Abstract: Creating Modern Venture Capital: Institutional Design and Performance in the Early Years
The institutionalized form of venture capital, as it is practiced today, dates back only to the early post–World War II era. This paper presents some early results of a new study on the evolution of the venture capital industry and the firms it helped create and grow. This paper focuses primarily on the level of entrepreneurs and firms in order to paint a more fine-grained portrait of institutional development. It also takes a longitudinal approach, following these people and institutions for an extended period of time. The first part of the paper quickly surveys the supply of organized venture capital finance from 1945 to the early 1970s, and gives a brief picture of the regulatory environment that created some of the need for a separate industry for venture capital financing. The second part investigates the sources of demand for venture capital, especially the entrepreneurs and companies that were financed by venture capitalists in the late 1940s through the 1970s. The third part presents some preliminary evidence on the performance of the various types of venture capital firms and the companies they backed, primarily in the form of long run stock returns.