Creative Capital

Doriot’s Aura

The famous inventor Charles F. Kettering predicted ARD would go bust in five years. But Doriot proved him wrong over the next twenty-five years, as his firm financed and nurtured more than one hundred start-ups, many of which became huge successes that pushed the frontiers of technology and business. ARD companies led the way in developing computers, atom smashers, medical devices, and new machines that desalinated brackish water.

Doriot was not a physically imposing fellow but he exuded a magnetic aura. “It was almost like knowing someone like Beethoven or Einstein,”

…he brought a unique style to everything he did—even when smoking his trademark pipe. “As with everything else, he was an artist in selecting tobacco and filling his pipe,” said James F. Morgan, an executive at ARD. “He had a custom-tailored blend of tobacco in the office.” Always impeccably turned out in a suit and tie, Doriot required all of his students in his class at Harvard Business School to…

Doriot’s father, Auguste, was also an entrepreneur himself who, in the early twentieth century, launched Doriot, Flandrin,…

In 1921, Doriot came to America on a steamship. Even though he had no friends or family in the United States, never graduated from college, and dropped out of graduate school, the Frenchman became, arguably, the most influential and popular professor at Harvard University’s Graduate School of Business. Over three generations, Doriot taught thousands of students, many of whom went on to become executives at the world’s top corporations. He called his course Manufacturing, but it was really his philosophy…

Ralph Hoagland, cofounder of the CVS Corporation, who took his course in 1962. “He was a person you couldn’t take your eyes off for a minute. He got me motivated to start a business.” His lectures were so memorable and controversial—he once lectured his students on how to pick a wife—that many former students who have forgotten most of what they learned at business school still remember Doriot vividly. He stressed common sense themes such as self-improvement, teamwork, and contributing to society, while spicing up his philosophy with practical and pithy words of advice: “A real courageous man is a man who does something courageous when no one is watching him.” “If any information is to be exchanged over whiskey, let us get it rather than give it.” “An auditor is like a tailor; he can…

…decades before economists appreciated the value of technology, Doriot realized that innovation was the key to economic progress. “A lot of the things that were attributed to Peter Drucker were Doriot’s ideas,” says Charles P. Waite,…

Doriot led a revolution in the military by applying science to the art of war. Under his command, the U.S. Army found substitutes for critical raw materials, and developed dozens of innovative items such as water-repellent fabrics, cold weather shoes and uniforms, sunscreen, insecticides, and nutritious compact food, including K-rations. In one confidential project, Doriot oversaw the invention of Doron, lightweight plastic armor that was named in his honor. For his achievements, Doriot was promoted to the rank of Brigadier General and won the Distinguished Service Medal, the highest U.S. military medal given to a noncombatant, as well as being decorated a commander of the British Empire and awarded the French Legion of Honor.

Scaling each of these peaks, Doriot bucked the prevailing system. Although he helped implement the Business School’s famous case study method early in his teaching career, after the war Doriot transcended this approach. Instead he lectured students with his philosophy of business and life, and gave them practical experience by sending them on consulting assignments with real companies. In the military, he ruffled feathers by resisting orders so he could make sure soldiers had the equipment they needed to survive in the trenches. And in the financial world, he upset the conventional wisdom by proving that there was big money to be made from patient investing in and the nurturing of small, unproven companies.

It’s hard to imagine these days, with billions of dollars swimming around the globe, but after the war, entrepreneurs had a difficult, if not impossible, time raising capital. Banks were ultraconservative, reluctant to lend money to unproven ventures. Sure, rich families like the Rockefellers invested in new companies but they were few and hard to reach. ARD promised to break down the walls of an elitist, insular world, reviewing ideas from thousands of companies across the country.

Doriot achieved success by staying true to his patient investment philosophy. He believed in building companies for the long haul, not flipping them for a quick profit. Returns were the by-product of hard labor, not a goal. Doriot often worked with a company for a decade or more before realizing any return. That is why he often referred to his companies as his “children.” “When you have a child, you don’t ask what return you can expect,” Doriot was quoted in a 1967 Fortune magazine story. “Of course you have hopes—you hope the child will become President of the United States. But that is not very probable. I want them to do outstandingly well in their field. And if they do, the rewards will come. But if a man is good and loyal and does not achieve a so-called good rate of return, I will stay with him. Some people don’t become geniuses until after they are 24, you know. If I were a speculator, the question of return would apply. But I don’t consider a speculator—in my definition of the word—constructive. I am building men and companies.”

“A creative man merely has ideas; a resourceful man makes them practical,” said Doriot. “I look for the resourceful man.”

When ARD liquidated its stake in Digital, the company was worth more than $400 million—yielding a return on their original investment of more than 70,000 percent. It was the young venture capital industry’s first home run, and it helped make the Route 128 area outside Boston a technological mecca.

ARD’s support of Digital and dozens of other unproven little companies ushered in a new era of corporate culture. At Digital, the engineer was king. Hierarchy was out. Controlled chaos was in. Like Jack Kerouac and the Beat Generation, Digital was a petri dish in which the counterculture was spawned in the late 1950s.

A pretty, intelligent, and caring American woman, Allen was a research assistant at the Harvard Business School when she first laid eyes on Doriot. For the next forty-eight years, Edna was his devoted wife and closest friend, and the couple enjoyed a lifelong storybook romance. Doriot would often write love poems about Edna. And the favor was returned. “When he went on a trip he’d find a love note in his pajamas,” says Olsen.

Formative Years

In stark contrast to Camille, Auguste seemed unimpressed with his son’s award. He acknowledged the certificate with only a cursory glance, nodded perfunctorily, and then fixed his son with one of those chilling stares of appraisal. “And why not first?” asked Auguste.

His father, he would tell a friend years later when recalling the incident, was not concerned that Georges had failed to achieve first place honors in his class at École Communale. No, he was concerned that Georges was happy placing second. To Auguste, a famous automobile engineer who had raised his children to strive for excellence in everything they did, celebrating anything less than the best possible result smacked of contentment. And contentment, Auguste believed, is a state of mind that recognizes no need for improvement.

It was a challenge he never forgot, and an experience that some friends theorize was responsible for driving Georges Doriot to extraordinary accomplishments later on in his life. Georges Doriot would never again be satisfied with being anything less than the best. Not in himself. Not in others. Not in anything.

…it was not until the early twentieth century that the term venture capital was first popularized.

“A commercial bank lends only on the strength of the past,” said Doriot in one of his favorite maxims about the venture capital business. “I want money to do things that have never been done before.”

The earliest instances of the initial financing of groundbreaking enterprises were primarily found in America. The first major modern communications technology, the telegraph, was financed by a small group of wealthy investors.

When Doriot and Rigoulet pulled into one village where people were going to church, “we saw women fall to their knees and [cross] themselves at our passing.” They thought the car was the sign of Satan.

All in all, it was a stunning success. Rigoulot and Doriot had covered fifteen hundred miles in 139 hours at an average speed of nine miles an hour without a serious accident other than the differential glitch.

In 1906, the true reason he left Peugeot became clear: he wanted to design and manufacture his own cars. In today’s world of “serial entrepreneurship,” where failure is considered honorable, practically a required rest stop on the path to success, the boldness of this decision is hard to appreciate. In Europe, during the first half of the twentieth century, business failure was looked upon as a personal and professional calamity that one could never recover from. “In those days bankruptcy was a catastrophic event,” says James F. Morgan, a former executive of American Research and Development who studied the history of European business. “In several European countries you were deprived of your right to vote and own property. It was a real black mark on your character and your family.”

Most entrepreneurs still got their start by raising money from friends and family, wealthy associates, or, if they were fortunate like Auguste, they were able to take money out of their own savings. Some large American banks occasionally took a chance on a new and unproven technology, but they only put their capital behind established figures with a proven track record. And they rarely, if ever, took a hands-on role and helped to nurture a company. In his later years, Georges Doriot realized how critical such nurturing was in determining the success of a new venture. “I don’t know anyone on Wall Street who ever built a company,” said Doriot. “They simply furnish money, and that’s the least important part of it.”

