Posted by: Dr Pano Kroko Churchill | October 21, 2015

Christopher Columbus wouldn’t get Venture Capital funding today because his idea was too bold

Whether Columbus was a Good guy or a Bad guy it doesn’t matter today.

Lots of water under that particular bridge.

And whether your degree of political correctness allows you to see that he pushed the wheel of progress forward or not — that is clearly your particular problem to solve…

Am neither a judgmental type, nor a person given to pc fascism, and certainly not an appointed judge of History.

Aboriginal Peoples all over the world had to make way for the Explorers, and often the process involved bloody warfare, enslavement, and not too many nice things… But that’s how History is written. War is the father of us all and best we not forget that, unless we run for a beauty pageant and want peace for all and math for nobody…

Thus, I reserve judgement because the real outcomes of the Great Actions of Civilization trump all of our collective and emotional judgments… There is a reason why our bleeding hearts strive for philanthropy but yet we do not share the joy of individual achievement…

Yet history somehow speaks for itself.

The Columbian Exchange, didn’t happen by itself. This Grand Exchange was the widespread transfer of animals, plants, culture, human populations, technology and ideas between the American and Eurasian hemispheres in the 15th and 16th centuries, related to European colonization and trade after Christopher Columbus’ 1492 voyage of exploration, discovery, and trade.

Columbus was a Great Man and achieved the seemingly impossible in his day and He certainly changed the world. At a time that we choose to break down all of our “idols” mentors and ultra humans, because we want to bring everybody down to our level of impossible mediocrity — we best try to remember that we need aspirational figures in our lives to help us propel ourselves forward.

We need heroes badly.

And heroes are people like Columbus who opened up vast swaths of this Earth for Progress and Civilization. America wouldn’t exist today the way we see it and live it without Christophoro Colombo setting of on a journey of discovery and exploration. We owe him a debt of gratitude because at the very least he kickstarted our ass into the Modern Era…

But the Truth of the matter is that Columbus didn’t do this alone. He needed men and he needed vast amounts of Capital to even begin contemplating and accomplishing what he had in mind.

And as he set out to accomplish his thing, even after gaining royal charter and support he recognized that he needed even more capital to get through with his venture intact…

So he shopped around for some VC cash to get the boats in the water.

And he was persistent enough to get in front of the Spanish Queen and her venture bankers and get the means necessary to win the trip to the Indies. And it’s a good thing that he lived in the 1500’s because if he tried today for such a bold adventure — he wouldn’t get nothing — certainly not a boatload of finance.

Because if he were to seek VC funds to go on a journey of exploration he wouldn’t get far.

Trust me I know….

Still back in the day he tried and won. Yet the process of venture funding is not different today than what Venturers and Captains of their Destiny had to go through in Columbus day and age. We cover this subject today, because we need to change the process of how to give venture Funding, in order for the Entrepreneurs to pursue their dreams and open new roads for all of us…

Columbus’s Idea and How He Supported It is the stuff of legend but Royal Venture Capital was the strength of it.

Columbus at the court of Ferdinand and Isabella

Columbus at the court of Ferdinand and Isabella

There are many theories concerning Christopher Columbus and the origin of the idea that because the world was round, a person could set sail from one side and journey back around to the other.

While Columbus was sure that the idea was sound, so much so that he withstood ridicule from his peers, he was not the first to come up with the theory.

