The Frenchman who funded US start-ups
By Martin Arnold
Published: April 17 2008 03:00 | Last updated: April 17 2008 03:00
French politicians often look enviously across the Atlantic at the entrepreneurial successes of the US economy, such as Google, Apple, Intel and Microsoft. So it is a heavy irony that the man who founded the US venture capital industry, helping to create many multibillion-dollar companies, came from France.
In Creative Capital , Spencer Ante, a Business Week journalist, recounts the life of a true 20th- century Renaissance man, Georges Doriot, pictured below.
Aged 21, Doriot sailed by steamship to the US from his native France and went on to become a brigadier general in the second world war, one of the most influential professors at Harvard Business School and founder of Insead, Europe's first business school.
But his main achievement was to pioneer the US venture capital industry in 1946 by setting up American Research & Development (ARD), which backed one of the first blockbuster technology start-ups, Digital Equipment Corporation.
Born in Paris in 1899, Doriot was the only son of a promising industrialist at the Peugeot car company and his schoolteacher wife.
The book charts Doriot's early years in minute detail. This makes the first chapters heavy going, especially after Doriot's arrival in the US as he graduates from Harvard and starts work at Kuhn, Loeb & Company on Wall Street before returning to Harvard as a professor. It takes almost half the book for ARD to appear.
Yet it unearths some interesting anecdotes, such as how Doriot received the Distinguished Service Medal, the highest military award for a non-combatant, for running the army's resources division. His unit developed many innovative pieces of military equipment, including the "Doron" plastic flak jacket, named after him.
The book chronicles how "the war was a watershed for entrepreneurialism" as high levels of military research spending created a fertile climate for high- tech start-ups. Doriot, with backing from the Massachusetts Institute of Technology, formed ARD as the first professional venture capital firm to raise money from non-family sources.
After a frantic struggle, the Boston-based firm raised $3.5m, well below its $5m target, by selling shares to a small group of investors. Its early years were marked by several misses, such as an investment in a Fiji tuna fishing company that went bust.
The book seeks to explain why Doriot and ARD were successful. His strategy relied on backing talent, not technology. "An average idea in the hands of an able man is worth much more than an outstanding idea in the possession of a person with only average ability," he said.
By far his biggest success was to back Kenneth Olsen and Harlan Anderson, two young engineers at MIT, as they started Digital to produce the first transistor-based computer in a challenge to IBM's dominance. Doriot showed his thoroughness by insisting on meeting both men's wives before investing.
For years, Doriot resisted calls to make a quick buck on Digital, asking: "When a man has a stable of horses and one wins the Grand Prix, do people say 'what a good stable this man has?' Or do they say 'you should get rid of your winner and develop the others'?"
Its initial $70,000 investment in Digital in 1957 returned shares worth $400m to ARD's investors 15 years later. Digital was eventually sold for almost $10bn to Compaq in 1998 and is now part of Hewlett-Packard.
Doriot's life had frustrations as well as triumphs. One was his attempt to repeat the success of ARD in Europe by creating the European Enterprise Development Company in 1963, only for it to fold a decade later, burdened with debt and struggling with a fragmented European market.
A disciplinarian, dubbed "the general" by students and colleagues, Doriot had a maniacal work ethic and a fiercely stubborn streak. He failed to groom a successor at ARD and stayed too long at the helm.
Nonetheless, people who worked at ARD later set up many of Silicon Valley's best-known venture capital firms. His manufacturing course at Harvard made a lasting impact on many of today's US corporate leaders.
This book will appeal to anyone interested in the origins of venture capital, why its centre of gravity moved from the Boston area to the west coast, or what it takes to succeed as a VC investor.
But, amid today's financial turmoil, in which venture capital has been relegated to almost a footnote in the alphabet soup of global finance, the tale of Doriot's life is also a timely testament to the courage and determination of an investment pioneer.
Copyright The Financial Times Limited 2008
Comments