Chapter 09 - Networking: Emergence 1979-1981
9.8 The Return of Venture Capital
In 1978, the attractiveness of venture capital received a shot in the arm that transformed the industry from having lived on life-support for seven years to a robust institution. The 1978 Revenue Act reduced the capital gains rate from 49 1/2% to 28%. The flow of monies into venture capital funds jumped from $68 million to nearly $1 billon. Then in 1979, Congress passed the ERISA “Prudent Man” Rule that allowed pension funds to invest in venture capital. Again, venture capital benefited. By 1983, new commitments exceeded $5 billion.
Exhibit 9.8.1 Net New Commitments to Venture Capital Firms 1977 to 1983 (Millions)5
| 1977 | 1978 | 1979 | 1980 | 1981 | 1982 | 1983 |
|---|---|---|---|---|---|---|
| 68.2 | 978.1 | 449.2 | 961.4 | 1627.8 | 2118.6 | 5097.7 |
For entrepreneurs needing venture capital it was if the stoplight that had been stuck on red had turned green. The impact on networking would be immediate.
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Source of data: Venture Economics, Venture Capital Yearbook 1988, p. 17 Entries are presented in 1987 dollars, deflated using the GNP deflator. From NBER Working Paper Series: Venture Capital and Capital Gains Taxation, James M. Poterba, Working Paper No. 2832