For the most part, though, banks refused to finance innovation. Instead, more often than not they ended up reinforcing existing power structures. Nowhere is that more apparent than in the evolution of the House of Morgan, which in the late nineteenth century took over the title of the world’s most powerful bank from the House of Rothschild. Like the Rothschilds, Morgan made his bones by lending large sums of money to governments. The ultraconservative strategy of J. P. Morgan started during the Panic of 1873, when European investors lost $600 million in railroad stock investments. Petrified by all of the railroad bankruptcies, Morgan decided to limit his future dealings to only the most established and safest companies. He despised risk, wanting only sure things. “The kind of Bonds which I want to be connected with are those which can be recommended without a shadow of a doubt, and without the least subsequent anxiety, as to payment of interest, as it matures.”

Morgan proposed a steel trust that would control more than half of the business. Pulling an allnighter in his library, Morgan convinced some of the industry’s leading players, including Andrew Carnegie and John D. Rockefeller, to agree to the deal. The new corporation was capitalized at a staggering $1.4 billion—the first billion-dollar corporation in history.

In 1910, when Georges was eleven, he left his home country for the first time to study English for a year at Lynton College in England. At such a young age, the experience must have been a formative one, expanding his horizons immeasurably. In France, it would have been difficult, if not impossible, to study English since Minister Ferry had outlawed the instruction of non-French languages in public schools. Auguste not only had the money to send his son abroad, he also felt comfortable in England. Since launching D.F.P., he traveled many times to the United Kingdom to sell his cars.

Pressed by his father, Georges learned the value of studying and hard work. He began school at half past eight in the morning, came home for lunch for an hour, and then went back to school until five o’clock. The evening was then filled with a great deal of homework.

The Doriot family chose to stay in Paris despite Germany’s declaration of war on France in August of 1914. But this war would require Auguste to make an extreme sacrifice. He had risked his family’s finances and reputation on D.F.P., and had worked tirelessly for ten years to get it off the ground. Now, just as D.F.P. had established itself as an up-and-coming car manufacturer, Auguste had to turn over the keys of the factory to the government. The factory was turned into a shell-making plant. Although these had to have been very trying days for Auguste, no one could question his patriotism. He had served in the Army and was just as repulsed as any Frenchman by the idea of German hegemony. So Auguste devoted himself and his business to the cause. “At the time, people worked 24 hours a day, and I think my dear father worked 24 hours a day as well,” recalled Georges. Georges was lucky. In 1914, he was only fifteen and not old enough to be drafted. Instead, he continued his studies at a lycée in Paris…

The war exacted a horrible toll on his family. All of Georges’s first cousins on both sides of his family who had entered the war had been killed. But Georges was lucky once again. Now that he was old enough to serve, the war was finally winding down.

His superiors believed that his experience in the motor vehicle industry made him a logical candidate for the job. It was the first major test of the young man’s leadership ability and Georges, still a teenager, was intimidated. Most of the soldiers who worked under him were experienced repairmen from the top companies in Paris. They resented the young man’s promotion and tested him by asking for detailed repair orders. By conceding to their superiority, however, Georges won over the men and ended up forming a good relationship with them. “We understood and respected each other, and I can say that it was a useful time, and, in many ways, a happy time,” recalled Georges. “I made some friends there that I kept in contact with for many years.”

…among the Allied Powers, it was France that suffered more than any other nation. The heaviest battles of World War I were fought on French soil, and the French deployed the greatest number of Allied troops and suffered the heaviest casualties. More than 1.3 million French soldiers were killed in the war, or two out of every nine men who marched away, while more than 3.2 million were wounded.

The country had lost millions of its best men. Its gross domestic product had shrunk by nearly 40 percent, and by January 1919, the national debt exploded more than five-fold. France, to put it mildly, was devastated by the war. Auguste’s pessimism was grounded in personal experience. The war was a major setback for his company. Reconverting the D.F.P. factory back to making cars would have been hard enough. But that year Auguste suffered another blow: he learned that his most important partner, the Bentley brothers, decided to end their deal with D.F.P. so they could create their own car company. Auguste knew what he had to do: he had to send Georges to the United States.

“One of things that profoundly affected [Georges] was his father getting wiped out financially,” says James F. Morgan, a former executive of American Research and Development who became close to Doriot near the end of his life. “It affected his attitude toward risk. He was very, very cautious.”

During his first night at the hotel, he was amazed by the double door that allowed men to put newspapers and packages in front of the second door, which he could then open from his room. It was a Sunday morning and in that space between the two doors Doriot was delighted to see several pounds of newspaper. “I thought that, America being a very kind country, people realized that I had been at sea for a week and, therefore, had very nicely kept a week’s newspapers for me to read upon my arrival,” wrote Doriot. “Much to my amazement, I discovered that those pounds of papers were just the Sunday edition of the American newspaper.”

Soon after, he went to Cambridge to register at MIT. But before classes began, he decided to look up Mr. Lowell, the gentleman to whom his letter was addressed. “I decided that I should be considerate and polite, as my father and mother would have told me to be,” recalled Georges. “So, I looked for him and found that he was president of a university called Harvard.” The Doriot clan had never heard of Harvard, though it was the most well-known and prestigious college in America. Georges called on Mr. A. Lawrence Lowell on the second floor of University Hall, with barely a clue as to the significance of the man.

Ideas & Teaching

Young, unproven companies were still the stepchildren of capital markets, overlooked and neglected. That left entrepreneurs with the same old miniscule set of options: raising money from friends, family, or rich individuals. The only other financing option for new enterprises was to merge.

This was exactly the case with one of America’s oldest and most prestigious technology companies: IBM. In 1911, the Computing Tabulating Recording Corporation, the predecessor company of IBM, was formed through the merger of three separate firms: the Tabulating Machine Company, the Computing Scale Corporation, and the International Time Recording Company.

The connections he made at Kuhn, Loeb would serve him well the rest of his life. Doriot also received first-rate training in the craft of finance and investment banking, and gained an appreciation for the importance of technology. In fact, Doriot’s main job was to help evaluate new technologies for possible investment. His ability to judge men and their ideas, which were formed during these early years, would remain a signature talent throughout his life.

The letter illustrates Doriot’s emerging iconoclasm and his penchant for holding strong opinions that he wasn’t afraid to share, especially opinions about his native land. In his analysis of the links between French banks and industrial firms, Doriot informed Strauss “there is no definite connection, and when there is a connection it is very often a useless one. My experience has been that from the standpoint of a Company, it is perfectly useless to do business with the Bank of France.”

In the fall of 1924, Doriot tried his hand at something entirely new: writing for the public. Doriot never took writing seriously but his efforts signaled the beginning of his evolution into a public figure, offering pointed commentaries on the world’s most important issues.

Doriot’s use of a pseudonym betrayed a deep-seated fear: he hated writing. It is a strange admission, revealed years later in his personal notes, from someone who became a professor and was actually a very good writer, a tireless composer of thousands of pages of prose that was clear as a windowpane. The confession underscored Doriot’s lack of self-confidence, which dogged him throughout his twenties as he struggled to find his way.

“I do not do it well. My sentences do not “sound” well. Also, I never thought that I had anything to say that had lasting characteristics or value, nor would it have any interest for other people. When I had to make a speech (which I never enjoyed), I always asked for no publicity.

During the fall semester of 1925, Doriot was given another shot to prove himself. In as diplomatic a manner as possible, Doriot suggested to Dean Donham that the School’s second-year course in “Factory Problems and the Taylor System” was not up to par. Much to Doriot’s surprise, the Dean removed the teacher and told Doriot to teach the course. Luckily, Doriot knew a fair bit about the subject, having worked in several factories and studied them as a student at Harvard. It is one of the great ironies of Doriot’s life that one of the most popular and influential teachers in the history of Harvard Business School, a man who carefully planned out every step of his professional and personal life, launched his teaching career with an offhand, almost accidental remark.

