Creative Capital

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Doriot's vision and charm were instrumental in winning over investors Ivan Massar

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After the IPO, Digital offered stock options to a wider group of its employees. Many of them seized the opportunity. But Digital shares got dragged down by the falling stock market, bottoming out in October at about $17. "Some of the people tried to give the options back," says Ted Johnson, Digital's head of sales. "People felt that they had been had."

The stock market recovered. And as shares in Digital began to rise, more and more people grew intrigued by this fairy tale.In February of 1967, James F. Morgan, a consultant with Booz Allen who joined ARD as an assistant vice-president, picked up Kroll and drove out to Maynard, where Digital was holding its first-ever meeting with financial analysts in the mill. Kroll and Morgan sat in Digital's dingy cafeteria and listened as Ken Olsen scared the heck out of Wall Street. "The first meeting with security analysts was a disaster," says Morgan. "You had this monosyllabic CEO who didn't want to speak with them. They were grunting at each other. Half of the people went home and sold their stock."

The shrewder analysts realized that Digital was sitting on a gold mine. The company's PDP-8, a small but potent machine that sold for $18,000, quickly became Digital's best-selling product. By expanding the promise of computers beyond the handful of large companies able to afford an IBM machine, the PDP-8 foreshadowed the personal-computer revolution 15 years later. The market exploded as tens of thousands of machines were sold to labs and industrial companies.

By March of 1967, Digital shares topped $50. Over the summer, they hit $80, and in September they crossed $100. In October, just as Otto Hirschman had hoped, ARD's stock reached a record high of $152, its stake in Digital now worth around $200 million. Digital was the venture capital industry's first home run, single-handedly proving that venture capitalists could generate enormous wealth by backing the winners of a hot new business. "I'd say it was a sea change in the attitudes toward venture capital investing," says ARD's Morgan. "There really had never been a phenomenal, enduring success. If a klutz like Ken Olsen can do that, why can't I? Digital blew open the restrictions that anyone had ever applied to entrepreneurial ventures. It was really mind-blowing, that you could take such a small amount of seed capital and get ownership of a company that was worth more than IBM in a fairly short period of time."

During its 26-year existence, ARD financed 120 companies. But it was the rise of Digital Equipment that allowed Doriot to accomplish his ultimate goal of forging a nationwide movement of entrepreneurs. "Doriot was very important because he was the first one to believe there was a future in financing entrepreneurs in an organized way," says Kroll. "He [and ARD] really created the venture capital community."

Reprinted by permission of Harvard Business School Press. Excerpted from Creative Capital by Spencer E. Ante. Copyright © 2008 Spencer E. Ante; All Rights Reserved.

Ante is the computers department editor for BusinessWeek.