Innovation & Wealth › Mass production & the consumer age › Microchips and the personal computer
Venture capital and Silicon Valley
ARDC 1946; Fairchild 1957; Kleiner Perkins & Sequoia 1972· Idea or movement· Companies & fortunes
Well documentedSolid records, texts or physical evidence.
Investors who buy stakes in young, risky companies, expecting most to fail and a few to return everything, centered on Silicon Valley.
See it on the Innovation & Wealth map →What happened
Venture funds pool money from pension funds, university endowments and the rich, buy part-ownership in start-ups, and help run them; managers typically keep about 20% of profits plus a 2% yearly fee. Georges Doriot's ARDC in Boston (1946) turned $70,000 in Digital Equipment into over $355 million by 1968. In 1957 Arthur Rock found backing for Fairchild Semiconductor. Kleiner Perkins and Sequoia opened on Sand Hill Road in 1972.
Impact on society and the economy
It created a way to fund ideas with no collateral or profits yet, the engine behind Intel, Apple, Google and most big tech firms. Gains concentrate among founders, early employees and investors.
Think of it like
Like funding ten ground-up developments with no tenants signed, expecting most to fail and one trophy tower to repay all of them.
How we know
ARDC and Fairchild records, Tom Nicholas's history VC: An American History (2019), and fund-return data from Cambridge Associates and the National Venture Capital Association.
Still debated
Whether the average venture fund beats the stock market after fees is debated; returns depend on a few top firms. Defense contracts also mattered to Silicon Valley's rise.
Connections (4)
▸Transistor (Bell Labs) spawned the start-ups funded by Venture capital and Silicon ValleyMostly agreed
The connection
Transistor co-inventor William Shockley opened a lab in Mountain View in 1956 to make silicon transistors. Eight of his engineers, frustrated with his management, quit in 1957, and Arthur Rock found backing for them to found Fairchild Semiconductor. Fairchild's alumni launched dozens of chip firms, the 'Fairchildren' including Intel and AMD, setting the template for venture-funded tech start-ups.
When and how
Mountain View and Palo Alto, California, 1956–1960s; the 'traitorous eight' included Robert Noyce and Gordon Moore; Fairchild Camera and Instrument provided the 1957 financing.
How sure are we?
Company founding records and family trees of Fairchild spin-offs, compiled by researchers and the Computer History Museum, document the chain.
Debates
Why the cluster formed there and not around Boston or New Jersey is debated: Stanford's Frederick Terman, military contracts, California's refusal to enforce non-compete clauses, or Shockley's mother living in Palo Alto.
▸Venture capital and Silicon Valley funded Intel and Moore's lawWell documented
The connection
When Noyce and Moore left Fairchild in 1968, Arthur Rock, who had arranged Fairchild's funding, raised $2.5 million for Intel within about two days, on the founders' reputations and a one-page business plan he typed himself. Rock became chairman. Intel's success showed investors how large a venture-backed start-up could grow.
When and how
Mountain View, California, July 1968; Rock, the founders and a small group of investors bought convertible debentures, a loan that can turn into stock.
How we know
Intel's founding records, Rock's own interviews, and filings at Intel's 1971 public offering document the funding.
Debates
There is little dispute over the funding; debate is over how much Intel's success came from venture money versus Fairchild-trained talent and military chip demand.
▸Venture capital and Silicon Valley backed Steve Jobs and AppleWell documented
The connection
Apple began in a garage, funded partly by Jobs selling his van and Wozniak his calculator. In 1977 Mike Markkula, a retired Intel manager rich from stock options, put in about $250,000 in equity and loans and joined as a partner. Venture investors including Venrock, Arthur Rock and Sequoia's Don Valentine followed. Its 1980 stock offering made about 300 millionaires.
When and how
Los Altos and Cupertino, California, 1976–1980; Markkula joined in 1977; venture firms invested around 1978; the public offering was December 12, 1980.
How we know
Apple's IPO prospectus lists its investors, and interviews with Markkula, Rock and Valentine confirm the funding.
Debates
Valentine reportedly found the young Jobs abrasive and pointed him to Markkula. Whether Apple could have scaled without Markkula's money and management is debated.
▸Venture capital and Silicon Valley poured money into Dot-com boom and bustWell documented
The connection
Silicon Valley venture firms had learned that a few huge wins, like Apple or Cisco, pay for many failures. After Netscape's 1995 IPO they raced to fund internet start-ups and take them public fast. US venture investment jumped from under $10 billion in 1995 to about $100 billion in 2000, then crashed.
When and how
Sand Hill Road, Menlo Park, 1995–2000, with firms like Kleiner Perkins (Netscape, Amazon) and Sequoia (Yahoo!, Google).
How we know
PwC and National Venture Capital Association MoneyTree data and IPO records track the boom and bust in venture funding.
Debates
Whether venture capital inflated the bubble or merely followed public investors' appetite for internet stocks is debated.