Frank Thoughts: The Start of Technology
Frank Boland
September 20, 2022

As I pulled into the parking lot of Pier 4 on the Boston harbor, I was stunned by what I saw. To my right were two colossal ocean liners, each about 1,000 feet long. The ships had large flags reading, “Welcome to DEC World.” It was 1987 and Digital Equipment was then a 14-billion-dollar computer company, second in size only to IBM. The ships had been hired to be used as hotels because every hotel in Boston was full; over 42,000 people had arrived in the city that week as “DEC World” guests.

It had all started with a highway outside of Boston called Route 128. The road is a 65-mile stretch built in the early 1950s that gave birth to the concept of industrial office parks. Because of the highway’s proximity to the city’s educational institutions, it would become known as “America’s Technology Highway.” Harvard and M.I.T. would figure prominently in the development of this new economic and subsequent stock market sector. Two college professors, General Georges Doriot of Harvard and Ken Ohlson of M.I.T., would together launch a stock market wunderkind called, Digital Equipment.

Doriot was originally a French citizen who had come to the U.S. to attend the Harvard Business School. After one year as a student, he went to work as an investment banker in New York only to return while still in his early 20s and become a member of the faculty. As World War II started, Professor Doriot was appointed the General in charge of all logistics for the United States Army. When the war ended, he once again returned to the school. This time he also wanted to help returning war veterans find jobs. Thus, there was a social purpose for creating American Research and Development.

ARD, as it became known, was the first public venture capital fund. Prior to its formation, VC money was privately provided by rich families. In 1957 ARD funded a newly formed technology company called Digital Equipment with $70,000. ARD would own 70% of the company. The large ownership was given for the same reason that there was no mention of the word computer in Digital’s name. Too many previous computer companies had failed trying to compete against IBM mainframes. IBM then was an exception to the old investment adage: “Pioneers are the ones with arrows in their backs.”

Eleven years after ARDs funding, Digital Equipment went public at $22. ARD had made 500 times on its investment. That “electrified” the investment community. No one before had ever come close to that kind of a return. Moreover, when ARD sold its entire stake in Digital Equipment just four years later for $400,000,000, it was a return on the original investment of 70,000%! Venture capital and investment management had seen its future. The company had set the stage for the new technology sector to be the growth engine in the economy and stock market for the next 54 years.  

DEC was an early giant of technology success. But it was also an example of technology’s greatest investment weakness; that its relatively short life cycle. General Doriot was prescient in his awareness of this. The professor taught for 40 years having over 7,000 students in his tenure at the Business School and gave them all, the same message. “Someone, somewhere is making a product that will make your product obsolete.” DEC was a prime example of this phenomenon. It was bought by Compaq Computer, which was bought by Hewlett-Packard which was ultimately broken into separate companies. ARD would fund over 150 technology companies in this constant search for finding a competitive advantage. Holding that competitive advantage is the risk… and reward for investors.

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