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The Precedent for Syndications
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Humans are apes. 

The story of these clever apes rising to global domination is truly a summer blockbuster. Our protagonist, the humans, seem to always be able to survive and thrive another day, but seemingly by the skin of their teeth. One such example of this incredible luck, in my opinion, is the formation of a fiat currency. It seems obvious to us to buy things with a currency backed by a central government, but maybe the formation of such a system was a lucky bullet dodge. I cannot help but ask: Would an advanced alien species use a fiat currency?

Another miracle pulled off by our protagonist, the humans, was the formation of capital markets. Obviously, these miracles are linked, but unlike a fiat currency, capital markets as we know them today, do not seem as obvious.

In the 1500s, “companies” were not a dominating force in society. Small enterprises did exist in European countries, but large shipping trips to the East Indies were each funded separately, making each ship a risky investment. At the end of the trip, assuming that the trip was successful, the company would be dissolved. Each company was made with a built-in sunset clause at the end of one trip. That is, until the Dutch East India Company, abbreviated VOC, came along and accomplished more than any individual investor could.

I think people romanticize the creation of the VOC, and the very first stock exchange, because it was an obvious pivotal moment in our history, but they forget how brutal the company really was. While it is true that the VOC was fascinating and created millions of jobs, one of the first strong growth events for the company came right at the beginning when the company seized a Portuguese merchant ship which they looted. At the peak of the company, they held the largest navy of Earth, effectively privatizing world peace. 

However, I completely understand the romanticization and even sympathize with it myself. The VOC is a Gestalten entity for me, meaning that the whole is worth more than the sum of its parts. Obviously, there were glaring issues with this arrangement, like the fact that everything about the entire project was anti-competitive, but for the first time in our history, public funding was tried, and it worked. Not bad for a clever chimp.

There is something deeper here though and it is our drive towards globalization. The VOC was the first multinational corporation, and its companion exchange, the Amsterdam Stock Exchange (now called Euronext Amsterdam) is also the oldest securities market in the world and is still running to this day. 

But I think we are getting ahead of ourselves though, the question that I am interested in is “What changed from the 1500s to the 1600s that the formation of such a company was necessary?” The problem was pricing. With ships arriving at the East Indies so irregularly, the prices of goods would fluctuate during the travel time, making it even more difficult for investors to forecast earnings. The Dutch East India Company solved these problems by monopolizing trade routes. This way, they could have tighter control of the supply of products they shipped, and also the demand of the products they bought. Prices were now stable. 

To me, the VOC is an interesting case study in human priorities. Consider this: compulsory education in the Netherlands was introduced around the turn of the 19th century, but they figured out how to publicly finance a shipping cartel 200 years earlier. Priorities, I guess.

Fast forward to today, and the idea behind capital markets is still largely the same. People with money to invest can buy shares in large companies that offer more vertical integration and efficiency than can be achieved by any one investor. Perhaps this is even more true in 2022 than it was in the Netherlands in 1603. 

Here at Peak 15, every single deal we come across has that same Gestalten property where half a dozen parties come together to pull off a deal that no single investor ever could. The groundbreaking discovery of 400 years ago is now common knowledge and our base of economic knowledge grows every day. Not knowing things is ubiquitous in the primate family, but understanding what we don’t know is what makes us human, and what makes us investors.

Keep climbing!