American Research and Development Corporation

Origins

ARD emerged from concerns about New England's economic decline. The textile and manufacturing industries that had anchored the region were leaving for the South, and employment in Massachusetts cotton manufacturing alone fell from 124,000 in 1919 to under 30,000 by 1940. Civic leaders sought mechanisms to commercialize research from local universities—particularly MIT—as a basis for industrial revival.

Karl T. Compton, a physicist who became MIT's president in 1930, believed scientific research could drive regional growth. In 1934 he proposed a program called "Put Science to Work," arguing against prevailing sentiment that blamed labor-saving technology for unemployment. "New industries are like babies," Compton wrote in the New York Times Magazine: "they need shelter and nourishment, which they take in the form of patent protection, financing, and the chance of reasonable profits. But, before all, they need to be born, and their parents are science and invention."

The New England Council, a regional business association, embraced the idea and asked Compton to chair a "New Products Committee" in 1939 to examine how technology might reverse industrial decline. The committee brought Compton together with Ralph Flanders, an industrialist and president of the Council; Merrill Griswold, chairman of Massachusetts Investors Trust; Donald David, dean of Harvard Business School; and Georges Doriot, a Harvard Business School professor who chaired a subcommittee on "Development Procedures and Venture Capital."

The committee identified a structural problem: approximately 45 percent of New England wealth was held by banks, insurers, and trusts legally barred or culturally averse to risky investments. Capital was not scarce, but the capacity to evaluate startups was. As Griswold explained, his firm would "under no circumstances directly make investments in risky new undertakings for the reason that we are not staffed for that purpose." The committee concluded that a specialized intermediary could bridge this gap—assembling a diversified portfolio where, even if several investments failed, "the others, the hope is, will more than make up for it."

World War II suspended these plans but reinforced the case for organized venture capital. Doriot served as a brigadier general directing research and development for the Army Quartermaster General. Compton worked with the Office of Scientific Research and Development, which coordinated wartime research producing radar, mass-produced penicillin, and the atomic bomb. Federal research spending concentrated technical expertise in the Boston area. Appointed president of the Boston Federal Reserve in 1944, Flanders became further convinced that lack of financial support for new industries would harm postwar prosperity. In 1944, he proposed a new corporate entity to ensure a "reasonably high birth rate of new undertakings." Following the Japanese surrender, Compton gathered his colleagues from the New Products Committee and persuaded them to act.