Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

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Private Equity as an Economic Driver

An Historical Perspective

Columbus: scientist, entrepreneur and venture capitalist

After seven years of lobbying Christopher Columbus convinced the Spanish monarchs (Ferdinand II of Aragon and Isabella I of Castile) to sponsor his trip towards the West. His ‘elevator pitch’ must have been the following: ‘I want to open a new and shorter nautical route to the Indies in the West, defy the elements, make you become even more powerful and rich, and laugh at the Portuguese and their blocs on the Eastern routes.’

He probably did not know at that stage that he was structuring a private equity deal (here, a venture capital operation). But indeed he was, as his project combined these elements: financed by an external investor, a high risk, a high return potential, an entrepreneurial venture, and protection of this competitive advantage.

These elements form the common ground for all private equity deals (venture capital, growth/expansion capital, leveraged buy-out, etc.). Another element lies in the ‘private’ characteristics of private equity deals negotiated privately between the parties: historically, they were made with non-listed companies.

Even though it is difficult to imagine whether, and how, Columbus did his risk-return calculation when assessing the viability of his project, we can assume that the risks borne by the operation were identified and that there was a plan to mitigate them – or at least sufficiently well identified to light enough ...