energy security ebbed away. Thereafter, in the 1990s, as a report on energy R&D observed at the time, the national preoccupation was “on how to cut programs to reduce the federal deficit.” Indeed, the low point for DOE R&D was in 1998, when oil prices collapsed. Spending started to go up again with the new century. But energy R&D funding has remained low when measured against the energy and security challenges and the need for innovation. The total annual energy R&D spending in 2008 was equivalent to two weeks’ spending on the Iraq War.8
ENTER THE VENTURE CAPITALISTS
Until four or five years ago, venture capitalists did not even know, in the words of one of its practitioners, “how to spell the word ‘energy.’” But it has certainly been playing a transformative role in capitalism and markets since the middle of the twentieth century.
Some like to say that venture capital—putting money into start-ups, betting on entrepreneurs and innovators—goes back much further. “Queen Isabella of Spain was one of the early venture capitalists when she backed Columbus,” said William Draper III, a veteran venture capitalist. She put her faith in a management team led by Christopher Columbus. “What she did was look into Columbus’s eyes and say that this guy might really sail off to some land and bring back some jewels.” J. P. Morgan’s funding of Thomas Edison’s electricity start-up in the 1870s and 1880s certainly qualifies as proto–venture capital.
The outlines of modern venture capital emerged just before World War II. The portfolio of one of the innovators, J. H. Whitney and Co., ranged from Minute Maid orange juice and Technicolor to the financing for the film Gone With the Wind. According to legend, a partner at J. H. Whitney came up with the initial name for this new type of investing—“private adventure capital.” But that just didn’t ring quite right; it sounded overly risk-oriented, even a little reckless. What responsible fiduciaries want to embark on an “adventure” using the moneys entrusted to them for prudent management? So later it got shortened, for simplicity and for probity, to “venture capital.”9
GEORGES DORIOT: PROPHET OF THE “START-UP NATION”
Yet the real birth of modern technology-focused venture capital investing can be attributed to one man, a stern but charismatic professor at Harvard Business School—Georges Doriot, otherwise known as General Doriot. The son of one of the founders of the Peugeot automobile company, Doriot emigrated from France just after World War I and enrolled at the recently established Harvard Business School. He would remain on as a professor there for 41 years.
Doriot taught what eventually became a famous second-year course, simply called Manufacturing. Unlike the classic Harvard Business School case method, that class was “all Doriot”—all lecture, on all aspects of running businesses. Given to aphorisms and oracular advice, Doriot would tell his students that the first thing that they should read each morning in the New York Times were the obituaries, in order to learn from the lives of “great men.” He even delivered a lecture to what were then all-male classes on how to properly pick a wife.
World War II turned Doriot into a pioneering venture capitalist—for the war effort. He became head of research and development for the Quartermaster Corp, charged “to identify the unmet needs of soldiers and oversee the development of new products to fill those needs.” Doriot directed the development of everything from rain-repellant garments and combat boots that soldiers needed to trudge across Europe, to K-ration compact food, to what became known as Doron (after Doriot)—bullet-resistant plastic armor that was developed just in time for Marines to use in the Pacific. He also played a key role in the development of synthetic rubber, which became an urgent need when the Japanese captured the rubber-producing lands of Southeast Asia. All this taught him a basic lesson: that modern warfare, as he put it, “is in reality applied science.”10 He would apply that same lesson later, after the war, to the private sector.
In 1945, with the war over, Doriot—now General Doriot—returned to Harvard. Drawing on his wartime experiences, Doriot launched the pioneering ARD—American Research and Development. Doriot, as a colleague of his later remarked, was “the first one to believe there was a future of financing entrepreneurs in an organized way.” Or as Doriot said, his job as a venture capitalist was to interface between, on the one side, large companies with resources but an inability to nurture innovation and, on the other, academics and inventors with creative ideas but no funds