TL;DR - Venture capital has spurred the growth and innovativeness of US small businesses.
Helpfulness - 5
Tags - venture capital, ARD, pension funds, SPIC, IPO, harvesting, grandstanding
- What spurred the explosion in VC in the 1980s?
- Why are VC firms best suited to finance high-risk start-ups?
- What role do venture capitalists play as investors?
- How/when did modern VC develop in the US?
- How did ARD shape VC?
- Why equity financing is more conducive to VC than debt financing?
- Where does VC funding come from?
- Small firms are more innovative than large firms.
- Following ERISA (1979), funding for VC rose dramatically.
- Venture capitalists monitor progress, sit on boards of directors, appoint/remove managers, and provide access to lawyers, consultants, and bankers.
- Modern VC in the US was developed in the late 1800s/early 1900s by wealthy families.
- The first modern VC firm (ARD) was developed in 1946 to finance WW2 era technologies for commercial application.
- ARD founder Georges Doriot dubbed the “father of VC.”
- SBICs rose (1960s boom) and fell (1970s bust) due to highly leveraged structures.
- Goal = home run; modus operandi = hand-on management.
- Increase in VC (1980s) correlated with IPO market, coincided with 1978 Revenue ACT and ERISA
- Money flowing into new funds comes largely from tax-exempt sources
- Timelines of VCs and pension funds (short-term) are mismatched.
- Early-stage investing declined over 1980s.
- 80% of VC investing comes from LP funds.
- Inexperienced VCs (< 5 years) are under tremendous pressure; IPO too quickly
- IPO is the most profitable method of harvesting.
Follow up links:
- SBIC, https://www.investopedia.com/terms/s/smallbusinessinvestmentcompanysbic.asp
- Leveraged Buyouts (LBO), https://www.investopedia.com/terms/l/leveragedbuyout.asp
- IPO, https://www.investopedia.com/terms/i/ipo.asp
- George Doriot bio, https://news.harvard.edu/gazette/story/2015/02/the-talented-georges-doriot/
- Limited partnership, https://www.investopedia.com/terms/l/limitedpartnership.asp