[HN Gopher] How early American inventors funded their ventures
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How early American inventors funded their ventures
Author : raleighm
Score : 44 points
Date : 2020-03-10 10:12 UTC (12 hours ago)
(HTM) web link (rootsofprogress.org)
(TXT) w3m dump (rootsofprogress.org)
| gumby wrote:
| Researched in a book by L Sprague de Camp! That explains some
| things in his fiction.
|
| Though strangely the origin of modern project finance seems to
| have evaded the author: seems to have evolved in New England
| where groups would band together to fund whaling and slaving
| missions (yes, abolitionist Massachusetts made a huge part of its
| wealth on slave missions and slave mortgages).
|
| These bands were themselves evolved from a European model, in
| particular England (later Great Britain), Portugal, and Spain.
| ozten wrote:
| I wish the article noted that $30k was in which year roughly, and
| value in today's currency. Interesting research!
| tzs wrote:
| That plow was patented in 1797. If the $30k was $30k then, it
| would be about $450k now.
|
| I doubt, though, that it was $30k then. Blacksmiths in 1800 on
| average made under $1/day [1]. It would be very rare for a
| blacksmith then to be able to put $30k toward an invention.
| (For comparison, $25k/year was the salary of the President of
| the United States then).
|
| If the $30k is $30k now, it would have been about $2000 back
| then. That seems feasible for a blacksmith to save up in around
| a decade or so.
|
| [1]
| https://babel.hathitrust.org/cgi/pt?id=wu.89071501472&view=1...
| gxqoz wrote:
| Comparing values in the past to values today is tricky and
| comes down to judgement.
|
| "It helps if one understands how the comparators are
| constructed. They have two components. The first is prices of
| a range of goods which the ordinary person might buy, such as
| bread, meat, beer or clothing and possibly rent or the cost
| of fuel; these are gathered from a range of archives or
| surveys. These prices have to be added together in a way
| which reflects the proportions which these items formed in
| the spending of an average person. If - as was the case in
| the past - bread accounted for 25 per cent of what the
| average person spent, then the price of bread has to have an
| influence of 25 per cent on the overall set of prices. This
| is known, in the jargon, as its 'weight' and the weights add
| up to 100 per cent. A calculation is then done for each year,
| multiplying the price of each good by its weight, adding the
| results together and finally dividing by the number of items
| to get an average price of goods for that year. Then, if the
| result is a figure of, say, PS10 in 1800 but of PS767 in
| 2017, we say that prices rose between those two dates by
| about 77 times. Another way of putting it is that PS10 in
| 1800 equates to - or has the same 'purchasing power' as -
| PS767 today."
|
| https://www.historytoday.com/archive/feature/changing-
| value-...
| jedberg wrote:
| Skip to the summary at the end for the juicy bits (although the
| rest was interesting reading too).
|
| In the summary is this:
|
| "What there doesn't seem to have been, at least in what I've seen
| so far, is any kind of structure around early-stage financing. I
| haven't seen any formal networks of angel investors, and nothing
| comparable to venture capital. Funding seems very ad hoc,
| dependent on the circumstance and connections. If so, then the
| rise of institutional early-stage funding in the mid-20th century
| was a real revolution."
|
| And I think that is the crux of it. Most people back in the day
| had to find wealthy people they knew, but there was no "industry"
| around early stage financing.
|
| Now there is, which has probably been great for funding ideas
| that would not have otherwise been funded, but is also a double
| edged sword for entrepreneurs, as the institutions get better and
| better at extracting as much value as possible.
| gxqoz wrote:
| The recent book VC: An American History by Tom Nicholas argues
| that the whaling industry in the early 19th century shared many
| characteristics with modern VC markets. The profits of whaling
| vessels had distributions similar to startups (most were not
| profitable, a few profitable, a very few delivered excess
| returns). Whaling captains were incentivized similar to startup
| founders (returns heavily tied to how much whale oil they
| harvested rather than a fixed salary). Many of the families
| that invested in whaling ventures branched out into other
| industries like textiles.
|
| https://www.goodreads.com/book/show/42449471-vc
| vikramkr wrote:
| I don't think it's a double edged sword, if there are more
| financiers there's more competition, and if it's
| institutionalized then terms and all become more easily
| compared. I think you're much more likely to get a good deal
| when there are multiple investors than when you have to count
| on the goodwill of the one investor you have access to
| jedberg wrote:
| It's an oligopoly though. The investors know each other's
| terms, they have no reason to compete on that aspect. They
| compete on other aspects, like their network with access to
| potential acquirers and access to subject matter experts.
|
| They don't really compete on terms, other than valuation. If
| anything, as things become more transparent, the deal terms
| are becoming more homogenized.
| vikramkr wrote:
| I don't think homogenized is a bad thing though, it
| standardizes the process, and with swings in the market
| (e.g. emergence and dissapearance of SoftBank) we see deals
| change accordingly. By all accounts terms have changed
| dramatically from what they used to look like in the 80s to
| now, and an oligopoly is not a monopoly. Founders have some
| semblance of market power now, and with increased
| transparency people know what they're getting into and are
| able to make sure they're getting a deal on par with what
| they deserve. The competition on valuation is probably the
| most important part now given that most other terms are
| standardizes and generally founder friendly (and I don't
| think terms are as homogeneous among all investors as you
| might think, there are some crazy termsheets out there...)
| jedberg wrote:
| The terms are founder friendly, but they are no longer
| employee friendly. All the value that used to go to
| employees goes to VCs now.
|
| It's a lot harder to hire good employees when they look
| around and see that they have a much better chance of an
| equity payout with RSUs from Google.
| vikramkr wrote:
| And if that proves out to be problematic for companies
| (markets aren't instantly efficient, it takes time for
| information to be incorporated), I think we'll see terms
| shift to provide portfolio companies a competitive
| advantage in hiring
| jedberg wrote:
| That's not how the real world works. Just like employee
| wages don't magically go up when a few employers pay
| more, it is unlikely that things will shift in employees
| favor.
|
| The situation now will just be the new normal.
| vikramkr wrote:
| Then in that case, the employees aren't actually
| providing value to be worth the favorable terms in term
| sheets and aren't providing a real competitive edge and
| so aren't worth negotiating better terms for. I don't
| think that's the case, and if employees provide a real
| competitive advantage, then companies will need to be
| able to attract them to survive. I don't see a world
| where in the long run (and I admit that could be decades
| - it took that long for terms to become founder friendly)
| employees don't get more power if they actually bring
| value. All it takes is a few years of wework style
| Fiasco's where the founder walks away with a huge payday
| and workers get screwed before workers start negotiating
| harder, and founders that can oblige would be in a better
| position. And frankly, if that ends up not mattering for
| company success, then the employees clearly aren't worth
| getting employee friendly terms. I don't think that's the
| case though.
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