VC: An American History

Tom  Nicholas

Book | 2019

VC: An American History

Abstract

An exploration of venture financing in America, from its origins in the whaling industry to the rise of Silicon Valley, that shows how venture capital (VC) created an epicenter for the development of high-tech innovation. The VC industry arose from the United States’ long-running orientation toward entrepreneurship and a faith in low-probability but substantial financial payoffs. Whether the investment opportunity is a whaling voyage setting sail from New Bedford or the newest startup in Silicon Valley, VC is not just a model of finance that has proven difficult to replicate in other countries, it is a state of mind exemplified by an appetite for risk-taking, a bold spirit of adventure, and an unbridled quest for improbable wealth through investment in innovation.

Keywords: innovation; Venture Capital; Innovation and Invention; Entrepreneurship; History; United States;

Format: Print

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Nicholas, Tom. VC: An American History. Cambridge, MA: Harvard University Press, 2019.

In 1993, four years prior to the publication of Clayton Christensen’s highly influential book, The Innovator’s Dilemma, the Business History Review (BHR) published an article by Christensen titled “The Rigid Disk Drive Industry: A History of Commercial and Technological Turbulence.” The BHR piece relates the theory of disruptive innovation to Alfred D. Chandler’s work on large vertically integrated enterprises. It was published during a pivotal era of scholarship on innovation, management practice and industry evolution, much of which used the history of firms, industries and technologies to build theory. I survey the impact and critiques of Christensen’s research agenda highlighting how it illustrates where the boundaries associated with the “lessons of history” should be drawn.

In 1929, Chicago, IL mob boss Al Capone was at the height of his power. As head of the extensive crime organization known as "The Outfit" during most of U.S.'s Prohibition Era (1920-1933), Capone oversaw hundreds of brothels, speakeasies, and roadhouses which served as venues for gang-administered gambling, prostitution, and illegal alcohol sales. At their peak, yearly revenues from all of his enterprises combined totaled over $100 million. Capone's ability to operate these establishments with impunity stemmed from a combination of his political ties and a profound fear of reprisal. Capone's ascension had come at the tremendous loss of human life. Turf wars between Chicago gangs had caused roughly 700 gang-related deaths from 1920 to 1930. By some estimates, Capone had been directly or indirectly responsible for over 200 murders, the most notorious of which was the St. Valentine's Day Massacre in February 1929, a shootout that had killed seven men from a rival gang. The brutality, efficiency, and wealth of Capone's organization demonstrated the destructive forms of American entrepreneurship in the early 20th century.

Examines technology, firm performance, and the stock market during the 1929 Great Crash and the Great Depression of the 1930s. The 1920s was an extraordinary period of technological progress marked by a strong run-up in stock market prices. Firms invested heavily in R&D and human capital, while mass production and scientific management techniques were extensively adopted. Narrates the history of the 1920s and 1930s through the life of Irving Fisher, a prominent academic, investor, technologist, and market commentator who claimed that innovation was driving equity prices higher. Analyzes why Fisher believed that the high level of the stock market was justified, and his explanations for why the stock market crashed. Further explores the 1930s, marked by mass unemployment and social distress on the one hand, and entrepreneurship and innovation on the other. Fisher's views provide a conduit for examining the dynamics of stock market behavior and economic performance during one of the most significant periods in U.S. economic and financial history.

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VC: An American History

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