Scholars and historians have found evidence that Columbus had researched the works of the ancient Greek geographers, astronomers, mapmakers, and even of the earlier significant scientists, and explorers; like Ptolemy, Herodotus, Eratosthenes, Hypatia, Marco Polo and many others. Eratosthenes in particular was a Greek geographer, and astronomer, who not only taught that the Earth was indeed round, but he also measured the circumference of the Earth conclusively. His measurements stand today. Eratosthenes, became the chief librarian at the Library of Alexandria during his lifetime and had many maps and globes that showed the earth as spherical and well mapped out. He invented the discipline of geography, including the terminology used today and constructed the earliest accurate global maps. Eratosthenes is best known for being the first person to calculate the circumference of the Earth, which he did by applying a measuring system using “stadia” a standard unit of measure during that time period. His calculation was remarkably accurate. He was a great mathematician too and was also the first man to calculate the tilt of the Earth’s axis — again with remarkable accuracy. Additionally, he accurately calculated the distance from the Earth to the Sun and invented the leap day. He created the first map of the world incorporating parallels and meridians, based on the available geographical knowledge of the era. These global maps were rather similar to the ones that we use today… whether for our car GPS and our Google maps to get to the restaurant we are eating at, same as for our satellites journeying around the earth to get us that signal…

Christoforo Colombo was operating under the intellectual influence of these titans of learning, and was armed with rare maps that survived the destruction of the Library of Alexandria. He came across all of these working as a map-maker in Lisbon Portugal and thus Columbus was able to plan his journey West…. Under the influence of Eratosthenes and the other Greats before him, and armed with his own naturally stubborn will — Columbus set out to prove that a journey across the Atlantic to China and Japan was indeed possible.

However in order to pay for his voyage, and to gain the right to Explore, Columbus needed to find support from the royal court of a European nation state. In 1483, Columbus approached the royal court of Portugal and presented his idea to King John II. King John rejected Columbus, having conferred with other explorers and mariners who claimed that the idea was unthinkable and unrealistic. Undeterred after years of preparation for his first voyage, Columbus did approach – and was turned down successively, by the kings of Portugal, France, and England for the much needed funding of his journey westward.

Thus dismissed, Columbus sought out the King and Queen of Spain. His first attempt to convince Ferdinand and Isabella of his intended journey left them with many questions. They did not, however, reject his proposal outright like the other European heads of States…

Queen Isabella was quite impressed with Columbus the man and his presentation pitch. The King and Queen of Spain, strongly desired a chance to catch up with the power and influence of their Portuguese neighbors, and of the other European naval empires, and to that end, Columbus’s plan—if successful—offered the chance to outshine everyone else.

They met the man again and again, and finally settled down to haggle over details and soon agreed to finance and support his expedition. After many years at many courts, Christopher Columbus had finally convinced a nation to support his journey across the Atlantic.

In the end, Spain’s King Ferdinand and Queen Isabella agreed to finance his journey. Queen Isabella was so impressed with Colombo that she may have even suggested selling the Crown jewels at some point to finance the journey, but her advisers assured her there were other ways to finance Columbus’s journey. The best way to get the needed money, they told her, was to make the city of Palos pay back a debt to the crown by providing two of the ships. Another way was to get Italian financial backing for part of the expenses and thus to syndicate the VC deal. Ultimately, Spain’s Crown put up very little money directly from the Spanish treasury towards the expedition with most of the Capital coming from Maritime Finance, Risk Investors, and Investment Banking…

Columbus’s journey did not come cheap, however. He demanded lofty payments for his services. Columbus asked for one-tenth of all the wealth (gold, spices, textiles, slaves, etc.) Spain would receive from the lands which he visited. He asked that he receive this money for all trips made by Spain to the new lands, for all time. He wanted to secure a financial gain not only for himself, but for his heirs as well. On top of this he requested that he be named “Viceroy” of the lands he discovered and “Admiral of the Ocean Seas.” After much negotiation the King and Queen consented. In April 1492 Columbus signed the contract with the King and Queen of Spain guaranteeing him all that he desired, setting in motion the first steps toward the New World.

But to take the story from the head; Columbus Funding campaign took more than seven years total… After several unsuccessful attempts with the Royals of France, Holland, and England, Columbus in 1485, always perfecting his pitch, he presented his plans to King John II of Portugal. He proposed that the king equips three sturdy ships and grant Columbus one year’s time to sail out west into the Atlantic, search for a western route to India, and return. Columbus also requested he be made “Great Admiral of the Ocean Sea” (Atlantic Ocean), appointed governor of any and all lands he discovered, and be given one-tenth of all revenue from those lands. The king submitted the proposal to his experts, who rejected it after several years. It was their considered opinion that Columbus’ estimation of a travel distance of 2,400 miles (3,900 km) was, in fact, far too short.