Doriot confessed, “I have always considered Priority 1 on my time is the Army, and Priority 2 is my teaching.” Given Doriot’s myriad accomplishments, this revealing remark illustrates the deep respect and love he held for the stars and stripes.

Doriot began to develop a novel educational approach. Whereas most professors kept a chilly distance between themselves and their students, Doriot believed strongly in forming a close bond between student and teacher. From the start of his teaching career, he felt that every student deserved personalized attention. He studied each student’s history and college grades, and was very attentive to the difficulties in transitioning from undergraduate to graduate work. Five weeks after Doriot’s class started, he had seen every one of his ninety-six students at least twice.

Doriot described with a palpable sense of glee the importance of imparting a strong work ethic. “At least 25 of my students have given me this year an average of 15 to 20 hours of work on one course alone,” boasted Doriot. “I have seen several of them working steadily from 9 a.m. up to an advanced hour of the morning. I do believe when those men leave the school they have a definite notion of what an honest day’s work means.”

The third tenet was an emphasis on pragmatic management, on the nittygritty realities of day-to-day decision making—not highfalutin’ theories. In the second-year courses, Doriot and other faculty split up their classes into smaller subgroups that tackled real problems in order to give them insight into “how business problems come up and are solved by business executives.”

Whereas most professors taught business descriptively from the perspective of an economist or an academic, Doriot forced his students to think like businessmen. The technique had the effect of “infuriating students into positive brilliance.”

Doriot had shown an unusual ability to envision and build new enterprises. In rapidly promoting Doriot, the administrators of Harvard Business School implicitly recognized his talent for bringing various innovations to the new field of business education—techniques that are now considered standard in today’s day and age.

Doriot encouraged his students to ponder the purpose of life and business. It was a highly unusual technique but the students realized Doriot was giving them knowledge of much deeper value. To Doriot, the objective of life was to better yourself and your family. And the most important part of management was the art of selection: matching the right person with the right job.

Like many men wrestling with the existential question of marriage, Doriot seems utterly confused about his life. Here we have a man who seems to not be driven by money complaining that he is not earning as much as other professors. Here we have a man who claims to adore the prospect of mentoring young men griping that he has too many students to teach. Here we have a man who admits to a dislike of formality then expresses displeasure that he is unable to attend a most formal event. And, most shockingly, here we have a man who wants to get married to a woman that he likes “very much” but is unable to commit to perhaps the most important decision of his life.

But the Doriots never did have a child. No doubt, Doriot’s lack of children profoundly shaped his character. Over the next forty years, he compensated for this absence by nurturing countless students and younger colleagues as if they were his own offspring. “He often said the only advantage of not having children is you choose them,” says Claude Janssen, who studied under Doriot in the 1950s.

…he and Edna led a spartan lifestyle. In the early 1930s, Doriot made about $4,000 or $5,000 a year, a comfortable middle-class income. But that security was compromised partly by the obligation he felt to regularly send money home to help take care of his parents and sister.

Georges and Edna studied the breakfast menu very carefully to see whether they could find a breakfast that would feed the both of them. Porridge, they learned, was the best choice. As for beverages, they concluded that tea was preferable to coffee. Coffee would usually yield one cup of drink, but a teapot provided enough water for two cups.

Some of Doriot’s high-minded ideas would eventually become realities, but once again he was too far ahead of his time. In just a few years, European nationalism would reemerge with a vengeance, making a mockery of his pleas for cooperation.

Doriot wrote Lewis Strauss and asked him to open a bank account for him. What seems like an unusual request today was actually a shrewd maneuver. In the early 1930s, the bank industry was imploding. With hundreds of banks declaring insolvency, Doriot tapped Strauss for his knowledge of this troubled industry.

Doriot attacked the French government when it refused to pay a $20 million interest payment on her wartime debt to America. Calling his country a “frivolous nation,” Doriot was outraged that France would not pay this relatively small sum to a country that had come to its aid when it needed it most.

“The idea that all men are born equal and that it is a desirable thing for everybody to be interested in government is wrong and fantastic, and sooner or later we must come to the conclusion that those who pay the taxes have more right to govern than those who don’t.” These few sentences are probably the dumbest that Doriot ever uttered, and democratic politicians running for office picked up the remarks like they were a gift from the political gods.

…the new surtax illustrated “how government regulation has been directed almost entirely at the curbing of exploitation and has generally ignored and sometimes even penalized attempts toward technical progress.” The result was that more and more of the nation’s funds flowed into superconservative investment trusts, and to insurance companies and pension funds. By the 1938 IBA convention, the financial community began to express deep concern about the nation’s atrophied capital markets.

Over the course of his long career, Doriot participated in many committees. And he usually despised them. “A committee is an invitation to do nothing,” was one of his famous maxims.

Still, the experience of Enterprise Associates taught the venture industry’s pioneers an important lesson. “[The Enterprise] experience made Merrill Griswold and Karl Compton realize that it might not be a good idea to have a company with only enough money to find and study projects, then ‘to pass the hat’ for capital to start the new company,” explained Doriot. A company should have its own capital, they concluded. That way, it would be insulated from events outside of its control.

War Leadership

Georges Doriot wanted to play his part in the war. So after the conflict began, he stopped by the French Embassy in Washington to see what he could do. Asked what his rank was at the end of World War I, Doriot answered, “Sergeant.” “Oh,” replied the embassy official, “we could make you a Sergeant Major, and with some protection you can be the driver to the ambassador.” Doriot, embarrassed more for France than for himself, walked out of the embassy. By contrast, U.S. officials grasped that the organizational, financial, and technical skills of a man like Georges Doriot could play a vitally important role in the war.

When Doriot became head of the Military Planning Division in the Officer of the Quartermaster General, he began running, in a sense, his first venture capital operation. The purpose of his division was to identify the unmet needs of soldiers and oversee the development of new products to fill those needs. In order to pull off this engineering miracle, Doriot perfected the art of finding the right people for the right technical challenge, and then inspiring them to invent the future. “Doriot started his venturing during the war,” says Ray Hoagland, the wife of Harry Hoagland, one of Doriot’s chief wartime assistants who later helped Doriot pioneer the venture capital industry. “He loved to come up with new ideas. He would hire people who were good inventors. He knew how to contact and find these little companies that had these bright inventions.”

…the President asked Doriot if he wanted to help the United States. Doriot jumped at the chance to participate not only in liberating his home country, but also to repay America for all the opportunity she had given him. But there was one problem: Doriot was a Frenchman. The President inquired if Doriot was willing to become a U.S. citizen. Doriot happily agreed, and was told he would be appointed a Lieutenant Colonel. On January 8, 1940, Doriot strolled into a federal court in Boston. When he walked out, he was a naturalized U.S. citizen.

“I don’t do the work. I just pick the right, bright men to do it for me.” Col. Georges Doriot says that is the reason for his success in the Quartermaster Corps. While teaching at Harvard Business School for the last 15 years, Colonel Doriot always had a sharp eye out for able young men. Today a lot of them are working for him, and never fail to deliver for their indefatigable chief … One word is omitted from Colonel Doriot’s otherwise complete vocabulary. That word—“impossible.” If a thing must be done, it can be done. When there’s a need for a substitute Colonel Doriot will find it. But Brigadier General Edmund Gregory of the Quartermaster Corps knows one thing for which there is no substitute, and that is Colonel Doriot.”

“He is probably the best manager that I or probably anyone else in the Quartermaster ever encountered,” said Major Edward L. Heller, who served under Doriot. Doriot believed the military overlooked the human factor. “The Army has no interest in the soldier as a human being,” Doriot told officers at the Army Industrial College. “I want to make a very strong point of that—that to this day there is a complete lack of understanding of the problems of human beings and the problem of making a human being a good fighting person.” Doriot sought to reverse that philosophy: He understood it is the soldiers that ultimately win a war, and without the proper food and equipment a soldier is not an effective fighting machine.

