The history and future of venture capital investing by Laurence Siegel

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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