Venture Capital Circa 1990: The Jurassic Period?
In February I moved. In August I put up my bookshelves. Sound familiar? If you´re a book lover then you´ll probably also identify with the satisfying feeling of unpacking your books, dusting them off and carefully shelving them in a new abode-if you can get them from the box to the shelf. If you do it right-it takes a while, at least one bottle of wine and a good reading chair.
One title which caught my eye during this round of unpacking was "Venture Capital at the Crossroads" by William D. Bygrave and Jeffry A. Timmons (Harvard Business School Press, 1992), a book I bought when I first started covering the venture capital industry as a journalist in the early 1990s.
Over the years I have used the book as a touchstone and for perspective and have worn down more than a few pencils with my underlining, some of which I´ll share with you here (quoted or paraphrased). Two thoughts when you´re reading this book, 1) some things never change, 2) what a difference a decade or so makes:
"?¢ According to the book, General Georges Doriot and Ralph Flanders created American Research & Development (ARD) in 1946, which is considered the first venture capital firm, as opposed to private individuals, to provide risk capital for new and rapidly growing firms, most of which were manufacturing and technology oriented.
"?¢ Doriot was a professor at Harvard Business School. He, Flanders and a few colleagues believed that technology being developed at MIT during World War II held promise for commercial applications. Flanders was president of the Federal Reserve Bank of Boston and concerned with the lack of new company formation and the inability to tap institutional capital locked up in fiduciary funds by corporations, insurance companies, and other institutions.
"?¢ At the time the book was written, Arthur Rock was considered one of the most successful venture capitalists of all time. Rock was a lead investor in Apple Computer, Fairchild Semiconductor, Teledyne Corporation, Intel, and Scientific Data Systems, Inc. Rock made a $257,000 investment in SDS which was worth $100 million when it was sold to Xerox.
"?¢ "..., investors hope for returns of ten times or more on their invested capital. Ideally, they want to be in an investment for only four or five years but are prepared to stick it out if the promise and progress are there." (Cough. Cough.)
"?¢ "It is simply said in the industry that the lemons ripen within two and a half years while the plums take seven or eight."
And that´s just from the first chapter. I´ll share more as I work my way through--again.
William Bygrave is Frederic C. Hamilton Professor for Free Enterprise at Babson College. Jeffry Timmons is the Franklin W. Olin Distinguished Professor of Entrepreneurship at Babson College. Both continue to write on venture capital and entrepreneurship.