“It was such a feeling of togetherness and wanting to do your best,” says Isabelle Pounder, a secretary to Doriot’s administrative officer. “We would work until 12 a.m. to get out a document. It was all for the boys and women. There was no profit motive and no glorification of yourself.”

He knew it would take forever. And they’d run into people that didn’t agree and they’d get stifled. He wanted us to violate all kinds of rules and regulations and just write us a letter and put a stamp on it. It was a rare opportunity to express myself to someone who would read it with intense interest and start to do something about it. It would not be laid in a desk and forgotten about. It would not be stifled because of bureaucracy. It would be moved and action would be taken because that’s the kind of person Georges Doriot was.

…even though Doriot was promoted, he held onto his job as Chief of the Division’s Research & Development Branch, underscoring his belief that research was the keystone of the division’s activities.

This work was ultimately some of the most valuable service that Doriot performed during his military career, and its legacy continues today in the ongoing evolution of body armor. One of Doriot’s staff officers recommended the name of “Doron” for the armor, as a way to honor him and provide camouflage for the project.

In the spring of 1944, however, the Navy conducted a spectacular Doron demonstration, which helped the Army to overcome most of their opposition to plastic armor.

As the war drew to a close, top officials in the military further recognized the technical and organizational genius of Doriot. On February 12, 1945, Doriot received a stunning promotion to the rank of Brigadier General. It was unusual for a Quartermaster Corps officer to receive such a high rank. But Doriot had proven not only his own value, but also the value of the Corps in fighting a modern global war. Commanding General Eisenhower sent Doriot a note of congratulations upon his appointment.

On October 30, 1945, Doriot received the Distinguished Service Medal, the highest military award possible for a noncombatant.

ARD Foundations

ARD was the first professional venture firm that sought to raise money from nonfamily sources—primarily institutional investors such as insurance companies, educational organizations, and investment trusts. This was a critical development since it greatly expanded the potential amount of money that could be devoted to venture capital. As the first public venture firm, ARD also distinguished itself by seeking to democratize entrepreneurship by focusing on technical ventures and by providing the intellectual leadership for this small, nascent community.

According to this theory, venture capitalists were like the matchmakers of the modern economy. They would marry money with people and their crazy, new ideas. And the result would be a stronger country with a growing supply of well-paying jobs. In forming ARD, its founders were guided by an intuitive understanding of the dynamics of entrepreneurship. They realized that organizations with “enormous fiduciary resources” and the seasoned operators running them were not daredevils skilled in the art of invention, and that, conversely, inventors were struggling creative types with no money “trying desperately to become poor businessmen” in Doriot’s witty description. ARD sought to bring together these two interdependent yet largely separate communities.

The idea of venture capital was so new that ARD’s founders were forced to reengineer aspects of various financial regulatory structures in order to make their idea viable. Before ARD could offer its stock, for instance, it had to obtain a number of exemptions under the Investment Company Act of 1940 from the Securities and Exchange Commission.

The “blue sky” laws of some states prevented investment trusts from investing in common stocks that were less than three to five years old, or had not paid dividends for several years.

But despite its roster of well-known backers, ample publicity, and a friendlier regulatory and investment environment, ARD’s stock offering nearly failed. For starters, it was unable to persuade an investment bank to underwrite its offering. Instead, it hired two enterprising mid-tier banks, Estabrook & Company and Harriman, Ripley & Company, to pitch the deal on a best-efforts basis. Then, bad timing almost torpedoed the offering as the stock market swooned in the fall. ARD would have blown its November 1 deadline for raising $3 million were it not for a last-minute subscription by Lessing Rosenwald, the former chairman of Sears, Roebuck & Company.

The firm set clear guidelines for making an investment: projects should have passed the “test-tube” stage, be protected “through patents or specialized knowledge and techniques,” and afford an “attractive opportunity for eventual profits.” From the very beginning, Senator Flanders stressed ARD should not be viewed as one company, but as a national social movement.

“A team made up of the younger generation, with courage and inventiveness, together with older men of wisdom and experience, should bring success.”

He expressed frustration over the growing gap between the rhetoric and reality of the venture capital business, if it could be called a business. “I am afraid that, as usual, people believe in venture capital as long as somebody else’s money does it,” he wrote on May 11. “People will make long speeches explaining that they do not want the government to finance small businesses or new businesses, but still they do not want their own money to be used for either.”

On his desk, Doriot kept a stopwatch. “Sometimes I use it to see how long it takes someone in a meeting to tell me the same thing three times,” he said.

They were there to coach, guide, and inspire. Running the business was the job of the entrepreneur. But quite often, as ARD’s principals learned, circumstances called for more drastic action. In fact, every one of ARD’s successes would face catastrophe at least once, sometimes twice. Doriot was learning that project selection was actually the easiest part of ARD’s job. At least they had control over that decision. “The hardest task is to help a company through its growth pains,” wrote Doriot. “That is particularly hard because we have to work with others.” If companies survived those ordeals, it was “because of very hard work on our part and on their part.”

Grappling with these myriad challenges led Doriot to believe that managing talent was the most important ingredient in the start-up equation. “The invention which American Research and Development Corporation would most like to receive is a device to evaluate men!” joked Doriot in the 1949 annual report. “An average idea in the hands of an able man is worth much more than an outstanding idea in the possession of a person with only average ability.”

When Hoagland joined ARD, it had made a few investments outside of the New England area. But Harry’s love of travel and his familiarity with the West pushed ARD to expand its geographical horizons. “Doriot didn’t think a thing of California,” recalls Ray Hoagland. “He used to say, ‘I’m glad where California is. I hope an earthquake happens and it floats off and becomes an island.’”

Through all the ups and downs, Doriot maintained his sense of dark humor. “Never go into venture capital if you want a peaceful life!” he warned a group of businessmen in 1950. “Keep on financing concrete that doesn’t move, that doesn’t call you at two o’clock in the morning to tell you about a new human accident.”

Doriot’s students did not love his course because it was a breeze. They loved it because he pushed them to work harder and think more creatively than any other professor. “It was a true energy sink,” says John A. Shane, who took the Manufacturing course in 1959. “There was no end to what you might do in the course.”

Doriot invited the president of U.S. Steel to address his students. “U.S. Steel does not know what business they are in,” Doriot told his class after the company’s president had left the classroom. “They are in the materials, not the steel business. They are completely ignorant of aluminum and plastics.” Zalman Bernstein, founder and chairman of Sanford Bernstein & Company, said Doriot was the first person to think in such a broad and creative way. “He had more influence on what has happened in American business than the rest of the Harvard faculty put together,” said Bernstein.

The riskiest investments, they were learning, held the potential to generate the greatest financial returns and the highest personal satisfaction. It was quite a turnabout in ARD’s thinking. After ARD invested in High Voltage and Tracerlab, Merrill Griswold told a Fortune reporter that “some of our friends began to say, ‘Oh, Lord, not another longhair project. Why doesn’t ARD back something commercial and make some money. We learned our lesson. Now we realize that our best things are longhair.”

Doriot and ARD were learning an important lesson. Just as there was a general business cycle, the climate for entrepreneurialism was governed by its own rhythms and forces. Innovation was not like a river, flowing constantly over time. It was more like heavy surf, with waves of technology seeming to come out of nowhere and crashing onshore every twenty or thirty years. The trick for a venture capitalist was to catch the wave several years before it crested and to bail out before it crashed.

In 1954, for the first time in its history, ARD did not invest in one single new company. Its deal flow was slowing to a trickle, compared to the previous seven years. “We do not know of any interesting new projects,” confessed Doriot in a May note he wrote to himself…

When ARD wanted to invest more in one of its portfolio companies, it had to submit an application to the SEC to receive an exemption from certain legal restrictions. Specifically, the 1940 Investment Company Act prohibited investment companies such as ARD from purchasing the securities “from any company controlled by such registered company” unless the terms of the transaction are “reasonable and fair and do not involve overreaching on the part of any person concerned.” It was a well-intentioned law designed to prevent shady deals between affiliated companies but it could also function as thick red tape in the hands of a cautious, overburdened agency.

