I have just finished reading Daniel Boorstin’s classic book – The Discoverers.  I strongly recommend it to anyone who is interested in a well-written and well-structured survey of scientific thought and progress throughout the ages.  Boorstin’s book focuses on those key individuals who have brought about scientific progress in all branches of science, from geography to psychology.

At the same time, Guy Kawasaki has recently posted an entry on how to attract a VC’s attention.  It continues Guy’s posts on the interaction between entrepreneurs and VCs.  I find Guy’s post to be very relevant to Boorstin’s book.

With each passing generation we seem to consider VCs as an institution grounded in the present.  For example, few recall that it was VCs who launched the PC revolution (with the funding of Apple Computers way back when in the 70’s).

But VCs (and VC-like institutions) existed long before modern technology.  Take Columbus’s story for example.  Here is an entrepreneur who is trying to get funding for his start up:  To discover the western passage to the Far East.  His powerpoint presentation is a collection of new and ancient maps and manuscripts.  His business model is based on being able to provide a more stable, more profitable supply chain for goods from the Orient (vs. using obscure land routes to get there). 

The VCs in question are the rulers of western Europe – Portugal, Spain, Italy, and the city-states.  The pitch is clearly VC in nature – “you invest in my venture and in return you get a piece of the action”.  This is very different from the bankers’ approach (rich Venice merchants) – “you loan me the money, I get rich, I repay the loan + interest”.

It took Columbus 7 years to get the funding he was after.  For one thing, he was pitching his plan at a time when someone else was already providing a solution to the same problem.  In 1488 Bartolomeu Dias was the first European to round the Cape of Good Hope in Africa, proving that it was an eastern sea passage from Europe to the Orient.  In fact, Columbus was just about to get funded by the kind of Portugal, when Dias sailed back from his journey and disclosed the news.  Columbus was promptly turned away.

Taking advantage of the competitive market in which he was operating (with European states competing for trade routes) Columbus pitched his idea to the Spanish royals, eventually getting the funding he was looking for.  His contract with his investors sounds surprisingly familiar:  A profit sharing agreement, with the financiers owning parts of the deal.

Columbus was an entrepreneur, but, as Boorstin points out, not an innovator.  He did the right thing for all the wrong reasons.  His ideas were very conservative, as were his sources.  He got most of his facts wrong (to the end of his life he was still claiming to have reached the Orient).  In fact, it turns out Columbus got lucky – he had managed to find what turned out to be the only good navigable route between Europe and the New World.  Years later, navigators would still use the same route.  Regardless though, it is Columbus’s drive and focus, coupled with his leadership skills, that enabled him to exploit his (accidental) discovery.

Yet another similarity comes to mind between Columbus’s venture and today’s start ups.  Columbus was totally ignorant of the magnitude of his discovery.  It would take others to figure out that he had in fact discovered a new continent.  It would take years before the full impact of his venture would be realized.  This is not unlike the modern PC/software/web revolutions, where value is created in ways unimagined by the original innovators.  Think WWW, HTML, TCP/IP, open source, mobile communications, Web2.0 and so on.  It is interesting to consider what would our world be like today if funding was not available for such endeavours.

So, would you (or Guy Kawasaki for that matter) have funded Columbus?

— Oren