Venture Capital Basics: Part II of V

A History and origins of modern private equity

With few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals and families. The Vanderbilts, Whitneys, Rockefellers and Warburgs were notable investors in private companies in the first half of the century. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E.M. Warburg & Co. in 1938, which would ultimately become Warburg Pincus, with investments in both leveraged buyouts and venture capital.

Before World War II, venture capital investments (originally known as “development capital”) were primarily the domain of wealthy individuals and families. It was not until after World War II that what is considered today to be true private equity investments began to emerge marked by the founding of the first two venture capital firms in 1946: American Research and Development Corporation. (ARDC) and J.H. Whitney & Company.

ARDC was founded by Georges Doriot, the “father of venture capitalism” (former dean of Harvard Business School), with Ralph Flanders and Karl Compton (former president of MIT), to encourage private sector investments in businesses run by soldiers who were returning from World War II. ARDC’s significance was primarily that it was the first institutional private equity investment firm that raised capital from sources other than wealthy families although it had several notable investment successes as well.ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company’s initial public offering in 1968 (representing a return of over 1200 times on its investment and an annualized rate of return of 101%). Former employees of ARDC went on and established several prominent venture capital firms including Greylock Partners (founded in 1965 by Charlie Waite and Bill Elfers) and Morgan, Holland Ventures, the predecessor of Flagship Ventures (founded in 1982 by James Morgan).ARDC continued investing until 1971 with the retirement of Doriot. In 1972, Doriot merged ARDC withTextron after having invested in over 150 companies.

J.H. Whitney & Company was founded by John Hay Whitney and his partner Benno Schmidt. Whitney had been investing since the 1930s, founding Pioneer Pictures in 1933 and acquiring a 15% interest in Technicolor Corporation with his cousin Cornelius Vanderbilt Whitney. By far Whitney’s most famous investment was in Florida Foods Corporation. The company developed an innovative method for delivering nutrition to American soldiers, which later came to be known as Minute Maid orange juice and was sold to The Coca-Cola Company in 1960. J.H. Whitney & Company continues to make investments in leveraged buyout transactions and raised $750 million for its sixth institutional private equity fund in 2005.

Look for Venture Capital Basics: Part III of V here next week.

Brian Patrick Cork

Filed under: Business, Venture Capital , Business, Capital, Private Equity, Venture Capital

Venture Capital Basics: Part I of V

Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growthcompanies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company.

Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

So… A venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership (and consequently value).

Look for Venture Capital Basics: Part II of V here next week.

Brian Patrick Cork

Filed under: Business, Venture Capital

Accelerator Launch Press Release

Alpharetta, Georgia | January 21, 2009

“Brian Patrick Cork has rolled-out his highly anticipated “Accelerator” program where he is actively involved around incubating several disruptive technology (client) companies in the Atlanta market. In each case Brian has successfully facilitated first-round investments, recruited best-of-class candidates, and is actively involved in establishing new business development through his network and broad range of client companies and strategic partners.”

Filed under: Business, Economy, Entrepreneurs, Success, Technology, Venture Capital , Accelerator, Business Incubator, Disruptive Technology, Entrepreneurs, Recruiting, Startup, Venture Capital

Venture and Other Capital References

If you feel compelled to hire/ retain someone outside of your immediate organization to raise money for your business, ask that person or group for recent references that are relevant to your capital formation requirements.

This will help with the solution and reduce the problem.

Brian Patrick Cork

Filed under: Business, Coaching, Entrepreneurs, Strategy, Success, Venture Capital , Angel Investors, Private Equity, Venture Capital