Source - https://www.advisorperspectives.com/articles/2019/07/08/the-history-and-future-of-venture-capital-investing
TL;DR - Prior to formalized “venture capital,” there is a long history of individuals and groups investing in risky new technologies.
Helpfulness - 5
Tags - risk capital, early vc
Questions addressed:
- What are some examples of risk capital investing before the emergence of “venture capital” in the mid-1900s?
- What are the impacts of some of these early investors?
Summary:
- Whaling had a similar distribution of returns to modern venture capital.
- Gold exploration and “oil wildcatting” also had this type of long-tail returns.
- Thales of Miletus (624-525 BCE) invented the options market by creating a technology for hedging the price of olive oil.
- Contracts between backers and entrepreneurs inventing the spinning jenny in the 1780s resemble modern term sheets.
- Backers of the spinning jenny also included whaling families.
- Andrew Mellon’s financing of new industrial firms included both equity financing and management assistance, just like modern VC.
- Tom Perkins and Kleiner Perkins changed VC by adopting a “participatory management” style of active rather than passive investing.
- This is now the dominant style of investing among VC firms.
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