Every time ARD wanted to change the capitalization of one of its companies, it essentially needed to prove to the government that the transaction was on fair terms. It was not exactly the most efficient way to do business, and Doriot was becoming increasingly frustrated with regulators who were denying or delaying ARD’s financial moves. “I wonder if our personnel and directors are not more qualified to decide on that valuation than even the most distinguished person at the SEC,” wrote Doriot. “I wish to state that with the present system we are greatly hampered. It is expensive, and in some cases dangerous … In other words, while the SEC believes it is protecting our stockholders, they are actually suffering.”

Growth & Breakouts

Doriot was early to recognize the importance of globalization in business, and his experience running ARD only reinforced his belief that business demanded a global viewpoint. As early as 1949, ARD companies had begun doing business in Europe. And so a school that saw Europe as a holistic region operating within a global economy could serve as the ideal training ground for the business leaders of the future. The notion of a pan-European business school also struck a personal chord with Doriot. When Doriot graduated from a lycée in Paris there was no place in Europe where he could seek advanced studies in business administration. He believed there should be such an opportunity, so that the Georges Doriots of the future would not have to leave Europe to pursue a world-class business education.

Olsen developed the computer, unequivocally demonstrating the superiority of transistors. For this accomplishment, he expected businessmen to shower him with praise. But that was hardly the response of the organization men running corporate America. Instead, their silence implied a belief that Olsen and his team were irrelevant academics. In the end, “nobody cared,” said Olsen. If Olsen was going to get the commercial world to respect and value his ideas, he realized he needed to start a company, he needed “to do something in business that people would care about.”

The duo sought $100,000. ARD offered them $70,000 in equity financing for a 70 percent stake in the company, and a $30,000 loan to be given later in the year. It was a take-it-or-leave-it-deal. With no other offers and no clue how to negotiate a better offer, Olsen and Anderson took it. It was the only new investment ARD made in 1957.

But before Doriot signed the final deal, he had one last request: he insisted on meeting privately with the wives of Olsen and Anderson. “He wanted total devotion of everyone to the business,” says Anderson. The wives impressed General Doriot, and at last he blessed the deal.

Sputnik also galvanized public support for venture capital. Bills to create publicly sponsored venture capital organizations had been introduced in Congress over the last two decades but they had always been too controversial to pass. The Sputnik crisis silenced the critics of the languishing bills, mostly Federal Reserve officials who believed the modest growth potential of many new ventures justified the small pool of venture capital.

Before the SBIC legislation, the entire venture capital market consisted of a handful of firms investing less than $100 million. By 1967, 791 licensed SBICs had invested more than $1 billion.

Doriot realized that ARD needed to act quickly because it could not match the financial benefits offered by the SBIC program. Various officials asked ARD if it wanted to participate in the program but Doriot was adamantly against debt financing—especially with government money.

Olsen wanted to liberate computing from the tyranny of the elite. “The concept of an interactive computer was strange,” recalled Olsen. “Some people thought it was wrong. Computers are serious, you shouldn’t treat them lightly. You shouldn’t have fun with them. They shouldn’t be exciting. They should be formal and distant with red tape involved.”

…the oil exploration company Zapata Petroleum spun off its subsidiary Zapata Off-Shore and tapped a young World War II hero named George H. W. Bush to be its president. Henry Hoagland, who came to know Bush during his frequent trips to Texas, brought the deal to ARD.

The contemporary image of George H. W. Bush is of an aloof, yet charming man, a foreign policy expert whose presidency was brought down by failures in managing the economy. But Bush’s experience running Zapata Off-Shore shows he was a fairly clever and successful businessman, skilled in the arcane ways of tax shelters and finance.

One of Doriot’s maxims was you should always raise money when you don’t need it, having learned through hard experience that when you do need money, chances are, you are unlikely to get it.

“When I came to ARD in 1960 venture capital had been around for fourteen years or so but it was still an academic experiment in some ways, because Doriot was head of it, and he was more than anything else a teacher,” said Waite. “He was in the business to test a thesis. Making money wasn’t really a very high objective. He wasn’t opposed to it but the salaries were modest. There was no ownership in the company for anybody. There was a missionary zeal about it—that’s how Doriot got away with underpaying us all, because we believed we were doing something for the greater good, making America a better place.” Waite’s starting salary was $10,000.

ARD’s net asset value stood at nearly ten times the value when it was launched…

Doriot was like a prophet delivering a sermon, and the congregation listened closely. The first tenet was that “the riskiest part of the spectrum has to date proved the most rewarding, and the greatest capital gains have been earned in companies which were started from scratch.” Second, most venture investing has not been “built on achievement of dramatic overnight successes, but on the steady growth of soundly based, well-managed affiliates.” Third, “technology has proved a rewarding field for American Research and is particularly well suited for creative capital investment.” The reason? “In specialized technical areas with products protected by patents and know-how, it is easier for small companies to compete with large organizations,” explained Doriot. ARD’s biggest hurdle was usually convincing these small, yet proud companies that they needed outside help. But Doriot didn’t hold that against them. He knew that if entrepreneurs weren’t self-driven and a bit egotistical they’d be punching the clock for IBM or General Electric. The General closed his lecture by stressing the importance of management assistance in the venture business. “There is always a critical job to be done,” said Doriot. “There is a sales door to be opened, a credit line to be established, a new important employee to be found, or a business technique to be learned. The venture investor must always be on call to advise, to persuade, to dissuade, to encourage, but always to help build. Then venture capital becomes true creative capital—creating growth for the company and financial success for the investing organization.”

After the war, the General inaugurated a new lecture in his Manufacturing class, one that he asked only the fiancées and wives of his students to attend—perhaps the most striking example of his unorthodox teaching style. To Doriot, the point of the lecture was to explain the purpose of his course and to instruct the spouses in the proper habits and manners that a businessman and his wife should follow. “Everybody was sort of a bit petrified of him,” says Molly Hoagland, Ralph Hoagland’s wife, who attended the lecture in 1962. “He commanded their attention in a way nobody else did.”

…most of the spouses arrived at Harvard prepared to dislike Doriot. This was the taskmaster who had taken their husbands away from them. But the surprising thing is that many of the women left Doriot’s classroom bowled over by his charm and thoughtfulness. The women appreciated that Doriot not only viewed a husband and wife as a team, but believed that wives played a crucial role in the success of their husband’s careers. They also relished the tips that he gave them, such as stressing the importance of punctuality, volunteerism, and philanthropy. “It was all these mannerly things, things that nobody else would ever say to a group of people,” says Molly. “I thought I would find him chauvinistic, but I didn’t. He was letting us in on the secret that he wasn’t this ogre. I was surprised he was so personable. That was how most of the other women felt.”

“He was always there as a mentor and a help,” said Olsen. “Most of his ideas he didn’t present in a way you had to accept. He presented them in a way which, after it was done, you thought you had thought of them yourself.” Sometimes, the teacher was so effective that when Olsen spoke he uttered phrases that sounded as if they came straight out of Doriot’s mouth.

Olsen followed to a T Doriot’s philosophy of running a business on simple and sound practices—paying modest salaries, aiming for aggressive but reachable goals, and seeking satisfaction not from growth and gobs of money but from the joy of constructive building. “I think the General had a very profound valuesoriented role,”

Xerox, Hewlett-Packard, and other firms also courted Digital. But Doriot and the board rejected every single offer, betting the company could prosper on its own, even though its long-term success was far from certain. Olsen appreciated the wisdom of Doriot’s philosophy of patience. “[ARD] wouldn’t buy and sell companies at the first opportunity,” said Olsen. “This sounds obvious but it’s very hard for someone who owns a major part of the stock to be patient. The General really preached this and really practiced it. It was his contribution. Any other company would have attempted to sell when somebody was doing well and clean up on the profit.”

