When, how and where the concept of Venture Capital originated?

Georges DoriotThe current trend in the startup industry is going with venture capital. You have an idea, you can sell an idea, and you need finance, we are there for you, say VC firms.

When, how and where the concept of VC originated?

When I came to know about VC in my third year of engineering, the first name I knew was of Y Combinator and its co-founder Paul Graham but not of Georges Frederic Doriot. I won’t be surprised if many of you would wonder who is Georges Doriot. Georges Doriot, French born American is the founder of American Research and Development Corporation, the world’s first publicly owned venture capital firm. He is called the father of venture capitalism. INSEAD, the world’s top global graduate business school was co-founded by him.

As I researched more into the history of VC’s, their boom and bust cycles, it became clear that USA is the forerunner. The first U.S. business incubator was opened in Batavia, N.Y., in 1959. But the concept of providing business assistance services to early-stage companies in shared facilities did not catch on with many communities until at least the late 1970s.

In 1980, approximately 12 business incubators were operating in the United States – all of them in the industrial northeast, which had been hard-hit by plant closures in the previous decade. Control Data Corporation, under the direction of company founder William Norris, became one of the earliest supporters of the business incubation industry.

With a belief that large companies should work with government and other sectors to address major societal needs, Norris formed City Venture Corporation (CVC), a Control Data division that developed business incubators in several large and small cities. Georges Doriot founded ARDC in 1946 to encourage private-sector investments in businesses run by soldiers returning from World War II. ARDC became the first institutional private-equity investment firm to raise capital from sources other than wealthy families, although it had several notable investment successes as well

Venture Capital In India: In India, the venture capital plays a vital role in the development and growth of innovative entrepreneurships. venture capital activity in the past was possibly done by the developmental financial institutions like IDBI, ICICI and State Financial Corporations. These institutions promoted entities in the private sector with debt as an instrument of funding. For a long time, funds raised from public were used as a source of venture capital. This source however depended a lot on the market vagaries. And with the minimum paid up capital requirements being raised for listing at the stock exchanges, it became difficult for smaller firms with viable projects to raise funds from public.

The advent of venture capital in India is much later. In India, the need for venture capital was recognized in the 7th five year plan and long term fiscal policy of GOI. In 1973 a committee on development of small and medium enterprises highlighted the need to faster VC as a source of funding new entrepreneurs and technologies. VC financing really started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) promoted by ICICI and UTI.

The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions.

United States and Canada boasts of mature VC while India still needs to go a long way. Eventually Silicon Valley VC’s have started investing globally and Indian Entrepreneurs too benefiting largely from it. It is the year 2014 and we have several angel investors, venture capitals and incubators even in India. Also the need of the hour is that VCs require ample support so that their funds are parked in more profitable ventures and their exit is possible.

(Sources: www.nbia.org, www.ventureitch.com, www.indiavca.org, www.ventureitch.com, www.sequoiacap.com, and www.scribd.com)

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