Thursday, August 11, 2011
Posted by
Leah Yomtovian
The venture capital industry has been on the cutting edge of technological innovation, funding the commercialization of groundbreaking inventions and helping to create new industries like the biotechnology and clean technology sectors. But professional investors are a relatively recent breed. In fact, it was the United States federal government that created the industry just 50 years ago.
Until the middle of the 20th century, innovations and new companies were funded by corporations that had the resources to conduct R&D and distribute new products; the federal government that collaborated with universities and funded research and technology transfer to startups to out-innovate the Germans, Japanese, and Soviets; and wealthy individuals and families like the Rockefellers, Whitneys, and Vanderbilts that supplied private funding to promising companies for their upside and social potential.
With the passing of the Small Business Investment Act in 1958, small investment firms gained access to federal capital, which could be leveraged up to 4:1 against privately raised funds. The Act worked as it was intended to—stimulating technological advances and filling the gap between the availability of risk capital and the needs of entrepreneurs launching and growing businesses. Without this federal funding, many venture capitalists would not have been able to raise money to invest, especially at a time when risk investing was reserved for corporations, governments, and wealthy individuals, all of whom had money to spare.
Something Ventured, a new documentary screened at JumpStart earlier this month, provides a unique perspective on the first venture capitalists in the industry, many of whom took advantage of the new government program in the early 1960s and risked their livelihoods to back a technological revolution. The film features interviews with Arthur Rock (who funded Intel and Apple) and Tom Perkins (who funded Tandem and Genentech), as well as entrepreneurs Gordon Moore (co-founder of Intel), Robert Campbell (founder of PowerPoint), and Sandy Lerner (co-founder of Cisco). It tells the story of how these pioneers—investors and entrepreneurs together—laid the groundwork for our nation’s startup economy.
Northeast Ohio has benefitted from the growth of the venture capital industry and has attracted investors who, like Arthur Rock and Tom Perkins, are willing to support quality management teams with visions to create new, innovative companies and industries. In 2010, our region saw a 137 percent increase in dollars invested over 2009 compared to the nation’s 19 percent increase. Northeast Ohio’s competitive investment opportunities attracted 42 investors headquartered out of the region last year, including five headquartered outside of the U.S. And this year, investors have continued to support the region’s promising companies. During the first half of 2011, the region saw a 37 percent increase in dollars invested over the first half of 2010 as 54 companies attracted $71 million dollars from venture and angel investors.
Fifty years ago, a handful of men took a chance, investing in unseasoned entrepreneurs and new technologies with no clear markets. The successes of those innovative companies and their riskless investors changed the world, and it’s because of their triumphs that high potential upstarts across the country have been able, to a large extent, to access the capital they need to grow.
If you’re interested in getting a sneak peek at this new film, set to be aired on television in 2012, save the date for JumpStart’s Annual Community Meeting on October 25th, where you will have the opportunity to watch Something Ventured and see for yourself how the technological revolution transpired.
Leah’s primary focus as JumpStart’s Market Analyst is developing a deep understanding of the key challenges and opportunities facing entrepreneurs and early-stage companies. Using her experience leading research projects and framing problems to identify creative solutions, Leah works to build stakeholder relationships, ensure the growth and success of client and portfolio companies, and drive organizational strategies. Additionally, Leah brings her insights to life through communications and advocates for and connects entrepreneurs to additional capital and service resources beyond those provided by JumpStart.