Pressures & Regulation

“EED was surrounded by a board of bankers who selected a man named Jean Gueroult who was also a banker,” said de Vitry. “Doriot was always saying do not put a banker on your board.”

Thirty-one out of its forty current portfolio companies were profitable, with nearly half of them reporting record sales and profits.

The story concluded that, by helping to father seventy-eight companies, Doriot’s venture firm “has profited handsomely, losing money on only 10 investments.”

…the emerging culture of wealth and instant gratification brought on by the booming market for new issues had created a new “generation of people, young and old, engineers, scientists, businessmen, etc., who have convinced themselves that the best way to accumulate capital is through the option route.” An experienced man had little reason to come work for ARD “since he can get a position carrying option privileges with any number of other companies, including our own portfolio companies.” If ARD was prohibited from granting staff members options in its affiliate companies, that would be a problem not only in running ARD now, but in “building it up for the future.”

The tragic irony of this bitter struggle with regulators was that they were lowering the boom on ARD just as investors and economists were beginning to recognize the significance of Doriot’s achievement. “Some of the SEC examiners did not know what they were doing,” says Brooks. “They did not want to be intellectually challenged.”

The story highlighted the creation of ARD’s latest corporate children, CED and EED, but cautioned that Digital’s valuation of $14 million now accounted for a third of ARD’s total asset value. “Critics ask: Isn’t it too big? Don’t you have too many of your assets in one place? Shouldn’t it go public?” Doriot replied with a clever analogy. “When a man has a stable of horses, and one wins the Grand Prix, do people say ‘what a good stable this man has?’ Or do they say ‘you should get rid of your winner and develop the others?’”

“The General was behind his hour. He came racing up, declaring that he had left the Business School to come out here for lunch but he didn’t have any money.” By running ARD, Doriot had made at least fifty millionaires, but he didn’t have enough money to pick up the tab for lunch. Doriot then looked to Henderson, and asked if he had money for their lunch. But Henderson’s pockets were empty. The General and Henderson turned to Bodman. When Bodman raced out of the house that morning to meet Doriot, he stuffed in his pocket the only $5 he had, which he and his wife kept in the sugar bowl. “I handed them the money,” said Bodman. “I got the money back in a week with a nickel interest. Even then he was providing leadership.” Despite his amusement—and mild alarm—that these supposedly wealthy venture capitalists couldn’t even pick up the tab for lunch, Bodman took the job.

But now, after working in Doriot’s shadow all these years, Elfers wanted a chance to prove himself, to see if he could succeed at the venture game on his own. “He felt he had earned it,” says Waite. “He was very disappointed at not getting a chance.” Everyone who worked for ARD believed Elfers was more than up to the task, and that knowledge made his subservience to Doriot all the more grating. “There was nobody more qualified than Bill Elfers to run the company, but the General never offered him the job,” says John A. Shane. “That was the General’s fatal flaw in his make-up. I just don’t think his heart was in trying to find a successor.” Charles P. Waite also believed Elfers understood the venture business better than anyone. “The perfect one to have run ARD was Bill Elfers,” says Waite. “It should have been done in 1965. Everybody in the company looked to him as the leader, and I think Doriot was jealous of that.”

He realized, along with an increasing number of investors in new companies, that venture capital and the stock markets mixed as well as oil and water. Elfers could see the government’s increasing interference with ARD’s affairs was not going to end any time soon. The SEC letter challenging ARD’s practices, which ARD received a week before Elfers resigned, was proof enough of that. For Elfers, the solution to many of ARD’s problems was to take advantage of a new organizational form: the limited partnership. Although it might be too complicated to convert ARD into a partnership, it was not too late for Elfers to form his own.

Adapted from the oil wildcatting business, the limited partnership offered several distinct advantages over the publicly traded investment company registered under securities laws. General partners who ran the firm received not only a management fee that covered salaries and expenses, they also received a share of the capital gains. That feature eliminated ARD’s compensation problems, as well as wiping out the pressure to generate investment income to fund operations. The firm’s limited partners also maintained a long-term horizon that allowed them to forgo dividends or interest payments. And as a private entity, a limited partnership would avoid the glare of public disclosure and the requirements to release proprietary financial data.

Elfers left ARD to form his own venture capital partnership, Greylock Capital. Greylock was one of the first venture firms to raise money from several families, rather than a single limited partner such as J. H. Whitney & Company. In 1965 Elfers raised $5 million from five wealthy families, including the Watsons of IBM, Warren Corning of Corning Glass, and Sherman Fairchild, the founder of Fairchild Semiconductor.

On the trip, he adhered to the company’s frugal philosophy. Walking out of LaGuardia Airport, Doriot took a bus to Manhattan. Then he hopped on a train that took him from midtown to Wall Street. “Young people at our firm who were junior associates would have a stretch limo pick them up at Kennedy Airport,” says banker Robert McCabe, who would often meet with Doriot on his trips to New York. “The General did not operate that way. When he was older I would insist we take a taxi.”

His main point was that it was not advisable to provide detailed financial figures for young affiliates. “In the early years figures are meaningless to anyone not very close to the company,” said Doriot. “It is easier to pass judgment on a 24-year-old man than a 3- or 4-year-old child.”

It was a convincing argument but one investor did not buy it. Otto Hirschman of New York City, who owned 14,600 shares of ARD stock, stood up and criticized the company’s management—the first time it had been publicly faulted in its twenty-year history. Hirschman argued that management treated its stockholders unfairly by undervaluing the company and not paying out enough in dividends. Hirschman’s lament underscored the impossible situation that Doriot and his directors faced: While the SEC had privately criticized ARD for placing what it felt was an excessively high valuation on Digital (one hundred times its acquisition cost, noted the SEC’s chief enforcement attorney in a response to Doriot’s attack letter), shareholders like Hirschman demanded an even higher valuation.

Over the summer, Lehman bankers pitched the deal. Back in the mid-1960s, there were no “road shows.” The sales process consisted primarily of meetings between Lehman associates and potential investors in New York and Boston. Ken Olsen made a number of talks.

With Digital trading close to $110, ARD’s stake was now worth nearly $200 million. In October, just as Otto Hirschman had hoped, ARD’s stock reached a record high of $152. Digital Equipment was the venture capital industry’s first home run, single-handedly proving that venture capitalists could generate enormous wealth by backing the leader of a hot new business. “There’s no question that the public offering of Digital was the most important event in ARD’s history,” says Charles P. Waite. “It created this huge win for ARD.” James F. Morgan believes the Digital IPO amounted to a financial revolution, signaling the power of start-ups in the American economy. “I’d say it was a sea change in the attitudes toward venture capital investing,” says Morgan. “There really had never been a phenomenal, enduring success. The blood started pumping. If a klutz like Ken Olsen can do that, why can’t I? Digital blew open the restrictions that anyone had ever applied to entrepreneurial ventures. It was really mind-blowing, that you could take such a small amount of seed capital and get ownership of a company that was worth more than IBM in a fairly short period of time.”

Thanks to Digital Equipment’s blockbuster IPO, ARD met Doriot’s goal of generating superior performance by producing a 17 percent rate of return during its twenty-one-year history, a significantly better return than the 13 percent average of the Dow Jones index during the same period. But ARD’s success transcended the bottom line. Digital Equipment had also become the paragon of entrepreneurial success, inspiring a whole generation of technologists to drop out of Corporate America and tune in to the possibilities of start-ups.

…because ARD could not offer stock options to its staff, it was difficult for the firm to attract and retain top talent. The gravity of ARD’s compensation problems became clear to Charles P. Waite soon after he helped take Optical Scanning public. “I had made a very substantial contribution to that company,” says Waite. “The CEO’s net worth went from 0 to $10 million and I got a $2,000 raise. I agonized a lot over that. I remember thinking at the time I should have gotten a bigger raise. I loved what I was doing but I thought I should be somewhere where I was compensated adequately. And so, that was what eventually led to my leaving the firm.”

