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those who were active partners in the pre-companies, led the marketing of shares and opened subscription offices. The news about the new company, the lucrative Asian trade and government support were circulated in various ways. By the last week of August, a mania erupted. Altogether, 6,424,588 guilder were raised in all six chambers. The number of subscribers in Amsterdam was 1,143 and in Zeeland 264.12 The capital and the number of investors were by far higher than in any previous enterprise. What can explain this accomplishment?

The Dutch Republic already had a lively bond market in 1602 that VOC promoters could make use of. But at the primary share market initial offering stage, the bond market infrastructure did not have a lot to offer. The bond market could not offer a legal framework for the formation of the VOC or for the designation of property rights in its shares. The bond market did not offer a protective regulatory system to passive investors in the VOC. Its professional brokers, meeting places, trading practices and information dissemination methods would be relevant, as I will show below, only to the formation of a secondary market in company shares. But the pre-existence of a bond market may have widened the pool of individuals that were willing to consider investing in intangible assets such as bonds and shares.   

The two-stage process, beginning with pre-companies, made the raising of equity capital more gradual. The investors in the pre-companies were natural candidates for investment in the VOC. The reputation acquired by the active partners could be used to convince the passive partners to reinvest. The prospects for high profits based on past success could also attract new investors who by now knew more about the risks and expected payoffs. Asymmetry in information between insiders and outsiders could be reduced due to the first stage. The formation of the VOC was gradual in another sense as well. Payment for the shares was made in four installments over the years 1603-7 (1602; den Heijer 2005) pp. 60-61. The installments were paid according to the need to send annual voyages to Asia. This structure may have made investors sense that the VOC was not dramatically different in its financial structure from the pre-companies.

The organization of the pre-companies and the two types of investors of the VOC may suggest that the raising of capital was based on hierarchical social networks. It can be suggested that each active member raised capital from his kin and associates through reputation mechanisms (coupled with social sanctions) that were not based on the trading entities. Each passive shareholder invested equity capital with an active shareholder whom he knew and trusted. It is very likely that some of the money came through social networks. But the number of investors, the fact that many of them came from professions that were not connected to trade, and the wide geographical area from which investors came, suggest that they were quite heterogeneous (van Dillen 1958) pp. 42-59, (den Heijer 2005), pp. 70-80. Many investors decided to deposit money with an anonymous company – with business plans – and not with familiar faces.

The success of the VOC was important to the government. The VOC promoted the policy aims of the Dutch Republic by expanding Dutch influence into the Indian Ocean and by diminishing the political and naval power of Iberian and English competitors(Israel 1989). It did so not at the expenses of the government. On the contrary, if profitable, it could generate additional revenues for the Republic. The Federal government assisted by coordinating among the city-based pre-companies and by granting them monopoly (Mansvelt 1922) p. 54). According to my interpretation, the federal government was one of the players that ignited interest in the company and optimism about its prospects. But the government played another, unnoticed, role. After luring investors to invest in the company, it locked them in. The VOC charter issued by the

12 Subscription books for the other chambers did not survive.

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