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Downturn in Dutch investment climate for tech start-ups

26 June 2012 16:31
By Niels Valkering

Tornado Insider recently finished its 7th annual report on the Dutch investment climate for technology startups. It revealed increased concern among both entrepreneurs and VCs.

Since 2005, Tornado Insider has researched the startup and VC market for NL Agency, a government agency under the umbrella of the Dutch Ministry of Economic Affairs, Agriculture and Innovation. Each year the research consists of two components. The first presents the results of interviews with 250 owners of young start-ups on their needs and success in obtaining investment. The second describes the Dutch tech-related VC market, compares Dutch data to European trends and presents the results of interviews with a selection of investors.

This year's study showed that the uncertain economic situation has an increased impact on Dutch entrepreneurs. They reported a substantial drop in both deals raised since 2010 as well as in the number of investments planned for the future. The main cause of this are banks: traditionally an important source of financing for young companies. Their increased hesitance to support start-ups in the past years has led to a sharp decrease in the number of applications for funding with banks, as well as a decline in the percentage of granted applications. The entrepreneurs were also more pessimistic in their expectations about the economic situation and the effects on their business.

The VCs in the Netherlands have also shown increased uncertainty with regard to the economic situation and the impact of it on their investment activity and exit opportunities. However, Dutch VC deal activity remained fairly stable with 100 reported technology investments in 2011. Still, a number of trends do indicate increased risk-aversion among the VCs. These include a considerable shift towards later-stage deals, smaller early-stage deals, bigger later-stage deals, bigger syndicates and a larger share of high-tech deals (compared to medium and low-tech). Dutch VCs are mainly concerned about the scarcity of follow-on capital for their portfolio companies. Many are taking specific measures to deal with that situation such as: seeking follow-on investments and co-investors earlier in the process, striving for larger deal sizes, investing less in capital-intensive companies, and reserving more capital for their own portfolio.

For anyone interested in the full report (in Dutch), click here to download a copy.

Email for any further questions about the report, or for more information on Tornado Insider“s research services and data products.

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