The elephant in the room was the explosive success of Digital Equipment and the fact that only four ARD employees had received options in the company.

Digital’s success created a deep division in the ARD office: there were those who had Digital shares and those who didn’t, and the reason for the difference seemed all too arbitrary. “It didn’t matter when it was dimes and nickels, but when it was $20 million per person we were somewhat disappointed,” said John A. Shane. “The General was quite arbitrary in that aspect of management. If the thing were managed in a little better fashion where we split up the options, it would not have been an issue.”

Doriot read the handwriting in Washington and penned an astonishingly candid memo. The opening line of the memo was this zinger: “ARD is not competitive any more.” The unrelenting stream of bad news from Washington had forced Doriot to take a brutally honest assessment of his beloved venture firm.

Succession & Sale

Perkins, while somewhat interested and flattered by the entreaty from his former professor, told Doriot he could not accept the offer. “I had a tremendous respect for him,” says Perkins. “He was the second most important mentor in my life, after Dave Packard.”

“Packard was an entrepreneur and he loved entrepreneurs,” says Perkins, who majored in electrical engineering at MIT. “He liked me. He trusted me that [University Laboratories] wouldn’t interfere with HP. It was very, very unusual. I was the chairman and I hired people to run the company.”

Perkins told Doriot that several personal reasons prevented him from accepting his offer, but he hid the real explanation. After his experience building and selling University Laboratories, Perkins wanted to set up his own venture capital firm. He would have loved to take over ARD but the compensation issue was a deal-breaker. “There was no way to make significant money because of the structure of ARD,” says Perkins.

It’s hard to call ARD’s sale a failure. After all, this was a company that started with $3.5 million, pioneered an entire industry, and fetched an offer of more than $400 million. But given the special heritage of ARD, it is hard not to consider it a profound disappointment that the firm was unable to remain an independent entity continuing to lead the venture industry for another twenty-five years.

“The reason ARD folded is the same reason why there is no Doriot professorship at Harvard,” says John A. Shane. “He was not good at picking successors. I don’t think he tried very hard. I’m convinced that was the reason.”

“Dick observed this whole process and concluded that it was Doriot’s refusal to deal with succession that sent them on their path to being bought out,” says Hughes.

“He was not a man who thought he could not be replaced,” says Claude Janssen. “That he didn’t find a man who could is another thing. It was not a philosophy of his.”

“It should have been done in 1965,” says Charles P. Waite. “I believe everyone in ARD would have stayed.” Certainly, the subsequent success of Greylock Capital provided unquestionable proof that Elfers was more than up to the task. But the majority of the board stood by Doriot all the way to the end. “The General was such an extraordinary person and had so high a standing in the investment community and with entrepreneurs that the board may have thought he was a hard act to follow,” says Robert McCabe.

Perhaps the board’s biggest mistake was that other than the easy path of a merger, for three years it neglected to investigate a solution to the firm’s structural problems—even though it was that very issue that led many possible successors to reject the firm’s entreaties.

The contrast with ARD was stunning. EED had set up shop in a magnificent brownstone in a tony arrondissement. People ran around interrupting each other’s meetings. And the office was overstaffed even though the firm was burning through cash. When Morgan went to lunch with his wife, Gueroult, a few EED staffers, and some of their entrepreneurs, he almost lost his cool. “It was the standard half hour to pick what wine to choose,” says Morgan. “They showed off how much they knew about wine.”

The most troubling part of the trip was that Morgan learned EED had been flouting ARD’s operating style in an attempt to outdo their parent firm. Instead of showing a light touch with its affiliates, Morgan learned that EED was meddling in the affairs of its portfolio companies.

“EED was determined they would do better. The implication was we’re so much smarter than you guys we’re going to have a better record than you.” Morgan happily returned to the United States with his wife. “I felt I dodged a bullet there,” he says.

In 1972, the year ARD was sold, Greylock made the decision to grow its business by forming a new partnership, rather than by bringing fresh money into its existing fund. This was an important innovation for several reasons. First, it allowed the firm to increase the ownership stakes of the younger general partners, who were taking on more responsibility in the firm. Second, a new fund made it easier to add limited partners because it eliminated the problem of valuation. And third, by completing the partnership at a fixed date, calculating the performance of the partnership was greatly simplified. Nowadays, most venture capital firms copy this technique, creating funds with a limited ten-year lifespan.

Between 1973 and 1975, the Dow Jones index was nearly sliced in half. As they surveyed the wreckage around them, the remaining staff members of ARD suddenly seemed happy to have a new roof over their heads.

It was an untenable situation for Miller, a man whom some associates say was a control freak who surrounded himself with sycophants. Miller knew he could not control Doriot and let him spout his candid comments in board meetings. “The consequence was Miller told Doriot he could never set foot in the office again,” says one former staffer. In early 1973, Doriot left the Textron board. The General knew the jig was up. After twenty-eight years of running ARD, it was finally time to let go of his beloved baby once and for all. On June 30, 1974, almost two years after rejoining the company, Doriot officially retired as chairman of American Research and Development Corporation.

Silicon Valley

But higher education was the key. The University of California and California Institute of Technology by then had gained a reputation for cutting edge research in science and engineering. Much of the credit for the creation of Silicon Valley, though, belongs to a visionary professor and provost of Stanford University, Frederick Terman. In a move equal parts genius and chutzpah, Terman stole the MIT playbook and used it to establish the west coast as a center of technological and entrepreneurial excellence. The crux of his vision was forming a nexus between academia and business—the key to rapidly transferring technology from the research lab to the marketplace.

Even as Stanford University’s engineering program flowered under Terman’s watch, he was disturbed to find most of his top students fleeing to the east coast to find jobs. In 1934, two of his best students, Dave Packard and William Hewlett, followed this same path after earning their undergraduate degrees: Packard enrolled in a management training position at General Electric in New York, and Hewlett began graduate work at MIT. But a few years later, Terman wooed them back to…

“One day Professor Terman remarked to me that many of the firms we had visited, and many other firms throughout the country, had been founded by men who had little formal education. He suggested that perhaps someone with a formal engineering education and a little business training might be even more successful.” In January 1939, with encouragement from Terman and $539 in working capital, Hewlett and Packard set up a company, working out of a garage behind Packard’s house.

These companies put California on the map. And they laid the foundation for greater prosperity in the future by serving as an entrepreneurial finishing school. In California, “young people are able to step up into serious management roles at an early age,” says Donald T. Valentine, who by the tender age of thirty was heading up sales and marketing at Fairchild Semiconductor. “It is much more of a meritocracy than the highly structured East Coast.”

Of the thirty-one semiconductor manufacturers established in the United States during the 1960s, only five existed outside the fertile strip of land in northern California. Many of the companies spun out of Fairchild.

By 1971, a computer journalist named Don Hoefler rechristened the area as “Silicon Valley” to describe the concentration of the region’s computer-related industries.

…the entire venture capital community in California “would meet at the Mark Hopkins Hotel for lunch. It was 20 people. This was a very small industry.” Thanks to ARD, Rockefeller Brothers, Greylock Capital, and Fidelity Ventures, the east coast was still king of the venture hill. But in the early 1970s, the West Coast’s venture movement reached critical mass when a slew of partnerships sprouted in northern California.

The creation of Kleiner, Perkins represented the culmination of twenty years of Silicon Valley evolution, illustrating the importance of the region’s deep-rooted networks. Kleiner was an alumnus of Fairchild Semiconductor, the mother of all Silicon Valley spin-offs, and Perkins was a product of Hewlett-Packard, arguably the first tech start-up. “The structure of Kleiner, Perkins was influenced by ARD,” says Perkins. “We never wanted to become a public company.”

The second firm was Sequoia Capital, founded in 1972 by Donald Valentine, a Yonkers native and graduate of Fordham University who caught the California bug and ended up working for a number of successful technology firms, including Fairchild. “It was very clear to me I was living in the right part of the world,” he says. “I never had to cross the Mississippi because of the microprocessor revolution.”