In 1488 Columbus appealed to the court of Portugal and once, again John II invited him to an audience. It also proved unsuccessful, in part because not long afterwards Bartolomeu Dias returned to Portugal following a successful rounding of the southern tip of Africa. With an eastern sea route now under its control, Portugal was no longer interested in trailblazing a western trade route to Asia crossing unknown seas. Columbus traveled from Portugal to Spain to convince the Catholic Monarchs of Spain to finance the expedition.

Spanish procurement of Venture Capital for the West Indies Journey of Exploration wasn’t easy… King Ferdinand II of Aragon married Queen Isabella I of Castile in 1469, uniting the two largest kingdoms into the Spanish Crown. They were known jointly as the Catholic Monarchs, and ruled their kingdoms independently, but had common internal and foreign policies…Columbus was granted an audience with them; on May 1, 1489, he presented his plans to Queen Isabella, who referred them to a committee. They pronounced the idea impractical, and advised the monarchs not to support the proposed venture. However, to expand the Spanish empire and Christian Catholicism, in the name of the Spanish Kings, and to assure a better market position in trading, the Queen gave Columbus an annual allowance of 12,000 maravedis and part of the newly conquered lands.

 Columbus and Queen Isabella. Detail of the Columbus monument in Madrid (1885).

After continually nagging, begging, and repeatedly asking the monarchs to support his plan at the royal court and enduring two years of negotiations, Columbus finally succeeded in January 1492.

Queen Isabella’s forces had just conquered the Moorish Emirate of Granada, the last Muslim stronghold of Al-Andalus on the Iberian peninsula, for Castile. Isabella and Ferdinand received Columbus in the Alcázar (castle) in Córdoba to support his plans.

The monarchs left it to the royal treasurer to shift funds among various royal accounts on behalf of the enterprise. Columbus was to be made “Admiral of the Seas” and would receive a portion of all profits.

The terms were unusually generous but, as his son later wrote, the monarchs were not confident of his return.According to Columbus’ contract made for the expedition commission by Queen Isabella for Castile, if Columbus claimed any new islands or mainland for the Crown, he would receive many high rewards. In terms of power, he would be given the rank of Admiral of the Ocean Sea and appointed Viceroy and Governor of the newly colonised lands.

He had the right to nominate three people, from whom the sovereigns would choose one, for any office in the new lands. He would be entitled to ten per cent of all the revenues from the new lands in perpetuity.Columbus Navigation plans were sound…. because Europe had long enjoyed a safe land passage to China and India—sources of valued goods such as silk, spices, and opiates—under the hegemony of the Mongol Empire that at the moment was enjoying the Pax Mongolica, or Mongol peace.

With the Fall of Constantinople to the Turkish Ottoman Empire in 1453, the land route to Asia became more difficult. In response to this the Columbus brothers had, by the 1480s, developed a plan to travel to the Indies, then construed roughly as all of southern and eastern Asia, by sailing directly west across the “Ocean Sea,” the Atlantic Ocean. Many years later, Washington Irving’s 1828 biography of Columbus popularized the idea that Columbus had difficulty obtaining support for his plan because Europeans thought the Earth was flat.  

In fact, even the most primitive maritime navigation of the time relied upon the stars and the curvature of the spherical Earth. The astrolabe and the knowledge that the Earth was spherical was widespread, and the means of calculating its diameter using an astrolabe was known to both scholars and navigators for millennia.

