The history repeats itself crowd thinks that that there must be a bubble sooner or later. “Now?” they constantly ask, “Is it a bubble now?” as if history has to repeat whatever was most memorable about the last time. History may repeat itself, but there’s an awful lot of history that this particular venture capital cycle could repeat. Below is a short history of venture capital in the 1980s, my interpretation and comparison to the ’90s and today, and some thoughts about what that means. It’s long. If you’re attention-deprived, skip to ‘1980s v. 1990s’, about four-fifths of the way down.
Baby, baby drove up in a Cadillac
I said, “Jesus Christ, where’d you get that Cadillac?”
- The Clash, 1979.
The Carter years were tough.
They started out well. The recovery from the 1973-1975 recession brought unemployment down and incomes up. But all this was undone by the return of inflation. By 1980, when inflation reached its peak, unemployment was rising, interest rates were at their highest levels since World War II, productivity growth had slowed, and business investment was falling. Fear ruled the markets, a “crisis of confidence” ruled the people.
Venture capital had a different trajectory in the 1970s: until 1978 there was almost nothing, then suddenly, it took off.
One of the reasons for venture capital’s current heady successes is the good judgment men like Burr [Craig Burr of Burr, Egan, Deleage] and Cronin [Dan Cronin of Ampersand Associates] learned while slugging their way through the near-dormant mid-’70s. The period between 1972 and 1978 may someday be remembered as venture capital’s years in the desert. After a heady adolescence in the late ’60s, the business almost disappeared from public view after the bull market of 1968-69 went into eclipse, taking with it the new-issues market that had buoyed the venture business. (Inc. Magazine, “The Billion Dollar Gamble“, 9/1/1981)
The pioneers of the 1960s and 1970s had figured out a winning formula: build a great network to source opportunities, spend months getting to know the management team and doing due diligence, invest at the earliest possible stage, work hard to help founders get the right team in place and put together partnerships, and take the company public only when it was ready to be a public company. The result was that, despite an IPO market that had virtually disappeared, iconic VC-backed companies made it out into the market. Cray and Tandem in 1976, Evans & Sutherland and Federal Express in 1978, and Apple and Genentech in 1980. The Reagan years looked promising.
The Accelerating Universe, 1980-1983
Never for money, always for love…
I guess this must be the place.