Venture Capital for New Products
It is said that the World is always searching for a better mousetrap. The fact that venture capital is available for new products must cause nightmares for hungry mice.
Despite the fact that history is full of stories of innovative and imaginative men being mocked for their radical new ideas, people have still not given up their resistance to change and their love of the old way of doing things. This tendency to question the new and innovative often is reflected in the attitudes of loan officers in the very traditional banking industry. So, when someone invents a better mousetrap, where do they get the funds to get the production line established and the finished product onto the store shelves? Venture capital for new products has provided much of the technological wonder of our modern time.
The classic beginning of the venture capital company idea is a good illustration of this concept. When the American Research and Development Corporation provided $70,000 dollars to a couple of dreamers that were beginning the Digital Equipment Corporation, the idea of the personal computer as we know it today would have gotten a fantasy and science fiction writer laughed out of town. In the movie, Apollo 13, Tom Hanks tells a skeptical group touring NASA, that they say someday there will be a computer that fits in a single room!
Today, personal computers that would have put the NASA computers of Apollo 13 days to shame fit in the palm of a teenager’s hand. Of course, AR&DC’s investment netted them more than $355 million, and a 101% annual rate of return. All venture capitalists do not expect this to happen with every investment, but the thought is always there. The next great leap forward in our technological march is right now a dream floating around in the back of some young person’s brain.
Venture capital is a very important part of our times. We are moving forward very fast, but still tradition and prudence have made our banking and lending institutions poor candidates to take the risks involved in the research and development, let alone the actual production of new products. This is not a criticism of them either. They are often responsible for the life savings of families and widows unwilling to take risks, and their stewardship of the funds of their customers dictates caution.
This is why it is to the venture capitalist that we must look to keep the technological ball rolling and provide the funding for those eccentric new ideas that will be the salient features of our life a decade in the future. The risk is high. The reward is great. This is the credo of venture capital and it is ideally suited for new products and new ideas.