Archaeologists have just discovered a small fleet of 18 m boats just off the coast from Rome, Italy.
The boats date from 5th to 7th century BC and were full of cargo – wine, olive oil, garum (a favourite Italian fish sauce). The trade – probably between Spain and the nascent Roman empire, is an indication of business risk and investment 2,500 years ago.
In addition, the number of boats found suggests that a fleet sailed in convey and that in turn, this suggests that the trade route was a regular one, with well known ports and middle men ready to buy and sell the goods at both ends of the trip.
So, were these the ancient business angels?
The trading activity, although ancient, was mainly an entrepreneurial activity, ie. individual merchants risking their own life, limb and cash to sail their own boats and purchase their own goods (often sleeping on them at night). There might have been a family or series of friends who supported the venture, but this could not really be called business angel investing as it remained an informal structure.
Instead, the first business angels began to appear once a trading company was formed. This trading institute was set up apart from the national government to purchase and provision boats for long voyages. Nearly always, it would obtain a royal charter – an exclusive right or monopoly – to trade certain products.
A trip to the spice islands, around cape of Africa, might take 18 months, including a number of trading legs along the way, and deliver a profit of 500%.
The sailors – many of whom did not return, along with lost boats – took a share in the profits or were allowed to trade their own goods on the ship, in return for their risk and effort. They were rarely, please note, paid salaries.
The returns, in some cases, were fabulous, which encouraged further investment and better institutions.
These informal coalitions gave birth to the major corporations – the Dutch East Indies Company and the English East Indies Company in 1604 and 1602 respectively.
The major difference between these two institution was the role of capital. In the case of the English, the capital was initially lent to fund a single voyage after which everything was sold (including boats and sailors released) and profits taken.
The Dutch, on the other hand, had a remarkable commitment to leave their money in the company to allow profits to be reinvested in future voyages and conquests with investors receiving a steady dividend.
The Dutch company therefore, took on features that we would recognise in a global publicly listed company today. Where as the English company, in its first instance, was a narrowly defined business angel investment – with a time horizon of between 18 and 24 months.
Both trading companies went on to become major corporations in their own way and sporned many competitors, however, they are both early examples of individuals financing a company in a formalised fashion, and so, is the best example of where business angel or VC funding began.
And, given the recent report from Nesta about 7 years to realise a return on investment for successful angel investments, funding a highly risky 18 month voyage doesn’t seem so risky after all (that is, so long as you didn’t have to crew a boat).
It is also worth noting that each company obtained its charter or monopoly prior to the voyage begining and no doubt planning the voyage would have been a one to two year activity.
In today’s world, the monopoly or patent or intellectual property (IP) is just as important. But how many entrepreneurs know that business angels want to see the IP before they commit to invest?