Open Book: Important Lessons from a Venture Capital Pioneer

During tough times, people naturally seek out wisdom from their elders. And as today's financial crisis deepens, my thoughts have returned to Georges Doriot, a visionary French immigrant and legendary Harvard business school professor who pioneered the U.S. venture capital industry.

Venture capital has existed in one form or another since the earliest days of commercial activity. The Spanish monarchy and the Italian investors who financed the TransAtlantic voyage of Christopher Columbus were, in a sense, venture capitalists. But it wasn't until the second half of the 20th century that venture financing became a professional, large-scale industry. And the man who led that transformation was General Georges Frederic Doriot.

In 1946, after leaving the U.S. military, General Doriot became president of the first public venture capital firm: Boston-based American Research and Development Corporation (ARD). Over the next twenty-five years, ARD financed and nurtured more than 100 start-ups, many of which became huge successes that pushed the frontiers of technology and business. ARD's biggest hit: minicomputer maker Digital Equipment Corp. in 1957. By 1972, when ARD liquidated its $70,000 investment, it was worth more than $400 million.

While Doriot chided investors who chased short-term returns , his philosophy of patient investing -- building for the long-term -- retains enormous value for today's investment community. My biography of Doriot, Creative Capital, contains many of these lessons. But in this column, I have collected some nuggets from the book and other research materials to give you a taste of his ideas that have stood the test of time.

In the spring of 1961, Doriot articulated his vision when he addressed the Chicago Society of Security Analysts in a speech titled "Creative Capital." By that time, ARD had created an impressive track record: it had invested $11 million in 66 ventures that, by 1960, were worth about $30 million. Sales of 29 other ventures had yielded capital gains of $3 million, offset by a capital loss of $850,000 from only nine failures.

It was an impressive performance. How did Doriot maintain such a high batting average?