Adventure Capitalists

Venture Capital is as old as the Western world

The idea of Venture Capital is as old as the western world. In the 1480’s Columbus traversed Europe, pitching the idea of a new trade route to the East. His edge lay in his preemptive strike, gaining the first-mover advantage into an untapped market. For an endeavor like this, Columbus knew that above all else his most basic and integral necessity was money. He was a man with an idea, an entrepreneur with a vision, lacking the means. He knew he required a backer; a Venture Capitalist. Columbus built a business plan, ran CAP tables, presented his powerpoints, created demand, raised awareness, pre-sold to test the market, etc… Columbus knew if a popular VC lead, others would follow. Therein lies the trick, asking the questions: who leads, who follows, is this the right VC? Back in the 15th century the VC’s took a more medieval approach to corporate war, engaging in battles, love and lust, pirating, arranged marriages, undermining, spying—anything to gain an edge. Like any good entrepreneur, Columbus was not only pitching the merits of the deal but pitching himself, his commitment and vision, all with an inspiring conviction and mesmerizing charisma.

Is this really any different than an entrepreneur pitching to a VC today? When a VC invests they look for a certain type of people with character, vision and undying belief. They search for the smart people, the committed people, the CTO’s and CEO’s that not only market their vision but believe in it, people who are capable of unlocking hidden value. Killing and mayhem aside, the parallels of historical VC’s and contemporary VC’s are startling. A Venture Capitalist aims to harpoon ‘the big one’, finding the next disruptive business, producing a shock and awe moment and will sail to the ends of the earth to get there, literally.

What Columbus pitched to Queen Isabella would disrupt 300 years of trade and open new profit opportunities and glory to Spain. Columbus spun the idea of travel and leisure, access to timber, gold, silks, spices and natural resources, a faster market and potential cheap labor forces; Queen Isabella was caught in the illustrious web, enraptured by the glory and power monopolization of these resources would entail.

columbus_sale.pngIn the image to the left, Columbus is diving into the sale. Isabella sits in the center of the room, a portrait of quiet control. She is attentive; fascinated with Columbus, though he is only but a swash-buckling sailor, an adventurer with a vision, and she the exalted Queen of Spain. Yet he appeals to her. His character appeals to her and the idea he administers appeals to her. Beside her, King Ferdinand looks angered by the blatant undermining. He stands to demonstrate his dominance, however artificial it may be—the true power in the room had already made a decision, and all the King could do was control risk and save face.

The King did not appreciate the impiety to his authority, but he recognized the imperativeness of avoiding a fight with Isabella. He had two choices; send Columbus out to sea and pray he drowns, or syndicate the deal. But Columbus was shopping the deal with other VC’s; France and England had already expressed interest, and under this pressure, Ferdinand proposed to Isabella that they syndicate the deal to the Catholic Church and the wealthy merchants while applying an OPM (Others People Money) model to finance the expedition. With this decisive move King Ferdinand gained some control and saved face in front of his backers and staff—and if Columbus failed or drowned he’s used OPM to pay for it. Ferdinand deflected Isabella’s affections away from Columbus to the selling of the deal and getting things back on track. I guess that is why a modern VC always has a visionary guy and a business person to “lace the track and to lock the flow “ (P. Diddy)

Isabella bought into the idea and worked the Church while Ferdinand worked the merchants. Isabella spun the concept to the Church as a means to convert souls to Christianity by spreading the word of the Lord. She quickly gained financial commitment. The King motivated the traders and merchants to buy in, telling them they will lose the first-move advantage to their competitors, the English, French, Italians, etc…. Fear is always a reliable spark plug to ignite a buyer.

The Basic Fundamentals of the Deal.
VC General Partner: Isabella and Ferdinand put in 10% and received a 5% management fee off the top and 20% of the profit, prior to distribution to the LP’s.

a. Limited Partner I. The Catholic Church, produced 45% of the financing and owned exclusive rights to convert Indigenous Natives and spread the word of the Lord and receive 10% of Gold after expenses. The church basically instituted a model subscription that ensured a place in heaven to the giver for the 10%. Even today, Catholics want 10% of your income. A subscription model.

b. Limited Partners II. The Merchants and Traders drop 45% of the financing and gain rights to the best routes and distribution rights for all goods extracted from the western world. BTW - These goods will be taxed upon return to Spain. For this they receive 32.5% of the profit.

c. Limited Partner III - Entrepreneur - Columbus maintained the rights to the route for three additional expeditions and 5% of the profits after expenses. The Spanish Monarchy granted a tax exception to Columbus. Columbus gained glory and has a National Holiday named after him. Pretty cool.

d. Isabella and Ferdinand leased the Santa Maria, Pinta and Nina back to the LP’s and Columbus. Isabella sub-contracted the sailors on the ship to the LP’s and provided prisoners to man the ships. Isabella put in no cash, received payment from the lease of her ships and the use of a crew that is currently in a Spanish prison, costing her money. If Columbus is successful the prisoners gain their freedom.

Financial Breakdown: Basically, for no money down, the VC General Partner cannot lose. The ships were leased, they got 5% back right away – the crew was sub-contracted to the LP’s and they had barely any risk with the chance for huge profits. If all the ships sank they might have lost some money – other than that it was all upside. The General Partner always owns at least 50.01% of the deal.

GP - gets 20% of the top 80% is left. LP 1 - gets 10% subscription on all profit. LP 2 - gets 35% on all profit. Columbus gets 5% tax free. GP gets balance 30%

If this works, Spain gets a coined operated repeatable business model and has locked everyone up for the next 4 voyages.

The Price of Disruption
To say that Columbus’ venture was disruptive would be a massive understatement. Following Columbus’s arrival, for the next 200 years, the America's is littered with bodies of people, disease is spread, lands and people are raped and pillaged, gold & silver are hijacked, rebellions occur and slavery is out of control, human kind has bottomed out…, or has it?. The same scenario repeats itself in the American West with the Indian tribes, then again in Germany, in Cambodia, and in Rwanda. The carnage of disruption is repeated again and again in the 20th century. Disruptive changes have a price. The six shooter replacing the bow and arrow, Model T replacing Horse and Buggy, AOL not a fan of broadband, Netscape opening Pandora’s box, robots replace workers and the only barrier to new technology is the ante. Once the price drops, bam–disruption is fast and furious.

One could draw a conclusion that exposing the internet to the world was a catalyst to ignite rebellions in places like Lybia, Syria, Egypt, Somalia – populations who have been exposed to a different lifestyle might just want what others have. It is just disruptive.

Today refugees have communication device in there hands? The technology that is deployed on these platforms is more powerful than any gun. Do you really believe the world would be in such a state of disarray if the technology we deployed for the last 20 years were not in place? The big difference between a modern day entrepreneur and Columbus is that the movement is infinitely faster. This is what I have learned.

Disruption has a price: Human and Physical
The biggest change is the speed and pace of the change.
Syndication is great if you are the Syndicator.
It is good to be the Queen.