Capital Requirements for Launching a Venture

This is definitely not an apples-to-apples comparison, but Mindchemy’s comparison of the costs of launching a tech startup between 2000 and 2011 and the staggering rate at which it’s shrunk prompted me to wonder about how far venture launch costs have dropped since the first limited liability grant four centuries ago.

The change during the first decade of this century seems immense:

• $5M in 2000 vs $5K in 2011 is a 1000:1 change, or a halving about every 13 months.
• For comparison’s sake, a development adhering to Moore’s Law over the same period would change 161-fold or 45-fold.

So how does this compare with the East India Company?

• Their initial funding round raised £30,133 in 1598
• Their subsequent round brought that to a total of £68,373 a year later.

How do we compare this to modern-day currency? There are many approaches (value of silver; multiple of typical costs to house, clothe and feed someone; fraction of total fungible capital in the country or in existence; …). I’m inclined to use cost of living as a first approximation. Francis Turner puts this at about a 240-fold change, i.e. a year-1700 penny (1/240th of a year-1700 pound) is approximately a year-2000 pound. This puts the total at the end of the Company’s 1599 funding round at about £16,410,000 or US$26,500,000 in year-2000 terms.

So, allowing for the very large numbers and inconsistent assumptions (indeed, unidentified assumptions), this points to something like a fivefold difference in venture launch costs in the 400 years between 1600 and 2000 versus a 1000-fold difference in the subsequent 11 years.

Even allowing for multiple, large sources of error, and even assuming that they all run in the same direction, this is still a profound change for a single decade.

Notes

1: Moore’s Law is frequently cited as a doubling every 18 months (2^(11*12/18) ~= 161), but was initially expressed as a doubling every 2 years (2^(11*12/24) ~= 45).

2 From Money and exchange rates in 1632: “A general guide is that in the early 17th century 1 English pence was roughly the equivalent of one English pound 400 years later.”