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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