It all started in 17th Century

I know you want your start up to be a unicorn which either gets acquired in a multi-billion dollar deal or does a big bang IPO. Don’t you !

After all, Big Bang IPOs represent the holy grail of entrepreneurship. In fact public listed companies and stock exchanges where they can be traded are the hallmark of modern-day financial markets. Public listing itself or acquisition by public listed company is usually the last nesting place for successful startups.

All the successful startups of yesteryears are either acquired by listed companies or themselves get listed. And here we don’t know need to go outside, let me give examples of Wipro, Infosys and so, so many more.

Have you ever wondered how, when, where this started – the first public listed company – the first stock exchange – Do you know the first such company had an Indian connection?

It all started in 17th century…Read on

Let’s go back in time by a few centuries and find out.

The roots of the 1^st public limited company can be traced to the year 1602. Similarly, the 1^st stock exchange was formed in the year 1612.

In the year 1600, there were 6 East India Companies companies operating out of Dutch ports and engaged in overseas trades on the Indian Ocean route. The overseas trade was profitable, but it required lots of capital.

None of the 6 companies was able to realize the full potential of overseas trade. To achieve that objective Dutch Government initiated a merger of all the 6 companies, which resulted in the formation of The Dutch East India Company or United East India Company – the Vereenigde Nederlandsche Geoctroyeerde Oostindische Compagnie (United Dutch Chartered East India Company or VOC in shortly).

Not only did it merge all the existing 6 companies, it even called for capital subscriptions from the general public, as it needed to raise much more capital. Merchants, artisans and even servants participated in the public offer making it the 1st company ever to have officially used the public window to raise capital.

The subscription was given on the principle of limited liability, i.e., the maximum loss to a subscriber would be limited to his investment into the company. In the year 1602, the year the company came into existence, it had raised 6.45 million guilders (currency unit) making VOC the biggest corporation of that era. The British East India Company, which was formed 2 years before VOC, had a capital of 8,20,000 guilders.

VOC had 17 Lords, a version of the Board of Directors, to oversee company operations and protect shareholder’s interest. The payment for the shares was in 5 installments over a 5-year period starting from 1602. The company was formed for a limited period of 10 years after which it had to be liquidated and the proceeds to be distributed amongst shareholders proportionally.

But all didn’t go well with the company initially. In the year 1610, the Company’s directors sought Government approval to postpone the liquidation date indefinitely. The Government agreed but asked the company to pay a dividend to the shareholders. But at the time the Company was so cash-strapped that it had to pay dividends in the form of Spices. Only after a few years did the fortunes of the company changed and it paid a handsome dividend for decades to come.

In the year 1612, the Government decided NOT to liquidate the company, which was against the original charter. This meant the shareholders, who wanted to monetise their holding, had no option but to trade their shares.

Thus the Stock Market or the system of trading of shares too birth. So within a few years of the formation of a public company, as a natural progression, a market was formed to help shareholders sell their shares to other investors.

Interestingly, the liquidity (demand and supply) of VOC shares was quite healthy. At that time, the company’s book used to open infrequently for trading. This further led to the development of an informal open futures market, which used to operate in between the official trading windows.

The company flourished till the 16^th and 17^th century and finally got liquidated at the end of the 17th century after almost 200 years of existence.

Well, so here was a company, which has got almost all the firsts associated with Modern Capital markets. The first public limited company, the first company that traded on an exchange and the first company in which shares were subject to informal futures trading.

On top of that the company has an India connection – how awesome is that!

*Please note that the primary source of this information is Book titled “The Ascent of Money” by Niall Ferguson.    

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Thanks a lotta lot

Ashish, I am Kollecifying, will you?

@Kollectify

www.kollectify.com