• VENTURE CAPITAL (VC) IS LARGELY an American invention. It is a “hits” business where exceptional payoffs from a few investments in a large portfolio of startup companies compensate for the vast majority that yield mediocre returns or simply fail. This “long tail” distribution of payoffs has been embraced with more impact in the United States than anywhere else in the world. Today, Silicon Valley stands as the world’s most important center of VC-based entrepreneurship, despite challenges to its leadership position.

• Venture capital is concerned with the provision of finance to startup companies and it is heavily oriented toward the high-tech sector, where capital efficiency is at its highest and the potential upside is greatest.

• The fact that venture capitalists do exist is arguably because they are able to maintain informational advantages in the selection and governance of startup investments. Another interpretation is that they function merely as capital conduits and organizers, but do not particularly add value in terms of startup outcomes.

• Medieval Venice was strikingly modern in terms of its contracting traditions, and it could be argued that the Venetians acted very much like venture capitalists in their operation of risky trading voyages.5 A milieu of institutions and cultural norms facilitated the expansion of enterprise through commercial ventures.

• The intersection of entrepreneurship, technology, and finance was powerful.

• The industrialist and politician Andrew Mellon became a pivotal venture capitalist as he devised ways to finance local enterprise in this region relying on syndicated lending, governance, and equity participation.

• They also personified the three oft-cited investment styles in the VC industry, since Rock tended to identify opportunities based on investing in people, Perkins emphasized investments in technology, and Valentine stressed the idea of investing in markets.

• First, history shows that exceptional VC-style payoffs have been sporadic and infrequent, concentrated in specific firms and time periods.

• The recent performance of a top-tier venture capital firm shows that 52 percent of the gross return on its portfolio was generated by startups that accounted for just 6 percent of the total cost of the investment portfolio. Of the individual investment decisions made by this VC firm, 62 percent were loss-making while 5 percent generated multiples of more than ten on the original investments.

• This distribution of returns reflects the fact that hit VC investments, just like successful whaling expeditions, are difficult to identify ex ante.

• By the 1850s, the average American whaling voyage took 3.6 years.

• Britain dominated global production. By 1850, it produced half the world’s output of cotton textiles, despite having just 1.8 percent of the world’s population and 0.16 percent of the world’s land mass.

• In 1790, New York—the largest city in the United States at the time—had a population of just over 33,000 people, whereas London’s population topped 850,000 and Paris’s was 500,000. Only four other US cities had populations greater than ten thousand.

• They practiced what management experts have since learned to call “data-driven decision making,” maintaining exceptionally detailed business records and using this information to guide planning.

• VC contracts are designed to allocate cash flows and control rights among investors and entrepreneurs in such a way that the value of the firm is maximized, incentives are provided for entrepreneurial effort, and capital providers are sufficiently protected against downside risk.32 A close analysis of Almy & Brown’s terms highlights that it was an effective agreement from the perspective of thinking about cash flow and control rights and contract design.

• Studies of modern startups reveal that founders who are willing to cede equity to attract talented cofounders tend to realize greater value from their ventures.

• INFORMAL NETWORKS CONSISTING of wealthy individuals represented a key source of finance for early-stage entrepreneurial ventures as the US economy expanded. Investment banking intermediaries organized capital for later-stage ventures, including railroad and industrial concerns, which were more heavily dependent on external finance.

• George Eastman’s Rochester, New York, and Henry Ford’s Detroit, Michigan, became well-established centers in the manufacturing belt by the late nineteenth and early twentieth centuries, just as Cleveland and Pittsburgh had by the 1870s.

• In 1860, ten years after California was admitted to the union, San Francisco had had a population of only fifty thousand people, but by 1900 its population of 342,782 made it the ninth largest city in the United States.

• In 1891, Senator Leland Stanford, one of the “big four” who (with Mark Hopkins, Collis Huntington, and Charles Crocker) built the Central Pacific Railroad as the eastern section of the transcontinental railroad, gifted eight thousand acres of his Palo Alto, California, stock farm to establish Stanford University.