A History Of Venture Capital

Today’s technology landscape is all about new ideas, new startups, and new experiences. Over the last two decades we have seen a revolution in the industry. From dial up squelches on your hulking PC, to streaming HD movies using LTE speeds on your iPhone, the technology world has expanded exponentially and promises to continue to do so. Many of the businesses, products, and apps associated with this movement were supported and funded by venture capital firms, an investment model that dates back to a time way before the internet, computers, and startups.

In the early 1900s private equity investing was the domain of the rich. Famous American families like The Wallenbergs, Vanderbilts, Whitneys, Rockefellers, and Warburgs. Perhaps the most well known of these families was the Rockefellers, who in the 1930s invested in airplane technology and airlines. Private equity investment wasn’t a purely North American concept though, with companies like Ericsson being funded by Americans in Sweden. It wasn’t until the 1940s, and the end of World War II, that a more modern form of venture capitalism emerged.

1946 saw the founding of the first two true venture capital firms, The American Research and Development Corporation (ARDC) and J.H. Whitney & Company. The ARDC specifically rose from the ashes of World War II, as their primary goal was to invest in businesses run by soldiers who had returned from the frontlines in 1945. These two companies are credited with being the first firms that didn’t depend on investment solely from wealthy families. Ironically, ARDC’s first hit did not come until 1957, when their $70,000 investment in Digital Equipment Corporation (DEC) came through to the tune of a public offering value of $355 million in 1968. The passing of the Small Business Investment Act of 1958 ultimately opened the floodgates for venture capital firms looking to invest in the breakthrough technologies of the time.

It wasn’t until the 1960s and 1970s that venture capital became synonymous with technology investment. This began with the funding of what is believed to be the first technology startup, Fairchild Semiconductor, in 1959. With the founding of multiple venture capital firms on California’s famous Sand Hill Road, technology investment skyrocketed. The number of firms rose from a few dozen at the beginning of the 80s to over 650 by the end of the decade. This represented an increase of $28 billion in capital investment over the 80s.

The 90s saw the beginning of the internet boom which inevitably culminated in the bubble bursting in 2000. The Nasdaq crash of March 2000 saw startup valuations plummet in the early 2000s, squeezing venture capital to half its capacity from 2001 to 2003. Since the mid 2000s we have been living in the age of startups. It is during this time that venture capital firms adopted the startup strategy of funding an idea and fuelling it through to its IPO.

What we haven’t seen in the last decade is a fall in failure rates among startups. Startups continue to fail at an alarming rate, with estimates ranging from 75% to 90% of all startups never making it big. In 2007, Momentum Ventures founded its first of seven successful businesses using an inventive strategy that has led them to a perfect record of launching successful businesses. Bucking the trend of traditional investment, Momentum Ventures has perhaps started down a path of forming a new chapter in the history of business development and investment.