How the first American inventors funded their businesses

Recently I came across a book that briefly describes several major inventions made in the United States from 1830 until the outbreak of World War I (The Heroic Age of American Invention, authored by Lyon Sprague de Camp ). I flipped through it in one evening to find out how these enterprises were financed. The book is an incomplete and informal review of inventions, but here is what I found in it.

Cars

Thresher McCormick

Robert and Cyrus McCormick , father and son, who made an automatic horse-drawn thresher for farmers, took money from the existing farm and industrial concern. Later they formed a partnership with a man who made money on real estate. Another farm equipment manufacturer, Charles Newbond, spent $ 30K on his own invented iron plow.


Colt Navy 1851

Samuel Colt designed and manufactured weapons bearing his name. His early experiments were funded by his father; he later made money on a traveling show using the recently discovered nitric oxide effect, known as laughing gas. He even tried to make money smuggling, but was caught and lost a lot of money because of this. Later, he took a more traditional path, establishing a company and finding investors.


Meiselbach-Scholes typewriter

Christopher Latham Scholes , inventor of the first mass-produced, commercially successful typewriter, had a customs tax collector sinecure, which provided him with free time for fussing with inventions (a situation similar to that of Karl Drez, inventor of the bike prototype). Later, he found a partner who paid the cost of development. Having improved their machine, they did not organize production, but sold the rights to Remington - much like some pharmaceutical startups, after proving the effectiveness of drugs, sell intellectual property to larger companies.

Materials

Goodyear Rubber Advertising

Charles Nelson Goodyear invented a rubber processing process called vulcanization . Raw natural rubber froze during the cold European winters, becoming brittle, and in the summer it melted and became sticky. Vulcanized rubber withstood a wider range of temperatures, and it was already practical to use it in a European temperature climate. Goodyear was famous for his obsession with rubber, and for years experimented with it, despite financial difficulties, both his own and his family. Sometimes he borrowed money from relatives, and once he even sold the textbooks of his children, and constantly went to prison for debts. As a result, having improved the vulcanization process and patented it, he finally made money.


Kelly Converter

William Kelly, regardless of Bessemer inventing the process of steel production from cast iron, had already been involved in the iron business before experimenting. At first he got a part of the family business, but he sold his stake in this company and borrowed money from his father-in-law to open his own foundry. Many of his entourage considered his experiments to be insane, and his father-in-law demanded that he return the loan if Kelly did not stop doing it; in response, Kelly continued to secretly conduct experiments elsewhere, a few kilometers from his facility. Later, having proved the effectiveness of his new method, he, with the help of several financiers, founded a new company.

Electric power

George Westinghouse's arc lamp generator is best known as the pioneer of AC electricity. However, his first invention was a device that helped return wagons that had left them onto the rails; To finance it, he received an investment of $ 10K from two entrepreneurs. Later, he invented improved pneumatic brakes for trains - this invention was funded by another business angel. His next enterprises, including electricity, he financed himself, on profits from previous ones.


Light bulb

Thomas Edison, whose engineering genius was evident to the people around him from his early age, became, as the book says, a “freelance investor” at the dawn of his career, and received money from “several local residents” who probably knew him. He improved the telegraph and ticker apparatus by selling patents to Western Union; With this money he managed to open his own laboratory. Having stumbled upon his most important invention, which determined his career - a light bulb - he received more investment from a syndicate of investors, including railway magnate Cornelius Vanderbilt . After the light bulb, he independently financed his own enterprises.


Induction motor

Nikola Teslaearned money by making inventions for Edison and Westinghouse, and later opened his own laboratory with the money of the wealthy, including J.P. Morgan and John Jacob Astor .


DC Transformer Eliu Thomson

Eliu Thomson , the inventor of a type of electrical transformer, was a teacher. This is not very clear from the book, but apparently he conducted experiments as part of his work; if not, then he did this in his spare time. His electric company was funded by a "group of capitalists." When she later merged with Edison Electric, Thomson used the money to finance the following experiments.

Communications

Morse telegraph

Samuel Morse , a telegraph pioneer, worked as a tutor and teacher, and received funding from the father of one of his students, the owner of a foundry. In 1842, he received a $ 30K subsidy from Congress; in the 1850s, the laying of the transatlantic telegraph cable was funded by the governments of the United States and Britain. Shares of the company were received by the owners of a huge ship laying a cable during the ocean crossing.


One of the earliest phone models by

Alexander Graham Bell, like Morse, was a teacher, and received funding from the parents of the students. In Bell's case, investors were a lawyer and a leather goods seller. Bell had two ideas: one - a variant of the telegraph, transmitting music instead of text; the second, obviously - the phone. The irony is that his investors wanted him to work on a musical telegraph! He reassured them, working immediately on both ideas. These investors helped him not only with money: one helped him open a company and advertised his invention at the 1876 World Fair; another attracted his wealthy relatives to help the company in difficult times.


Marconi with his radio equipment

Guglielmo Marconiinvented the first radio, known as a wireless telegraph (because its first version transmitted only signals, not voice or music). For his early experiments, his rich father paid, and later he received money from British investors. Fessenden, the inventor of AM radio, was funded by a banker and soap maker.


De Forest Triode Lamps

Lee de Forest , inventor of an electronic amplifier tube, or " audion, " worked in the evenings as a teacher, and in the afternoon engaged in invention; he eventually opened a company.

Flying

Langley Airfield

Samuel Pirpont Langley , the predecessor of the Wright brothers, was, like Thompson, a professor, and as such made several inventions. Apparently, he also worked a lot in his free time, and was never married. He received $ 70K from the military department (today called the Department of Defense) and from the Smithsonian Institution to work on the airplane. But Congress then banned the allocation of additional finance for this project.


Airplane Wright-Martin model V

Wright brothers experimented on their own money at the expense of profits from a bicycle store. After the invention of the airplane and the receipt of a contract from Teddy Roosevelt in the amount of $ 25K, they were able to open a company, having also received financing from several investors.

Summary

Many of these inventors relied on family and friends or other business angels whom they knew or had access to. A remarkable coincidence - both pioneers of early telecommunications, Morse and Bell, received their first investment from the parents of their students.

Many others invented for their money, one way or another. Some had income from their existing or past businesses. The work of others gave them free time to invent - either because their inventions were considered part of the work (as Langley and Thompson might have been), or because the work was uncomplicated (like Scholes). Those who were so unlucky had to work in the evenings (de Forest), engage in creative side business (Colt) or suffer (Goodyear).

Government subsidies and pre-orders were important for some infrastructure projects (telegraph) and military technology (aircraft).

In any case, when inventions or enterprises reached certain key milestones, for example, a patent or even early sales, it was customary to open a company and attract investors - apparently, capitalist syndicates were usually used for this purpose. It seems to me that usually they were wealthy people who invested in a new business on their own - those whom we would call business angels today, as opposed to investors who invest other people's money. Perhaps investment bankers, such as J.P. Morgan, would act as guarantors when they entered the exchange and invested in the enterprise in advance? Not sure.

What in the early financing was not, at least in my opinion, was some kind of structure. There were no formal networks of business angels, nothing that could be compared to venture capitalism. Investments were situational, depending on circumstances and relationships. If this is true, then the emergence in the mid-20th century of the institution of financing in the early stages of projects was a real revolution.