 Well, I buy these myths about venture capital. I can see that this early-stage finance is really important. I can see that the person who contributes it deserves a tax break and deserves to get rich because he's taking on so much risk, and I can trust that he's going to recycle it into the economy. Even folks who buy that say, okay, but wait a minute, maybe the government should also play a VC role sometimes to get to people like African Americans who are never going to have access to the private sector guy who's the VC. My name is Julia Ott. I'm an associate professor of history at the New School, and I am the director of the Heilbrunner Center for Capitalism Studies at the New School for Social Research. Venture capital in its most simple straightforward definition refers to the funds, the venture capital funds, that a specialized practitioner of finance called a venture capitalist contributes to an individual or a firm to develop their product, their idea, their business in an early stage. The venture capitalist does this in the hopes that the company that they invest in will be sold at a future date for a much, much higher price than the company was worth when the venture capital firm invested in them. This is the return. This is the gain that the VC firm gets, and that's the whole point of doing this thing is to get that return. As a historian, venture capital means something more expansive, and what I mean when I talk about venture capital as a historian is, first of all, an idea about the way the world works and particularly the way that finance works and its relationship to the innovative economy, to growth, to job creation, and secondly, it is a political formation, a political mobilization. Thirdly, it is a specialized sector or segment or function of the larger financial system, and for me as a historian, it's important to signal and to identify all of those three attributes or aspects of what venture capital is and to bring to light and help people understand that they developed in time in that manner. First is an idea that transformed financial practices, financial markets, and economic policy in the United States, and the way that happened is through the actions of a powerful political lobby and a powerful political mobilization that had to happen to change laws and to change institutions so that the world of venture capital that we know today could in fact come to fruition. I think most people are sort of loosely familiar with the idea or the myth, as I might call it, of venture capital. It's an old set of assumptions reaching back at least until the 1930s, and there are some precedents even in the teens and 20s. So the idea has been around for quite a long time, the idea of venture capital. The idea here, there's a couple important sort of extensions, additional elements of this myth. The idea here though is not just that this happens, but that it's absolutely fundamentally essential for a properly working financial or capital market because the venture capitalist is this sort of specialized investor who then takes that money, that return that they made by selling out or liquidating some portion or all of that investment in company number one that was successful. They're going to recycle it and do it again, and do it again, and do it again. And so their rapid high returns, they'll win some, they'll lose some, but those rapid high returns, they're deserved, they're earned, they deserve to have tax preference, and they deserve to have kind of all sorts of favorable treatment in economic policy legislation. These people are good people, what they do benefit everyone, and if you muck around with it with tax policy, labor policy, industrial policy, state investment regulation, et cetera, et cetera, if you muck around with that virtual cycle, that virtual, sorry, cycle of venture capital return and reinvestments, everything's going to collapse, innovation, growth, job creation, it's all going to fall apart. Historians, this probably sounds relatively familiar to people, anybody who's heard the term venture capital and kind of thought about it for a minute, this may be the idea, a set of ideas that you have in your head. Well for a historian, it's not hard to see that these are myths, that this isn't true, that the funding that has historically gone into innovative enterprises that create jobs, create economic growth, bring products and services to the markets that make people's lives better, the citizen broadly, that venture capital has played and even today plays a very negligible role. And of course, there are many who would criticize venture capital for actually kind of doing the opposite in terms of building up these high valuation incumbents who can buy up competitors with their own internal VC money, crush competition, raise prices, suppress workers, et cetera. So these myths are not true and that's something that the book, where did they come from and why do they persist and how do they manage to shape policy and shape the practices of political and financial institutions if they are not in fact accurate. We first find the term venture capital in the historical record in the 1930s. And it's a concept basically fully cooked as I describe it, a concept that comes to the fore in the conservative pushback against FDR in his first and second term. The conservative pushback is concerned with high tax rates, the notion of equalizing capital gains rates with earned income tax rates, the prospect of taxation of undistributed corporate profits or retained earnings. And across the Mason-Dixon line, across the Democratic and Republican Party, ardent segregationists in Congress come together with Wall Street backing, with, you know, across party lines with conservative Republicans and they really choose the capital gains tax preference and some of these other taxation issues to sort of stand their ground against the New Deal. So they're able to, for the rest of the 20th century really, stave off any attempt to equalize capital gains tax rates with earned income tax rates. And in doing so, they really boy protect the power of white wealth because it's the highest and widest, you know, part of the income distribution that can benefit from these kind of policies. Over the course of the 20th century, these groups then using again the concept of venture capital, you know, these policies are absolutely