Posts Tagged ‘Merrill Griswold’

Part 8: Slouching Through the Great Depression

December 4, 2008



Chapter Five
“Slouching Through the Depression”
(1930—1940)

Read Part 1, Read Part 2, Read Part 3, Read Part 4, Read Part 5, Read Part 6, Read Part 7

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. But perhaps no committee was as important as the New Products Committee. It wasn’t so much the work of the Committee that mattered, though they did undertake a series of important studies. More so it was the fact that it assembled the brain trust of individuals who would eventually pioneer the venture capital industry.

On November 8, 1940, the New Products Committee convened its first annual meeting to discuss the results of its research. One subcommittee concluded that although capital existed for new ventures, there was a need for an “organization and technique to appraise opportunities for specific enterprises.” Doriot’s subcommittee concurred that “the great need is for qualified technical analysis of situations, in order that venture capital investors may proceed with a reasonable degree of assurance.”

The outcome of the Committee was the creation of the New England Industrial Foundation. The Foundation’s goal was not to invest in new enterprises but to create a sort of industrial research organization to “appraise opportunities for scientific enterprises in the New England area.” After spotting those opportunities, the Foundation hoped existing New England businesses would then invest in and nurture them.

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Around the same time, Doriot joined forces with another group of elite New Englanders working on the same problem: Enterprise Associates. Led by William Coolidge, an American physicist who in 1916 invented the prototype of modern X-ray technology, Enterprise Associates took a more direct approach than the Foundation, raising $300,000 from twenty stockholders to finance the final stages of promising research projects.

William D. Coolidge
[William D. Coolidge examining his hot cathode, high vacuum X-ray tube, 1913.]

Doriot joined the board of Enterprise, along with his Business School assistant William H. McLean, and a few others. Throughout 1938 and early 1939, the stockholders and officers of Enterprise met with various entrepreneurs, looking for ideas to finance. On May 7, 1940, they held a dinner where they learned about a young chemical company called National Research. They liked the idea and backed the firm.

Then history threw a wrench in their plans. On May 10, Germany invaded Luxembourg, Belgium, the Netherlands, and France, ending the so-called Phony War. Right after Germany unleashed its blitzkrieg on the rest of Europe, most of the people who attended the Enterprise dinner called up William Coolidge and told him they wished to withdraw from their participation in the financing of National Research. Coolidge refused to withdraw. Since he had made a commitment, he would follow through with it. Doriot, feeling bad, loaned them an assistant to help, and later joined National Research’s board.

But it made little difference. The United States was facing a far graver risk—global fascism—and she needed to devote all of her energies and resources to fighting this dangerous and growing scourge. Enterprise Associates and pretty much everything else unrelated to the war were put on the back burner.

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.

For the time being, though, the war had snuffed out the formation of the nation’s venture capital industry just as it was getting off the ground. Six years later, Compton, Doriot, and other members of the New England brain trust would revive their plans to create a regional venture movement. But first, they all had a war to fight.

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Part 7: Slouching Through the Great Depression

December 2, 2008



Chapter Five
“Slouching Through the Depression”
(1930—1940)

Read Part 1, Read Part 2, Read Part 3, Read Part 4, Read Part 5, Read Part 6

In 1938 and 1939, various groups of New England industrialists and financiers became obsessed with fixing the nation’s risk-less economy. One of the most prominent organizations was the New England Council, a group of politicians, businessmen, and educators, which formed in 1925 to “improve economic conditions for New England.”

Within this group, there was a growing awareness that New England’s universities and industrial research labs were a valuable asset distinguishing the region from the rest of the nation. The most impressive asset in the region was MIT.

Karl Compton
[MIT President Karl Compton]

In 1930, Karl Compton, then the head of the physics department of Princeton University, accepted an invitation to become the president of MIT. Under Compton, MIT redefined the relationship between science and society. When Compton took office during the Great Depression, science was attacked as a source of social ills.

Over the next twenty-four years, Compton worked tirelessly to strengthen basic scientific research at MIT and to promote the importance of science to a skeptical and hostile public. Compton advocated a broad education for scientists, one that responded to the needs of the time.

In 1934, Compton proposed an ambitious program he called “Put Science to Work.” The campaign called for the public financing of “scientific and engineering research looking toward better public works for the future.” Instead of blaming labor-saving technology for society’s ills, Compton proposed the bold idea that science gave birth to great new industries.

“New industries are like babies: they need shelter and nourishment, which they take in the form of patent protection, financing, and the chance of reasonable profits,” wrote Comptom in a long essay promoting his campaign. “But, before all, they need need to be born, and their parents are science and invention.”

The egalitarian ethos of the New Deal stymied Compton’s campaign to finance research at elite universities like MIT. So Compton turned his attention to the regional level. In 1939, responding to a suggestion by Compton, the New England Council formed a committee to examine how new products might help reverse the terminal decline of the region’s textile and garment industries.

The New Products Committee brought together eight of the most progressive minds in America, including Compton, Doriot, Ralph Flanders, a mechanical engineer who rose to become head of Vermont’s Jones & Lamson Machine Company, and Merrill Griswold, president of Massachusetts Investors Trust. Doriot was charged with heading up one of several subcommittees; his was called “Development Procedures and Venture Capital.”

Was this his new impossible mission?

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