The Dutch East India Co. holds the distinction of being the first company to offer equity shares of its business to the public, effectively conducting the world's first initial public offering (IPO). It also played an integral role in modern history's first stock market crash.
Often referred to by the acronym VOC, short for its Dutch name Vereenigde Oost-Indische Compagnie, the company was formed in 1602 by a royal charter granting a 20-year monopoly on trade with the East Indies, plus sovereign rights in any newly discovered territories. Founded in 1602, along with the creation of the Dutch East India Company (VOC), the Amsterdam Stock Exchange is considered the oldest, still-functioning stock exchange in the world.
- The Dutch East India Co. is widely thought to be the first company to allow the public to invest in its business, in what was the world's earliest initial public offering (IPO).
- Commonly known as "VOC," for its Dutch name Vereenigde Oost-Indische Compagnie, the spice company thrived mainly due to its monopolistic hold over the East Indies.
- Investors ran the risk of unprofitable voyages due to unpredictable spice supplies.
- In 1634, when VOC merchants began carrying tulip bulbs, the tulip bulb craze soon followed, directly causing violent stock market swings.
What the Dutch East India Company Did
The Dutch East India Company was one of the earliest businesses to compete for the exports from the spice and slave trade. It was a joint-stock company and would offer shares to investors who would bankroll the voyages. Financiers required a safe and regulated place where buy and sell shares of these early global enterprises.
Because it was granted a royal charter from the crown, it was bestowed with incredible powers that were enjoyed by a small collection of merchant ships that formerly competed with one another in the spice market. These merchants would later form limited liability companies, with which investors would fund voyages in return for a percentage of the profits. But these investments were speculative due to the unpredictability of the spice supply, and there was consequently no guaranty that any given voyage would generate profits.
For example, when two ships arrived simultaneously a supply glut occurred, which depressed prices, thus eroding profits for both merchants and investors. To hedge against this phenomenon, VOC merchants banded together and essentially bribed the crown every 20 years to extend their charter.
At the height of its success, VOC boasted 40 warships, 150 trading vessels, 10,000 professional soldiers, plus countless employees and subjects. Competition eventually eroded VOC's monopolistic hold, and in 1800, just shy of its 200th year, VOC was formally dissolved.
Tulipmania Hits the First Company to Issue Stock
Once the royal charter was locked in place, VOC merchants issued permanent shares in an ongoing enterprise, whenever they required additional capital to outfit a proper fleet. VOC also issued bonds to generate further investments, which it used to fund individual voyages, effectively becoming the first multinational interest when it set up headquarters in Asia.
From 1602 to 1696, the company paid a regular dividend that yielded from 12% to 63%. In 1634, however, VOC ships carrying tulip bulbs helped contribute to the infamous tulip bulb craze, ultimately resulting in a drastic market crash. Despite radical volatility that saw share price spike 1,200% from the IPO price, then plummet 300%, the company did manage to weather the tulipmania crash. In fact, the VOC continued to exist and operate in one form or another until the year 1799.
Tulips became a highly sought-after status symbol due to the intense, deeply saturated color of their petals.