Columbus and his friends in the age of exploration much like all ancient mariners knew stuff that the hierarchy and the religious zealots didn’t know, or didn’t want to know — but they still had to convince the “VC money bags” that their venture idea is worthy of their support, and thus had to show their scientific evidence and navigational expertise…

It makes for a complicated pitch and as usual the charismatic leaders like Columbus, get their share of venture capital, whereas the uncharismatic ones get “bubkas.”Yet even today the venture capital industry is a traditional banking industry and therefore stuck in yesteryear. Always and today…The same people, living the same lives, and having the same experiences, are making largely the same decisions today as they were yesterday, and even in the time of Christopher Columbus.

This sameness may have been a strength, back in the day — but now it is creating serious obstacles, and blinding impediments to progress.Because for every idea we fund, how many great ideas don’t even get a sounding board because we can’t relate to the problem or the entrepreneur?  How much better off would we be if we had a larger lens from which to examine a broader class of entrepreneurs and ideas?

My suspicion is great and powerful…

The bottom line is that the VC community is an increasingly predictable, and it just seems to follow each other around from one trivial idea to another. This has been confirmed by careful analysis.

At the core of this problem are the people stewarding the capital that is supposed to be the arbiter of good ideas. When we back one business over another, we are voting our desire for that idea to exist. To be clear, this also means we are saying that the “change” we fund is more important than the change we don’t.

Success is not zero sum game, but time and focus definitely are. And this is the biggest problem with venture capital right now. We have replaced “venture” capital with “product-market fit” capital. The original practitioners of venture capital were the eccentric, quirky outcasts of traditional society who themselves were entrepreneurs. We’ve replaced this diverse bunch with a conformist but pedigreed group who are largely risk averse and driven more by FOMO than by passion or vision.

The herd mentality is what’s driving all the private petting zoo “Unicorns” out there today. They think in an era of minor volatility in the very liquid capital markets — they will escape Minsky’s hypothesis.

OK we all know that VCs are big idea risk averse today — but what of their counterparts, the Angels funding wild idea startups?

Well — they funded the Columbus brothers all the way until they had access to the Treasury of the Spanish Crown, and then gave them some more money too to tie loose ends…  And they did this solely on the evidence of the whole Earth maps the Columbus brothers had at their disposal, the plan to get the royals in the game, and on the strength of the CEO himself.

It’s worth looking at the claim that Columbus was a brilliant navigator. Maybe he was or maybe he wasn’t… For reasons we don’t know today, he certainly said that he was going West for spices and silks, amongst other typical Indian trade goods as a subterfuge to get the Royals on board. Yet being a liar or a terrible navigator, was the least of his many troubles and we shouldn’t judge him for that.

The main problem was that the day’s VC chiefs of the courts of European Royals and Heads of States much like those of Philip and Isabella of Spain, had several characteristics in common with today’s VCs and other risk averse types: A. They have decided that great ideas are too risky and wanted to leave this work to various maritime Risk Capital folks like Angel investors of the day, and Sovereign Investment bankers; which was not an available option directly to Columbus. B. They would only play when some amount of “traction” existed; which is similarly impossible in Chirstopher Columbus specific business plan. C. They didn’t deeply understand the geographic domain or have a view on the business, but simply want “momentum” and that was really not an option with Columbus either. The boats wouldn’t get launched by themselves…

The problem of Columbus and the problem of today with this approach is that the big ideas of our day aren’t getting the Venture Capital ecosystem support they need, in order for them to have a chance.Big ideas are hard. They take massive effort to understand. They take a long time. They require huge amounts of capital. They have lots of risk. They need deep domain expertise… But they also have massive upside in case of success.

These all, should be great reasons for the VS world to get excited — but we are all shy of risk. So increasingly, these are the very same reasons we say a crisp “NO” or we stop returning phone calls and emails to all the Christoforo Columbus of today…

For shame — but now we have to ask: “How do we fix this?”

