Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

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Modern Private Equity – A French Invention?

Human needs have increased and diversified throughout history. The subsequent ventures evolved substantially as well, notably with the agricultural and industrial revolutions. Venture capital has mutated with these ambitions. Just as Columbus was a European individual discovering America, it was a European going to the US who would formalise modern venture capital: Georges Doriot. In the early stage of venture capital, the entrepreneur and the investment manager were slowly emerging as distinct figures. Modern venture capital oversaw the differentiation between the capital provider (the investor) and the investment manager.

The professionalisation of private equity investors

By pushing the differentiation of roles further, the different actors of the venture capital industry paved the way for its professionalisation. Investors were monitoring and controlling the investment managers. Investment managers were selecting ventures and monitoring the investments. Entrepreneurs were building the ventures and were structuring the companies effectively.

Entrepreneurs learn mainly by doing, which is a constantly renewed process as each venture is unique. With regard to investments, investors often adopt a ‘hands-off’ attitude. Investment managers, by offering investors the opportunity to dedicate their time to investing concretely, had to develop their own methodology and a philosophy of investment.

The French General Georges Doriot initiated ...