essential for protecting venture capital, for growing venture capital, et cetera. They add additional elements into the tax code, which continue to grow what we call tax expenditures, a kind of hidden welfare state for affluent white people. So you have the exclusion of capital gains, tax liability at death. You have, you know, tax-free contributions to retirement funds and to health funds. And all the time, the idea that this will support venture capital, grow the available pool of venture capital out there, keep markets liquid enough that venture capitalists will continue to sort of fund this virtuous cycle that I was describing, these things have, you know, these arguments are ways in which these policies are defended and enacted. But moreover, the ideas are also kind of a rallying ground for particular, as I said before, particular kinds of political alignments. So you have, you know, diehard segregationists in the 30s who want to protect white wealth, coming together with members of the New York Stock Exchange who are deeply concerned about what raising capital gains tax is going to do to their business. And the New York Stock Exchange starts giving secret illegal campaign contributions, keeping men like Harry Bird, who actually coined the term massive resistance, keep him in office, you know, for the next 30 years in control of the Senate Finance Committee. Later on, in the 1960s, in the 1970s, you know, you have Wall Street campaign contributions lobbyists going to legislators and offering them these arguments in a effort to get laws like ERISA passed. ERISA absolutely causes the financial industry to explode. It allows pension funds to invest in riskier assets. At that point, you know, VC actually becomes a thing. It actually becomes, you know, something that is still a very small amount of the financial industry. But it's a reality now. But prior to ERISA, you know, it's sort of a negligible component of the financial system. So you have to get those laws passed, you know, before you have the money to play the VC game with. And getting those laws passed means mobilizing ideas, putting forward, you know, convincing and exciting notions about how the economy works and what it could be if we favored the right people through tax policy, et cetera, favored the right kinds of, you know, functions. Well, to understand that, you know, I talked about how in the 1930s, you know, there's this important moment of we're going to hold our ground against the new deal, new political configurations, you know, protecting, expanding the capital gains tax preference, adding to it in the coming decades with things like exclusions and inheritance, for example, exclusions of a certain amount of capital gain on the sale of homes. So that's the capital gains stuff and soon carried interest actually, the carried interest exemption gets put in there too. So that's kind of what's going on in the 1930s and sort of in subsequent decades. And then I also said that, you know, Orissa in the 1970s, once this lobby, this venture capital lobby, you know, even the industry is verse really non-existent, there's powerful lobbies in place first that get Orissa changed, which then really the money starts flowing in. So what happens in between? You know, I've got like the 40s, the 50s, the 60s. And that middle period is actually very interesting, because it's the era of the roads not taken. So in World War II, and even into the 50s, you have things like three for construction finance corporation, you have the difference plant corporation, it is the high point. I mean, you know, people are, I think they're more aware now, the average person, but you know, it really had been buried in history. The degree to which the American government was the owner of financial institutions and, you know, kind of industrial plant to support the war effort, because things couldn't get built quick enough if the private, there wasn't a venture capital around, you know. But that is another debate conservatives in Congress don't want that to happen. Again, bipartisan, the diehard segregationists who have all kinds of problems with the New Deal, and then, you know, Wall Street actors and, you know, leaders of industrial corporations and the Republican Party who don't want the government to be involved. So, you know, when those agencies are going, and then in the post-war debate over whether we're going to keep them or whether we're going to liquidate them, and if we liquidate them, how are we going to liquidate them? The arguments about venture capital are very much roaring. But the thing that's interesting, you know, we get those federal investments are largely liquidated and sold off to large corporations for pennies on a dollar. But we still do have, you know, in the 50s and the 60s, enormous hydroelectric projects like Out West, which are, you know, major federally funded federally owned infrastructure projects. You also have, so there's still this, you know, degree of RFC DPC type funding that goes on in the American economy. So the debates continue about what is the role of the government in funding new enterprises and new enterprises that will people to work and create new technological innovations versus this thing called VC, which doesn't really exist yet. Actually innovation in the private sector is funded through the retained earnings of existing corporations, right? So the debates are going on, again, even when there's really not so much of a VC industry in actuality. The other road not taken or the road sort of taken and forgotten is the world of government funding of small business. So we have a small business administration today. I think people know that. We still actually do have small business investment corporations, but they were more prominent, more controversial and important and very important in the VC story, although they're not, you know, widely known about today, much less remembered for their role in the past. So after, you know, assets held by the DPC and the RFC are liquidated, that's not where the story ends, because folks start getting really nervous, conservatives and liberals alike. Okay, well, but wait a minute, we just sold all of these federal assets for pennies on the dollar to large industrial corporations, and we have, you know, in the United States today after World War II, we've got the big unions, we've got the big