I know I go on and on about being an English major, but a lot of you might not know that I’m also a history minor (if I ever remember to turn in the forms). I took my last course for the minor this past quarter, and I must say, I’m missing it. So, as I immerse myself in an industry that’s obsessed with the future, I’ve decided to devote this piece to answering a crucial question: how did we get here?

Because I am a history minor, not major, this will not be a thorough research project. Instead, I will be using a single essay as my resource: “The Rise and Fall of Venture Capital” by Paul A. Gompers. The essay, published in 1994, leaves us with a sense of mystery as to how VC fared during the dot-com boom, the emergence of social media, the development of artificial intelligence, etc. It also was written by a student at the University of Chicago, which I hear is a really good school.

While the piece does not contain the surface-level entertainment factor of, say, an essay on the McCarthy Hearings, it’s an exhilarating read in its own right. Gompers spins a tale of bloated valuations, fragmented risk capital in the time of Alexander Graham Bell, and more organized investments in the post-Depression reigns of Rockefeller, Bessemer, and Whitney Families.

He cites the first modern venture capital firm as being the 1946 Boston-based American Research and Development (ARD). Let’s set the scene: four men in suspenders – I can only imagine them in suspenders – sit at a conference table. Neither their shoes nor their shirts have logos on them. Not even their hats – in fact, they had taken off their hats upon entering the room. If there’s a draft, they have no fleece vest nor graphic hoodie at their disposal. All they have are their suit jackets, which limit the dexterity of their arms.

Okay, enough about attire. That’s not what they’re thinking about at the moment – it will be many years before uniform-building becomes the central task for venture capitalists. These men, at this table, in 1946, are thinking about capital-building.

Our characters are named Karl Compton, Merrill Griswold, Ralph Flanders, and General Georges F. Doriot. 

Compton, president of MIT, was the emotional member of the group. Although the other team members often found themselves comforting him when their ambitions didn’t seem to be unfolding as hoped, they also cherished him for being a good listener and a great judge of character. 

Griswold, Massachusetts Investors Trust chairman, was the party animal of the group. He could throw a killer banquet and shmooze like nobody’s business, but when it comes down to it, he can crunch numbers so fast that smoke emitted from his pen.

Flanders, president of the Federal Reserve Bank of Boston, was the mediator of the group. Like the mom-friend, he was there to keep everyone sane and prevent any overly optimistic or pessimistic spirals. 

Now General Doriot, a professor at the Harvard Business School, was something special. Gompers puts it best when he says: “Doriot was the heart and soul of ARD and is justifiably called the ‘father of venture capital.’ Doriot's focus was on adding value to companies, not just supplying money. Companies funded by ARD were considered to be ‘members of the family.’”

But it wasn’t always like that. As you can piece together, the firm started from nothing. It took Doriot’s fearless leadership to bring in and ensure the success of the first-ever portco. High Voltage Engineering Company was as cool as it sounded, and it was actually our sweetheart Compton who put it on Doriot’s radar. He told Doriot, “They probably won't ever make any money, but the ethics of the thing and the human qualities of treating cancer with X-rays are so outstanding that I'm sure it should be in your portfolio.”

Today we can affectionately laugh at Compton for his comment, as his team members often did. It turns out positive impact and money-making were not mutually exclusive – High Voltage went public in 1955, and by then the original $200,000 investment was worth $1.8 million.

Compton’s message continued to resonate with Doriot, who was very hesitant about overemphasizing quick profits at the expense of sustainability. He told this to Digital Equipment Company (DEC)’s CEO following ARD’s 1957 investment. “If you don’t reinvest into R&D,” Doriot exclaimed, “they’ll be saying RIP.” 

His advice proved fruitful – the investment increased in value from $70,000 to $355 million. 

But as the name of Gomper’s article suggests, the VC industry couldn’t ride this high forever. Rather than internalizing the “slow and steady” approach that worked so well for our favorite quartet, new venture firms seeking to make a name for themselves began engaging in a herd mentality, pursuing an irrational scale of investment until the bubble burst in 1984. Our beloved companies Priam and Miniscribe went bankrupt during this period (I sadly have never heard of them and am too lazy to look them up, but rest assured it was a tragedy).

Although we have no way of knowing the fate of VC post-1994, I can speculate that the lesson this article puts forth holds true, because contrary to the central tenets of venture capital, there’s nothing new under the sun.

Time for me to intern-splain my findings to Joe and Maddi! With this underground insight from Doriot and the squad, we can truly revolutionize the venture space by reconnecting the seeds to their roots.