The transformation of venture capital: A history of venture capital organizations in the United States

This history analyzes the rise of venture investing through specialized organizations and the subsequent evolution of organized venture investing in the United States.;Members of the financial community called for "venture capital" and a new institution to manage it just before World War II. The call for venture capital was both a strategic response to environmental shifts and an ideological response to a perceived crisis of private capitalism in the United States.;The wartime crisis stimulated the development of new technologies and changed institutional arrangements for venturing. As public and private groups planned "reconversion" to a peacetime economy, interest groups agitated for public policy changes to promote diverse venture capital interests. This broad-based movement encouraged policy changes that expanded the market for growth stock and built an institutional foundation for venture investing.;The East Coast innovation of creating venture capital organizations just after the war was a response to the prewar call to reform and organize venture capital, as well as to postwar venture opportunities. The West Coast innovation was less conscious, more incremental, more purely a response to abundant postwar venture opportunities. The innovators tended to invest as individuals in loose associations, often as a sideline, yet they developed a distinctive venture investing style.;Enthusiasm about venture capital organizations waned during the 1950s, although more individuals experimented with venture investing. However, the Sputnik crisis in October 1957 galvanized support for a public venture capital initiative in 1958--the federally sponsored Small Business Investment Company program. By 1960, SBICs and other venture capital organizations were proliferating. Private venture capital partnerships began to supplant the SBICs in the late 1960s--partly because leading Eastern venture investors sponsored a new initiative for a private institution.;The "institutionalization" of venture capital noticed in the 1980s had two contradictory streams. Organized venture investing survived some tough years in the 1970s and by the early 1980s became established as a distinctive practice widely recognized for its contribution to U.S. innovation and growth. Yet as it expanded dramatically in the early 1980s, organized venture investing increasingly mirrored the practices of institutional finance.