HTSM sector should look for opportunity capital instead of risk capital

Sustainable economy

The mission of the Brabant Development Agency is to make an important contribution to a strong and sustainable economy in Brabant, says director Brigit van Dijk - Van de Reijt. "And the HTSM sector is the most important pillar for that; in Brabant and perhaps even in the whole of the Netherlands. But it is not a given that it will always remain that way. We must consolidate that position and further increase our competitiveness. That's why I'm so pleased that the HTSM research not only provides an impressive quantitative and qualitative analysis but also concrete action points. As far as I'm concerned, the most important ones are the search for talent, an environment attractive enough for foreign companies, and the availability of capital. These are aspects that we as stakeholders must attach great importance to. Because only in this way can high-tech continue to contribute to the societal challenges that we have as the Netherlands."

The investment portfolio of the BOM reflects the importance Van Dijk describes: 62% of the investable money goes to HTSM initiatives such as battery technology and photonics. "More and more of these investments end up with early-stage startups, the period directly following the R&D phase. We see a scarcity of risk capital there. Because we must keep realizing this: many of the initiatives in HTSM are characterized by high risk and a long development period. Link that to the very specific knowledge required, and you understand that risk capital is not a given."

Although Maarten Tobias from Dimenco in Veldhoven does not disagree, he is immediately struck by the term 'risk capital'. "That is so typically Dutch. It's about a focus on opportunities rather than risks. So let's talk about opportunity capital instead; that's how we naturally make things bigger rather than smaller and more difficult. In that respect, we can truly take an example from the United States. To clarify: whenever we go to America, we always add a zero when raising financing."

Aside from that, Tobias is happy to be in Brabant. "Our ecosystem is great, and the HTSM research by BOM shows that very well. We have gems here. All our suppliers are in the immediate vicinity. In terms of ecosystem, it is not that different from Silicon Valley or Israel, only arranging financing is unfortunately completely different."

Incooling CEO Rudie Verweij fully agrees with that. "Early-stage financing is difficult, but scaleups also have a hard time, precisely due to the lack of funding in the early phase. If you raise relatively little in that phase, it affects your later investment rounds.

Concretely: for a first round in the Netherlands, you should think of one or two hundred thousand. That's nothing compared to the amounts in, for example, Israel. About 35% of companies then raise two million in a follow-up round, but in Israel, it is 80%. And that has consequences: if you have to roll the dice with few stones while your competitor has many more stones, it is very difficult to win that game."

Collaboration

It also becomes exciting for Incooling itself. "What we have here as a great advantage is the collaboration within the ecosystem. But no matter how good that is, money is also needed. I am convinced that we will succeed, but the odds are against us. Because we have so many companies that want to collaborate, here in the region, that helps us now. An additional advantage of this region is that the collaboration between the big players and the local startups is still relatively new. That means that although we have to figure everything out ourselves, it works and everyone is enthusiastic about it. The disadvantage remains the lack of capital. We need to find a better balance in that."

Braventure

The organization that could do something about this is Braventure, established to improve the Brabant startup ecosystem. "We have a fantastic ecosystem," says director Job Nijs. "But precisely because of this, you would expect many more startups here, and certainly more that grow into scale-ups. To achieve this, we need to catch up and, indeed, also need money. What we are facing is that the classic Venture Capital model does not work well for our complex manufacturing industry. As Brigit van Dijk also indicated: startups with high risks, long lead times, and high required knowledge levels are very different from the average startup that arises in Silicon Valley or Israel. Nonetheless, it may be good to look more closely at their models. What works so well in Israel, and how can we achieve that in Eindhoven?"

One of the roles that Braventure takes on is that of a motivator. Sometimes on its own, sometimes together with parties like Brainport Development, TU/e, The Gate, BOM, or Techleap. "It's always about finding the right scale," says Nijs. "Together, we look for ways to increase the number of startups in our region. Because at the end of the day, it remains a numbers game: we need more starters, more experience, and more reinvestment in the ecosystem. At the moment, everything takes way too long."

Regional and national funds can help with that, as Brigit van Dijk also knows. "The deeptech fund of Economic Affairs fits well with this, for example, but it is never the only solution. There is always a role for the market, the private players. We can help bring the two together and thus catalyze the capital, so to speak. But again: it's never just about capital. Available knowledge of the subject is just as important. Our goal is then to bundle that knowledge and capital and shine a spotlight on it as a whole."