corporations, we've got big government. What about the little guy, how is the entrepreneur supposed to find money and resources to start a business that can compete with these big players? So conservatives and liberals alike, even as they're shedding these federally owned assets, come together, and the leader here is actually Robert Taft, who most people think is, you know, a real jerk of an economic conservative, anti-labor, you know, infamous for that, and Taft says, you know, we need to start a government program that's like the government programs for home ownership. We need to start a kind of guaranteed loan program for small businesses, so that, you know, this idea of entrepreneurialism, you know, won't die in the era of big labor, big government, big business. So the SBICs are these investment vehicles that can get certain kinds of guarantees from the federal government, and they're actually really the first VC's in the United States in many ways. I mean, in terms of a particular company who specializes and only does that type of finance. So when the SBICs get started, you know, it's still the very small program, very minimal, but it draws more attention by voters, by Congress, you know, to the problem of small business formation. And what winds up happening in the 1960s is that question of small business formation comes to sort of intersect with the problem of black capitalism, or the problem of sort of black economic advancement. The SBICs, because they're federally supported and federally funded, they all have to follow the rules of like the EEOC, and they have to show that they're being non-discriminatory and actually actively trying to get money out there to minority businesses. Well, of course, somebody like Taft, you know, even conservatives who were favorable to the idea that the government should do something for small business, well, we didn't mean it for black people necessarily, right? Nobody kind of intended for it to have this affirmative action type of function. So the SBICs by the 1960s and 70s are a real hot potato in Congress. They do still exist, but they really lose a lot of funding, but they kind of serve as a model for private VCs who are not involved in that program, and again, kind of keep the concept and the importance of the concept circulating an American political discourse. So that's what happens in that sort of interregnum. And by the time you get there, you know, you're kind of primed with industry lobbyists talking about VC and then being able to push for things like Orissa to make VC a reality. The SBIC program really kind of comes into the crosshairs of, you know, folks who don't like affirmative action and, you know, don't want to see the federal government playing an active role in doing things to correct gaps, you know, racial income gaps, racial wealth gaps, racial ownership, minority business, differential credit access for people of color, you know, for conservatives who don't want any of the federal government to be doing anything about that stuff. The fact that the SBIC is mandated, you know, as a federal agency after the 1960s to care about that stuff and pay attention to who they're lending to and making sure they're being anti-discriminatory and perhaps even affirmative in the area of racial economic justice. That really becomes, as I said before, sort of a hot potato in Congress. There are some interesting kind of, you know, neoliberal from the left, you know, kind of moments in the book where it's entirely certain to people at the time, you know, well, I buy these myths about venture capital. I can see that this early stage finance is really important. I can see that the person who contributes it deserves a tax break and deserves to, you know, get rich because he's taking on so much risk and I can trust that he's going to recycle it into the economy. Even folks who buy that say, OK, but wait a minute, maybe the government should also play a VC role sometimes to get to people like African Americans who are never going to have access to the private sector guy who's the VC. Or, you know, maybe we should, the government, you know, maybe VC is fine for most of the economy, but, you know, there's a role for the government to own, you know, certain large infrastructures or whatever. They should be retained with government ownership and that will make the rest of the economy work better. You know, venture capital can work better if certain aspects of the economy are, you know, government funded or government regulated. So, again, there's always kind of different liberal and conservative variants when it comes to, well, what's the actual policy implications here? But that, you know, even for folks who buy into the interlocking myths in the first place. The promise, you know, of all of these myths about venture capital that, you know, legislators bought into and changed laws so that more money would flow into finance in the hope that it would then flow into VC. And VC would work its magic and, you know, give out funding to innovative job creating, you know, growth producing firms. Well, did it, you know, my book kind of ends in the late 70s, early 80s where the stage is all set, right? So, you know, for the epilogue, the question is, well, did it work? And the answer, as may be familiar to many viewers, is, you know, not really. What happened instead is a lot of money flow did flow into finance. You know, we have the explosion of finance that goes by this term financialization. And unfortunately, despite myths to the contrary, when an investor takes a gain, there's nothing that obligates the investor to recycle that gain back into some kind of new investment. The investor can floss their teeth with, you know, $100 bills if they want to. They can buy expensive art. They can buy penthouse apartments. You know, they can set up trust funds, you know, for their kids that are just in safe, you know, government bonds. There's no reason, you know, that that virtue, even if you buy the rest of it, you know, there's no reason why it needs to continue. And what we actually find happens after the 1980s is that investors do, you know, they do just recycle gains back into what they perceive as sort of, you know, safe and good return assets. And that's why you get, like, the stock market bubble and other kinds of, you know, like, you know, urban real estate bubbles and stuff like this.