Origins of Angel Investing
This is the first in a series of 6 posts introducing you to angel investing. Below are the other topics I will cover in this series.
???? Motivations on why people invest in startups
???? The biggest mistakes and misconceptions
???? Platforms for investing
???? How you can start from where you are today
???? Shaping a positive money mindset
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The following high level account of the birth of angel investing and venture capital is one of risk, relationships and access to opportunity. Enjoy and let me know what you valued most from this story in the comments!
Background
For hundreds of years, a secret market has existed where the wealthy and powerful have gained privileged access to business deals that changed the world.
In 1854, Frenchmen Jacob and Isaac Péreire founded Crédit Mobilier to finance numerous infrastructure projects across the globe. The company leveraged the savings of middle class French investors as capital.
They initially focused on infrastructure projects such as railroad construction but as they started to pay a healthy return, they expanded to invest in insurance companies and banks such as the Imperial Ottoman Bank.
At the dawn of the 20th century, in 1887 JP Morgan invested $2m in Thomas Edison as he created the Edison General Electric Company and went on to invent the lightbulb.
In 1909 J.P Morgan went on to invest $1m alongside Cornelius Vanderbilt into the Wright brothers who invested the aeroplane (one of my favourite inventions).
These are some of the earliest accounts of individuals investing in companies that become high profile and provided a handsome return. However, investments like these probably have happened for centuries but at this point, not referred to as venture capital.
The Early Days in Silicon Valley
The first venture backed firm in Silicon Valley is widely believed to be Fairchild Semiconductor, funded in 1957 by a loan from Arthur Rock, a banker from New York.
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On a trip to Sand Hill Road, California he had met the eight (yes eight) founders of Fairchild also known as “The treacherous 8” because they all used to work for William Shockley, developing semiconductors but departed to start their own company.
They left because they were unhappy and Arthur convinced them to start Fairchild, and secured a loan for $3M in return for 20% of the company. The remaining 80% was divided equally across the eight founders. This was an experiment at the time and was one of the first references to the term angel investment.
Shockley and Fairchaild invented the transistors and silicon chips that powered computers hence, it gave birth to the name Silicon Valley.
This initial experiment paid off, within a few years the company grew to twelve thousand employees and was generating north of $120M per year.
Operators to Investors
Fun fact: Eugene Kleiner was one of the treacherous 8 and he went on to set up the world renowned VC firm, Kleiner Perkins. Don Valentine, also known as one of the grandfathers of Silicon Valley venture capital, lead the sales team at Fairchild for seven years before he founded venture capital firm Sequoia Capital.
Arthur Rock went on invests $10,000 in the a little know startup that would transform personal computing. That startup was Intel, and his initial investment made him a billionaire.
Less than a decade later, another early investor in Intel, Mike Markkula alongside Sequoia Capital invests in another deal that would stand the test of time, Apple. America’s 1st 1 Trillion-dollar company.
The winning formula for early stage venture capital was quite simply: back outstanding founders in the technology industry; write one of the first checks; have a large ownership; and roll up your sleeves and help the founding team succeed.
In 2021, $330 billion was commited to venture capital in the US and VC investment in Europe reached €102.9B. Have we lost our focus today? is bigger always better?
There are dozens of high profile operators who became angel investors and venture capitalists today, from Peter Theil, founder of PayPal and founding partner at Founders Fund. To Niklas Zennstr?m, cofounder of Skype and founding partner at Atomico.
Traditionally, most of society were locked out of these exclusive deals as they didn’t have access to these opportunities. However, regulatory and technological advancements have made it more accessible than ever today.
In our next post, we will explore some of the most common mistakes and misconceptions new angel investors make when getting started with backing ambitious founders.
To learn more about the start of angel investing and the venture capital industry check out:
Let me know in the comments if you enjoyed it and what lesson hit home the most for you.
I help ambitious entrepreneurs achieve scalability with fractional CFO services
1 年Thanks for sharing Andy.
Founder @ Profluence | Sports, Tech, Media
1 年interesting!