Railways and Whaling Aren’t Where VC Started

In an examination of important historical texts relating to the transoceanic spice and tea trades, the transatlantic slave trade, and slave owner compensation payments and their uses, we have been able to piece together an evidence-based account that traces venture capital back to the transatlantic slave trade, while identifying direct links between the regimes and practices, methods, customs, and traditions developed by enslavers, ship captains, and their financiers and how the venture capital and high-growth entrepreneurial industries still operate today.

We’ve split this historical retrospective between two chapters, one on the East India Company, and one on slavery and America’s industrial rise. This included work from scholars such as Eric Williams and Joseph Inikori, the New York Times podcast series 1619, and discussions with Professor Nick Draper of the Centre for the Study of the Legacies of British Slavery established at University College London, and Professor Terry Irwin of the Transition Design Institute at Carnegie Mellon University.

​important​ We do not profess to be historians. While corroborated through the academic literature, this data in no way claims to be a complete examination of the transatlantic slave trade, nor the many horrors within or following it. Dates are generalized by century rather than by decade in some cases, for example.

These first two chapters aim to debunk popularized myths that portray capitalism (including the banking and insurance industries), the 19th-century railroad (US) and railway (UK) era, or the 19th-century whaling industry as the foundation of venture capital. The earliest forms of venture capital existed long before that. From the early 1500s forward, the Portuguese, Spanish, English, French, Dutch, and others fought to control the resources of the emerging transatlantic world and worked together to enslave the Indigenous people of Africa and the Americas. The transatlantic slave trade began when the Portuguese initially kidnapped and packed no fewer than 400 people at a time on ships that sailed from the west coast of Africa, taking enslaved Africans back to Europe.* Pirates regularly captured ships, and these risk-ridden voyages often ended in high mortality or theft of the cargo.* The system was not primitive, as is often reported. It was premeditated, globalized, and impeccably organized. Traffickers shared information via written documents, including letters, lease agreements, bills of sale, logbooks, and passports. Everyone involved in a slaving venture paid close attention to the materials related to their business transactions. Often, maritime cargoes were owned communally through the distribution of individual shares. These collectively constructed legal partnerships opened early transoceanic trading opportunities to a diverse group of traders, colonists, and mariners. They created a decentralized mercantile trade that dispersed profits throughout communities engaged in the trade of enslaved people. The transatlantic slave trade and its associated industries created great wealth for many individuals, families, and countries in the West. It simultaneously wreaked devastation on the African diaspora, where economic and agricultural development and intergenerational wealth have trailed ever since.

As Tom Nicholas’s recent book on the history of the American VC industry notes, the founding fathers of venture capital were also connected to the big, white industrial families, from the Rockefellers (the first money behind the extant VC firm Venrock in Palo Alto in 1969) to the Phipps and Carnegies (which spun out Bessemer Venture Partners in the early 1900s). Reproduction of wealth and power has since been at the heart of the industry, with some of the very early venture funds—Venrock, Bessemer, and Greylock among them—still operating and making money for these families today. Again, whose money it is matters: venture capital does not and has never operated on the use of “objective” financial tools such as discounted cash flow, used in investment banking and leverage buyout (private equity). Decisions are made much more on “gut feel” and often “mirrortocracy” (identity-based investing) wins out over meritocracy.

Following our historical summaries, we’ve included the two interviews with university professors we mentioned above: Terry Irwin on researching the historical inequality of the venture system, and Nick Draper on tracing money from British slave ownership to modern finance and venture capital. We conclude this part with two panels with female investors who are veterans of both the UK and US venture ecosystems, for their perspective on how the industry has changed over the past three decades.

Overall, Part I: History paints a picture of how VC reached this point: from the misconceptions of its origins and the troubling realities, to the modern history and perspectives within it. This combination of research and interviews sets the scene for opening up the current discussion about diversity, equity, and inclusion (DEI) in venture capital.