You might think I’m referring to Bill Gates, but the story goes back much further in time.  The father of 20^th century technology, undoubtedly, was General Georges Doriot.   He was born in France in 1899.   Twenty-one years later, he came to the United States as a young immigrant to attend the Harvard Business School.   Four years later, he was the Assistant Dean of the school.  Yes, he was that bright. 

Most of us are fortunate if we find one thing in life we are able to do well.  Doriot found three.  He was a professor at the Harvard Business School for forty years teaching over 7,000 students.  In World War II he served as a brigadier general in the U.S. Army.  Lastly, he was the founder of American Research and Development.   The firm was founded after the war for the purpose of investing in entrepreneurial companies.   It was the first public venture capital firm in the investment world.   

Previously, venture capital had been the domain of rich industrial families.  This new concept of public financing small technology companies led to the birth of hundreds of new companies and thousands and thousands of jobs in the 1950s and 60s.  It epitomized the upswing of the long-wave.  ARD became the first major venture capital firm success story when it invested $70,000 for 70% of Digital Equipment Corporation in 1957.   By 1965 General Doriot was an icon in the investment world. 

With Digital going public, ARD had a return in excess of anything previously experienced in the investment business.  The $70,000 he invested in this mini computer company was worth $80,000,000 in just eight years.  It was an annualized rate of return of 101%!   More importantly, it was a symbolic bridge that our economy was changing from an industrial to a knowledge based economy.  This huge investment return made it easier for future startup technology companies such as Intel and Microsoft later in the 20^th century to raise money.   Ultimately, ARD funded over 150 companies.

This greater ease of funding is now carried to an excess in the 21^st century.  In the last century, I spent more than 30 years working for investment banks.  In that time frame, I cannot recall a company going public that did not make a profit at the time of the initial public offering.   It was required.  That changed late in the 1990s with the internet stock frenzy.   How did that work out?  Not well.  Today, too many technology companies have an Amazon.com redux business model.

In Digital Equipment’s first year, 1957, the company had sales under $100,000 and made $3,000.   Over the next 11 years the company went from 3 employees to over 7,000.  Sales, in the same time frame, grew to 147 million.  In time, the company was second in size to IBM.  Today we have unicorns lined up to go public.   Many of them have been in business 10-12 years with staggering valuations, billions in sales and have never made a profit.   Apparently, they are unaware of General Dariot’s admonition to everyone of his students, “Always remember that someone somewhere is making a product that will make your product obsolete.” Time and their size without profitability will work against them.  The purpose of a business is to make money.  Not to exercise future stock options.

-Francis Patrick Boland