Venture capitalists have a long history of supporting new business ventures in the
United States. In fact, since the 1960s, VC funding has been the main source of
capital resources for most new businesses.
In the early 1960s, the main source of investment for new business ventures was
family and friends. Traditionally, individuals, families, or groups of people in
tightly knit communities invested their personal assets in new business ventures.
These people were called Angels. The functions they perform are very similar to
the angel investors of today.
As the economy was doing well in the 1960s, returns on investments were also very
good. As a result, these business investors began to systematically search for and
invest in companies.
In 1971, the first group of venture capitalists was created. It happened when three
successful angels came together and invested their money as well as funds from other
rich individuals and institutions into a new business. This was the start of the
first venture capitalists group.
VC funding then became the main source of funding for most new business ventures.
However when the economy started to slow down in the late 1970s, venture capitalists
also slowed down on their investments. In 1975 only one new business venture was
funded by VC funding. However, the returns continued to be extremely good for most
venture capitalists.
The Federal government also lent a helping hand to venture capitalists and business
investors at this point of time. In 1978 the government changed the pension plan
rules under so that individuals could invest in alternative and high risk funds.
This made it possible for more individuals to invest their money with venture capitalists.
VC funding peaked in the late 1980s, during the time that technology began to grow.
More new business ventures were coming up with more interesting and exciting ideas.
The stock market peaked and there were over 100 initial public offerings for the
first time in U.S. history. At that same time,
VC funding in new business ventures
jumped by over 30 per cent. Venture capitalists funded new businesses to the tune
of $ 4 billion that year.
However, in 1991, disbursements of VC funding hit a 10-year low.
VC firms retrenched,
working hard to make their portfolio companies successful.