Modernizing the Traditional Venture Capital Model Utopia or Reality?

Origins

Historically, a majority of venture investments have lost money, but large gains by a few successful investments have allowed the industry to generate positive returns. Venture capital is centuries-old. The 1850 U.S. whaling industry resembled modern venture capital. Whaling involved high-risk, high-reward ventures with a typical venture capitalist payoff.

Early 20th-century startups were funded by wealthy families and individuals. Angel investors today. Pan Am, Eastman Kodak, and Ford Motor Company are examples. Rockefeller Brothers, Inc. (1946), T. Mellon & Sons (1946), and J. H. Whitney & Company (1946) were among the early “investment development companies” founded by wealthy families (1946). Jock Whitney and Benno C. Schmidt Sr., co-founders of J. H. Whitney & Company, first used “venture capital” in 1946.

American Research and Development Corporation (ARD) founded the venture capital industry. In the fall of 1946, ARD, founded in Boston by prominent bankers, academics, and businessmen, raised $3.5 million for a closed-end fund from institutional investors. MIT and Harvard connections facilitated early deals. One of the founders of ARD was General Georges Doriot, then a professor at Harvard Business School. Many of his students became successful venture…