Before 1978, venture capital was a boutique activity, not an industry with its own gravity. Real new money committed to US venture funds, adjusted for inflation, was about $68 million in 1977 — a rounding error next to what came after. Two decisions, neither one made by a venture capitalist, changed that in eighteen months. The 1978 Revenue Act cut the capital gains rate from 49.5% to 28%, making risk investment materially more attractive. Then, in 1979, the Department of Labor clarified how ERISA's "prudent man" fiduciary standard applied to portfolio diversification — reading it to mean a small allocation to venture capital wasn't imprudent as long as the overall portfolio was balanced. That single reading is what let pension funds into venture capital at scale for the first time; they became the industry's dominant source of capital within a few years.

The effect on the actual numbers was immediate and large. Real committed capital went from that $68 million floor in 1977 to $978 million in 1978 — the year of the tax cut — then rose almost continuously to a peak of roughly $5.1 billion by 1983, near a sixteen-fold increase in six years. The total pool of capital under management tracks the same climb: $4.5 billion in 1980 to $29 billion by 1987. 1983 was the peak on both ends of the pipeline at once — the commitment peak and the exit peak, with 116 to 121 venture-backed IPOs that year and roughly $14 billion in IPO-year market value, driven by names like Amgen, Compaq, and Lotus.

What followed is the less-told half of the story, and the more useful one. The October 1987 crash shut the exit window hard. Venture-backed IPOs fell to 32, then 40, then 42 a year through 1988-1990 — even as the capital pool kept growing, from $12 billion in 1983 to $31 billion in 1988. That combination — more capital chasing fewer exits — is what actually broke the funds that had raised money at the 1983-85 peak: median venture IRRs fell from roughly 30% in 1982-83 to about 8% by 1988. The harvest those funds were counting on didn't arrive until the market reopened in 1991-93. The lesson embedded in the data isn't "venture capital boomed in the 1980s" — it's that a policy decision can open a capital spigot years before anyone can tell whether the money going in will find a real exit, and the gap between the two, three to eight years in this case, is where funds actually succeed or fail.