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Tornado Insider reports on informal investment in the Netherlands

3 July 2012 15:11
By Niels Valkering

Tornado Insider has finished a research report on the informal investment climate in the Netherlands. It was the second successive study for NL Agency, a Dutch government agency, to shed more light on the dos and don’ts of the country’s informals.

Early this year 88 informal investors filled out a survey about their investment activity, returns, deal structuring and portfolio management. Nine of these, as well as 14 entrepreneurs, were additionally interviewed by phone for more in-depth opinions on the Dutch market. This article will summarize some of the results.

Total investments
On average the investors financed 6.4 companies during their entire investment period as informal, on par with the first study in 2010. 51% of the deals were up to €200,000, of which most took place before, around or just after start-up of the company. 43% of the investments were done as sole investor, 38% with other informals, and 20% with other investors such as banks and VCs.

2011 activity
The bulk of the informals (70%) also invested in 2011: on average 1.8 times and €881,000 per informal. 29% of the informals made more investments in 2011 than in 2010, while 25% reported less activity in 2011. Equity deals were most popular among informals – 81% of the 2011 fundings were in part or completely in return for equity - although convertible subordinated debt appears to become increasingly important in recent years (29% of the deals in 2011).

The percentage of investors that reported a positive return on their investments in the past two years (66%) did not differ much from the percentage that claimed a positive ROI for their entire investment period (68%). But overall the reported returns were considerably lower in the past two years. 28% of the informals indicated that one or more of their portfolio companies had gone bankrupt in the past two years. On average there were 0.5 bankruptcies per informal investor for this period.

Future plans
Most informals (57%) expected to become more active in the next 3 years, while 17% expected a decrease in activity. The latter group mostly blamed the bad economic climate and a shortage of good companies in the Netherlands. In the previous study only 8% of the investors expected to become less active.

Economic climate
The economic recession in the Netherlands and the retreat of banks as important source of financing have caused many informal investors to reserve additional capital for their current portfolio companies. In addition, a number of results indicated a deteriorated investment climate: when compared to two years earlier, informals found it increasingly difficult to find good-quality companies, to close deals, to find follow-on financing for portfolio companies and to sell companies.

Informal investment
But many also stressed the upside of an economic downturn: they benefitted from more and better propositions, lower valuations and improved conditions for negotiation. This combined with the lack of good alternatives – the stock exchange was just as risky according to some – led many to believe that informal investment would thrive nonetheless.

Most investors felt that the informal investment market in the Netherlands was healthy. There was sufficient influx of new investors to meet a major part of the demand for funding among Dutch entrepreneurs. Meanwhile, the government as well as intermediaries and angel networks were much more pro-active in facilitating informal investment than in the past. Matchmaking between informals and entrepreneurs has improved, and both groups are supplied with sufficient information.

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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