Although there is some similarity between venture capitalists and some ancient forms of financing, the true narrative of venture capital began in the years following World War II.

There was a form of partnership arrangement practiced in medieval Islamic society that bears a striking resemblance to the current system of venture capital investment. Most experts, however, would tend to begin a discussion of venture capital with the formation of the American Research and Development Corporation in 1946. AR&DC was founded by General Georges Doriot, a French born and Harvard educated businessman who had recently left the United States Army with the rank of General.

Doriot's AR&DC made an investment of $70,000 in 1957 to provide venture capital for the startup of Digital Equipment Corporation. This $70,000 investment ultimately grew to have a value of $355 million dollars. When Digital when public in 1968, it provided AR&DC with an annual rate of return of 101%. This amazing success story provides, in some ways, the business model goal of the venture capitalist.

The Small Business Administration became involved with the venture capitalist idea when Congress passed the Small Business Investment Act of 1958. This Act allowed the licensing of Small Business Investment Companies, called SBICs. In the years, prior to World War II, it was mostly the eccentric rich or supportive family that provided venture capital for projects that were breaking new technological ground. Since traditional lending institutions tended to shy away from such risky investments, Congress had recognized a need to encourage and enable the flow of investment capital into these areas to help keep the economy growing and the country technologically competitive.

The dawn of the Information and Technological Revolution of the later part of the last century provided a solid growth medium for venture capital. The emergence of Silicon Valley in California made San Francisco into a center for venture capital investment. The venture capital industry has been extremely sensitive to stock market activity due to the fact that their investments are usually in the form of stock ownership. The stock market decline of 1974 was a big set back for venture capital firms.

The dot com boom of the late 1990's followed by the NASDAQ and technological bust of the early 2000's was another roller coaster ride for venture capitalists. However, today the industry is rebounding and moving back slowly to those early levels of investment activity. As always, venture capital is financing risky, but necessary for important advances at the very cutting edge of business. Today, alternative fuels and alternative forms of energy seem to be the areas where the next Digital Equipment Corporation might emerge.