Large-scale professional venture capital is a relative newcomer in the world of finance. It emerged as a modern industry in the US in the 1970s, when a number of professionally managed limited partnerships were formed in response to the lack of other institutional funding for new companies. Their purpose was to finance businesses that balanced high risk against great potential for growth and profitability.

Throughout the history of capitalism, investors have been willing to accept the risks of investing in the commercialization of innovations in the expectation of unusual financial rewards. Whether the technology was steam engines, railroads, electrical power, or even canals, it has always been possible to raise capital for venture companies created to bring innovations to market, provided the potential was large enough.

Entrepreneurs of the past typically financed their new businesses with their own money, plus investments from family and friends, corporations, wealthy individuals (called “angel investors”), and customers. Banks were not a viable source of capital for startups in the US because Federal laws from the 1930s restricted them from investing in certain classes of assets.

Bootstrapping a business in this way, without institutional support, is a very difficult process. Microsoft and a few others have shown that it can be done.