Sequoia Capital’s investment in Apple led Valentine to develop another new technique in the venture game that has often been copied. Valentine calls it the “aircraft carrier” method of investing. As with an aircraft carrier, which only sails with a fleet of other ships for servicing and defensive purposes, Valentine would build a cadre of other smaller companies around a critical venture. “It’s a simple concept that reinforces the idea of using a core investment and building new investments to make the core stronger,” says Valentine. “We try to make clusters of investments around the aircraft carrier.” In this case, Apple Computer was the aircraft carrier, a powerful ship that unleashed the personal computer revolution. After the company introduced the Apple II, Valentine realized that Apple needed related technologies to reach its full potential. The Apple II was a beautiful machine that became the market leader thanks to its low price, sharp design, and colorful graphics. But the first version used an audio cassette as a memory device to download programs onto the computer—clearly not an optimal solution since even the simplest programs took an hour to download. “It became very obvious we needed a memory product company,” says Valentine. So in 1978 Sequoia Capital started a company to make disk drives, Tandon Corporation. All told, Sequoia Capital made investments in thirteen other companies to serve Apple Computer, many of which followed the company down the road to success.

Kleiner, Perkins bought a 25 percent stake in Genentech for $100,000. The investment paid for the proof-of-concept experiment to synthesize their first gene. Genentech’s ultimate goal was to synthesize human insulin but Boyer and the researchers he hired convinced Swanson that it would be smarter to start with somatostatin, a simpler hormone.

“The day we announced [the gene], it was the headline in the San Francisco Examiner,” says Perkins. “That woke up the world to what we now call genetic engineering.” In 1978, Genentech scientists cloned human insulin. The following year, the company manufactured human growth hormone. In 1980, Genentech held the first IPO of a biotechnology company and raised $35 million. The stock shot up from $35 to $88 on its first day of trading—one of the biggest first-day pops ever. “Biotechnology jumpstarted the public’s fascination with VC,”

The Genentech IPO was important for one other reason: it cemented Silicon Valley as the dominant force in venture capital and entrepreneurial capitalism. Over a spectacular ten-year run, west coast venture capitalists had nurtured no less than four technological revolutions: the development of the semiconductor, electronic video game, the personal computer, and biotechnology. Ever since, the Valley has ruled the venture capital industry with unquestioned dominance.

Legacy & Europe

“We do not have the freedom to provide funds for portfolio companies that we used to have,” he wrote, and “we can never be certain that funds will be available if we need and want them.”

“The corporate world has a thing called the bottom line,” says Coulter. “Everything is driven by profits. But that is something you don’t look at in venture capital. Value does not show on the bottom line until, god knows, maybe 10 years. The two don’t fit. You don’t sell things in venture capital until the right moment. And that’s not December 31.”

“The financial world was still very compartmentalized,” says Claude Janssen, an EED director since 1970. “We [sold] a company in Italy at a profit and we couldn’t move the money out of Italy to France for a French company. The markets were not fluid at the time. That’s something that all of us did not realize.”

When EED needed capital, Jean Gueroult, the executive vice president of EED who ran the firm’s day-to-day operations, pushed the firm into borrowing money from a consortium of banks. “Unfortunately the market was not the same as the States,” says Gueroult. “If you don’t have sufficient equity you have to borrow money.” The loans saddled EED with high interest payments.

“Doriot was really a forward-looking person,” says Frederick Frank, a vice chairman of Lehman Brothers who knew the General. “In this case he was too ahead of his time.” “Never did a more brilliant guy have such a spectacular failure,” says former ARD executive Morgan.

Europe’s entrepreneurial culture owed Doriot one other huge debt. INSEAD, his beloved school, fulfilled Doriot’s dream of becoming a training ground for the future entrepreneurs of Europe. Today, INSEAD is considered the leading business school of Europe, and is regularly ranked among the best in the world—more proof of Doriot’s remarkable vision.

He was truly lost without Edna. “When she passed away Doriot did not know how to fill out a check to pay a bill,” says Arnaud de Vitry. In fact, for his whole life, Doriot, the Business School professor, put Edna in charge of all of their money. She kept a monthly ledger, with one side for income and the other for expenditures. “I never looked at those sheets, ever,” said Doriot. “I trusted her.”

…in June of 1979, after lobbying by pension fund managers, venture capitalists, and entrepreneurs, the U.S. Labor Department clarified the “prudent man” rule of the 1974 Employment Retirement Income Security Act. The old rule held that pension fund managers could only make investments that a “prudent man” would make. Consequently, many pension fund managers avoided venture capital. The new rule, however, allowed fund managers to take into account the diversification of their entire portfolio when determining the prudence of an investment. The ruling opened the floodgates to venture capital. Pension funds in particular poured rivers of money into the industry. In 1978, 23 venture funds managed about $500 million of capital. By 1983, there were 230 firms overseeing $11 billion. Almost one-third of that new money came from pension funds, up from 15 percent in 1978.

“Anyone who thinks AT&T should be broken up should be sent to France and told to try to use the telephone system there,” said Doriot to the chuckles of the crowd.

In July 1985, Textron spun off ARD to a limited partnership led by Coulter. Textron retained the eight public companies in ARD’s portfolio worth an estimated $35 million. The remaining stakes in twenty-eight private firms were purchased by Coulter’s group for about $25 million. An item in Venture magazine reported that Textron “shed a highly profitable unit—one scoring annual returns of 40% for six out of the last seven years.” After all these years, ARD was finally taken private, but the deal was twenty years too late. The identity of the purchaser who led the ARD buyout was not disclosed in public, and has never been divulged since.

Over the last twenty-nine years, Pete Petre wrote, Olsen “has taken Digital from nothing to $7.6 billion in revenues. DEC is bigger, even adjusting for inflation, than Ford Motor Co. when death claimed Henry Ford, than U.S. Steel when Andrew Carnegie sold out, than Standard Oil when John D. Rockefeller stepped aside.” The little startup that Doriot financed and nurtured for three decades had come to dominate the minicomputer market and was deemed the greatest entrepreneurial success of all time. The news must have brought a twinkle to Doriot’s eye, even though he knew that someone somewhere was trying to make Digital obsolete.

In his will, Doriot bequeathed all of his property, excluding cash and securities, to a trust whose terms were kept private. The trust’s main asset was 31,298 shares of Digital Equipment Corporation, worth $52 million.

After Edna died, Georges told the executor of his estate, Richard Testa, that he did not want to be buried underneath a headstone. He wanted to be cremated like his wife. And so, on a sunny day in June, about 150 of Doriot’s friends and family gathered at Smith’s Point in Manchester. Arnaud de Vitry gave a eulogy in front of Edna’s rock. Then Testa took Doriot’s ashes and spread them exactly where Edna’s remains had been dispersed nine years earlier, reuniting Georges and Edna in the cold blue waters of the Atlantic Ocean.

“He had the capacity to cut through to the core of the individual,” Bodman explained in his remarks. “He knew each of us in a very personal way.” By way of example, Bodman said there were only three people in his life that called him “Sammy”: his wife, General Doriot, and President Bush. “The president calls me that a little less often as oil prices declined and hit $60,” said Bodman, to the laughs of the crowd.

One of the lessons was that problems should not be ignored or avoided but confronted. “From problems and challenges we can learn and grow,” said Bodman. Another lesson was that products are less important than ideas, and ideas are less important than people. Bodman recalled vivid memories of Doriot treating all the waitresses and busboys at the John Hancock cafeteria with the utmost respect. “I’ve come to see that it’s the people that define an organization,” said Bodman. And the final lesson that General Doriot taught him was that a commander leads by action.

Ambassador Levitte credited General Doriot—and the way he brought two contentious countries together even after his death—for a landmark agreement that France signed in early 2005 with the United States and several other nations to develop next-generation nuclear energy technology. France, which derives about 80 percent of its electric power from nuclear energy, wanted to hold a ceremony to celebrate the agreement, and Secretary Bodman graciously recommended the French Embassy.