GUEST BLOG: Christopher Columbus, a Risky Venture (by: Gary Krekeler)

Blog

Oct 10

Why did Christopher Columbus need financing from a government?  Simple, his plan was risky, too risky for any private individual that had the needed capitol.  He would also need the power that a government could supply to maintain control of lands and goods that he discovered.

Christopher Columbus actually began looking for financing long before Queen Isabella consented to bankroll his plan.  His first stop was to the Portuguese court that quickly rebuffed his efforts stating that they already had a sure route to the orient and did not need to take such a risk.  In fact, they did not believe that Columbus would be able to complete such a journey.  They assumed that all that was there was ocean; too much ocean to cross.  He next tried Genoa and then Venice, both with the same answer, too long and too great a risk when they had a sure as spice connection through the lands of the middle-east.

Columbus was not even initially successful with Spain.  Isabella and Ferdinand were involved in war with the Moors and much of their finances were being spent on this war.  Isabella was intrigued with his ideas however, and placed Columbus on a retainer.  Once the last of the Moors were driven out of Spain, Isabella and Ferdinand were looking for opportunities.  Columbus again proposed his voyage of exploration.  In early 1492, a contract would be reached.  The King and Queen would supply Columbus with three small ships, (the largest being about 100 feet long) supplies for a year, and pay for the crew to man the ships. In return, they would receive the lions share of all wealth gained, including gold, spices, slaves, textiles and land claims.  From this they agreed to give 1/10th of all wealth gained to Columbus personally.  This would be “for all voyages for all time”.  They agreed to make him Governor of all lands found, and name him as Admiral of the Ocean Seas.

Columbus did not bring back any of the vast treasures that he had promised.  In total, he would make four voyages to the new world never realizing that he had not reached Asia.  He also angered the Queen by mistreating and enslaving the native peoples he encountered.  After his fourth voyage, the King and Queen refused to give him any more help.  He would die in 1506 never knowing he had found two continents unknown to Europeans and feeling that he never received the rewards he should have been entitled to.

It is difficult to calculate the true cost of this voyage as few actual accounting records exist of this voyage.  Forensic accountants have made detailed examinations of what is known.  First the King and Queen had to borrow the money they used (by best accounting this was 1,000,000 Maravedis) for which it appears they paid interest of 14% over two years.  Columbus’s portion was approximately 125,000 Maravedis, which he must have borrowed most of but there are no records to prove this. There was also the cost of the ships.  All three would be leased for the voyage, although actual rental was only paid for the Santa Maria, as the Nina and Pinta were being used as payment of a debt owed the King and Queen. In total it appears that approximately 1,765,000 Maravedis was the cost of the entire voyage.  Almost all of which was borrowed or given in exchange for a debt owed. The return on investment was almost nothing as Columbus brought little back.  Not even the discovered lands can be included as no rent or payment for the lands was acquired at that time.  History of course tells us of the vast amounts of treasure later gained by Spain from the lands discovered but no wealth was actually acquired from any of Columbus’s voyages to the new world.

 

CONCLUSION  Columbus may have been one of the best deal-makers in history. He did not know where he was going, and even after four voyages, he never really got there. He convinced others to finance his adventure into the unknown, and when he got there, he did not know where he was. Yet, when he returned to Spain, he was able to obtain monies to finance a three more voyages with many more ships and several thousand people.  This story of Columbus’s first voyage shows that venture capitalists don’t need to see an initial profit in order to invest more capital for subsequent excursions. As long as people believe that more wealth is possible, somebody will finance another person’s vision.