ARDC’s investment in DEC yielded a substantial return on investment, showcasing the potential high returns that venture capital funding could generate. This success further solidified the role of venture capital in funding innovative businesses with high growth potential.
Doriot’s Enduring Influence
Georges Doriot’s contributions to the venture capital industry extended beyond ARDC. Former employees and students of Doriot went on to establish prominent venture capital firms, including Greylock, CRV, Mayfield, and Venrock. These firms have played a significant role in shaping the venture capital landscape and continue to invest in promising startups.
Conclusion
Georges Doriot and the founding of ARDC in 1946 marked a pivotal moment in the history of venture capital. ARDC’s innovative approach to raising capital and investing in high-growth businesses laid the groundwork for the modern venture capital industry. Doriot’s legacy continues to influence the industry today, as former associates and students have established successful venture capital firms that continue to drive innovation and economic growth.
Sources
- Venture Capital – Wikipedia
- VC History – Venture Forward
- The Evolution of Venture Capital: A Brief History and Future Outlook
FAQs
Who is considered the first venture capitalist?
Georges Doriot is widely recognized as the first venture capitalist.
When and where was the first venture capital firm founded?
The first venture capital firm, American Research and Development Corporation (ARDC), was founded in 1946 in the United States.
What was the primary goal of ARDC?
ARDC aimed to stimulate private-sector investment in businesses led by soldiers returning from World War II.
How did ARDC differ from previous sources of risk capital?
ARDC was the first venture capital firm to raise capital from institutional investors, such as universities and insurance companies, rather than solely relying on wealthy families.
What was a notable investment made by ARDC?
ARDC’s investment in Digital Equipment Corporation (DEC) in 1957 was a major success, demonstrating the potential for high returns in venture capital funding.
How did Georges Doriot’s legacy extend beyond ARDC?
Former employees and students of Doriot went on to establish successful venture capital firms, including Greylock, CRV, Mayfield, and Venrock.
What is the significance of Doriot’s contributions to the venture capital industry?
Doriot’s pioneering work helped to institutionalize venture capital and establish it as a viable source of funding for high-growth businesses.
How does Doriot’s legacy continue to shape the venture capital industry today?
Venture capital firms founded by Doriot’s former associates and students continue to play a significant role in funding innovation and driving economic growth.