Maybe we ought to learn from others…Because instruction comes from strange places. So, when you look at groups who have taken major strides to improve the world over the past several decades, one thing is increasingly common to them all: They are all “multiculti” and proud of it. From the foundations and NGOs that are eradicating poverty and taking care of the world’s worst off, to companies like Facebook, Google and Apple that are inventing the future, while looking after our best off, they have all explicitly decided to become less consensus driven and less homogeneous. They have found this increases both productivity & creativity, and drives business results. In turn, they are doing the ambitious, groundbreaking work that we used to do. And even though they have more work to do, when you compare the complexion of these leaders to the leaders within our VC industry, we all look like total laggards.

As an example you only need to track the economic returns of our VC lot today. The average returns in venture capital are rather sad. Indeed you are largely better off investing in public ETFs, that carry far less risk, with the same rewards, and are totally liquid.

Screen Shot 2015-10-21 at 3.25.16 PM

Yet what really matters is that we are in the midst of a technological renaissance that will be much farther reaching than any of us can predict if we invest correctly. Our generation has an opportunity, in our lifetime, to put a massive dent in human suffering and make trillions of dollars in return. Among the potential benefits the well funded future can bring are a broadly educated humanity, the eradication of Heart disease and other preventable diseases and even cancer, and the rise of the sustainable environment and healthy ecosystems all across the earth.Diverse capital bases that actually pursue the best ideas, can help us do this and unleash a new age of exploration that will bring food safety, environmental security, and far less violence to the world so that each one of us can achieve our potential more fully…

Therefore us venture capitalists we need a wake up call on the VC easy sleep we’ve been coursing through this far. We need to wake up and recapture our potential by opening the doors, and by inviting more people into the decision making table. We need more young people, more black people, more latinos, plenty more females, more Indians, more Chinese, extra LGBT folks, and many others who aren’t represented and who aren’t necessarily part of the obvious majority consensus.We need to surround ourselves with a more diverse set of experiences, and thus we will prioritize a more diverse set of things to pursue and goals to define and fund. It’s a matter of Strategy and maybe we will find more courage to do the hard things and find new ways to the World. Whether by sea or land or space and air — we will thrive if we manage to fund New Dreams.

The VC world is cloistered and often afraid of change—the type of change that would serve the world better. An industry that wields the power to change lives is failing to do just that. Ultimately, VC fund of Funds investors will wake up to this bleak reality.We must change before this happens.And if we don’t?If we don’t, and we stay on our current path, the amount of human suffering in the world will continue to compound and will eventually spill into our own backyards — same time that our returns will drop bellow ground.You can see the “Unicorns” becoming “Unicorpses” right now, and as the markets turn “bearish” — You’ll soon wake up and “get” the message of where am coming from…

Because when this happens, as it certainly will — we will start talking and wondering who was supposed to have stopped this slide to the mean.The runaway train to gloom & doom disaster has already left the station and in case you are wondering — you are onboard soundly asleep…

All that because you didn’t fund the Columbus of today.

Yours,

Dr Kroko

PS:

We’ve got things to change in order to stop this train.

To do that … we need to do things daily that scare us and push us to the edge.And once there, we will soon realize that we must do things for others far differently, than how we do things for ourselves.

Many people are actively dying in one form or another, but few even realize it. They are sleepwalking through Life. They are the walking dead and are all around us, and you can see them in the meetings wielding powerpoint presentations like the sword of Damocles above our heads.

Let’s reanimate them soonest because we need to wash away our humanity from that…Maybe we should live a little, and remember that the things we do for ourselves are history when we are dead.But the things we do for others while living remain as our long term legacy and thus write our own epitaph.

Your legacy is how your life-force remains behind you long after You gone and helps to alter the trajectory of other Peoples’ lives.And even when You shall have passed away and there will be nothing but dust from your flesh left behind — You shall still have the ability to touch people positively.

That is the quantum action at a distance when the energy you conserve reaches peoples’ minds and captures imaginations.That’s the greatest frontier we have to explore today.

The human brain…

Let’s do that boldly, and we’ll effect another Age of Exploration to begin.

Let’s understand that because then and only then, we can fund today’s Cristobals too…


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