Wired with an oral history of ILM:
No one wanted Star Wars when George Lucas started shopping it to studios in the mid-1970s. It was the era of Taxi Driver and Network and Serpico; Hollywood was hot for authenticity and edgy drama, not popcorn space epics. But that was only part of the problem.
As the young director had conceived it, Star Wars was a film that literally couldn’t be made; the technology required to bring the movie’s universe to visual life simply didn’t exist. Eventually 20th Century Fox gave Lucas $25,000 to finish his screenplay—and then, after he garnered a Best Picture Oscar nomination for American Graffiti, green-lit the production of Adventures of Luke Starkiller, as Taken From the Journal of the Whills, Saga I: The Star Wars. However, the studio no longer had a special effects department, so Lucas was on his own.