Finding & Funding the Opportunity for Dutch Technology Start-ups

Dutch technology start-ups are on the rise. There is a number of interesting start-ups emerging that are gaining traction from national and international investors. In European rankings or start-up contests (Deloitte Fast 50 local and EMEA, Red Herring Top 100 Europe, Wired EMEA, Accenture Innovation Awards, Dutch Start-up Awards, etc) the number of Dutch participants is relatively high compared to the size of the country. There is an increase of funding announcements as well as an increase of funds available, especially for start-ups in the incubation & seed phase.

With the emergence of new funding techniques, not only friends and family can fund a business, everybody can become an angel investor. Dutch crowdsourcing providers are emerging rapidly; www.geldvoorelkaar.nl (accredited by the Dutch Financial authorities), www.crowdaboutnow.com, the ABN AMRO launched its crowdfunding platform called Seeds, and Symbid is one of the first Dutch crowdfunding sites to receive accreditation by the international crowdsourcing.org. Though these funding effort are not necessarily technology aimed, many of them are technology related.

As an angel investor – how do you decide what to fund? Do you follow well known examples (Marc Andreessen, Marc Benioff, Eric Schmidt, or a different calibre, e.g. Ashton Kutcher who invested in Fashiolista), do you bet on the next social media site (360Cities), or do you look for other opportunities? To get a grip on the potential, we think two elements are important to consider;

• are you investing in a new concept based on technology (cloudified, mobilized or appetized business concepts)
• or are you investing in a new technology

The graph below segments tech start-ups along the tech and the concept axes, distinguishing four separate start-up opportunities.

Easy Riders are those companies who use existing technology to create more efficiency in existing processes. An example is Atomblock, a provider of e-distribution infrastructure.  With Atomblock’s APIs, companies can become e-retailers in less than a week, with links to social media sites like Facebook.

Though easy riders are extremely useful and make our lives significantly easier, the concept is usually easy to copy, and being an early entrant can also be a disadvantage in this area.

Smart Thinkers are those who use existing technology, to address or create new markets. Examples include: Fashiolista, Gidsy and 360Cities, all social media sites, segmented to industry and user groups (fashion, tourism, and photography). But also Drimpy, or Ludduvuddu are segmented social media sites, using existing technology to create a new market. The first three mentioned though seem to have that extra notch with creativity to actually attract and attain a certain user segment.

Smart Thinkers can make a lot of money, however the business model often revolves around collecting user data (big data) and advertising revenue. The challenge for Smart thinkers is to maintain market leadership, and IPO’s can be slightly overvalued (Facebook). Since there is no technology involved, success depends on marketing, creativity and advertising space.

Money Makers are those start-ups who use new technology to address existing markets. Many of these start-ups are focused on security, but also in pharma or the bio-industry there are numerous examples. We would like to mention Intrinsic-ID, which provides security solutions based on security IP and software for cloud storage, mobile payments and content protection. Security being high on the CIO agenda one would expect this to be one of the more interesting start-ups. Another example is Improve Digital, which provides real time advertising technology to owners of digital media. Improve Digital
was the winner of Deloitte’s Rising Star in 2011.

Investing in Money Makers guarantees a return. If one can use technology to make things easier, faster, cheaper, more reliable etc. there will always be a market. Money maker products are well positioned, these products are bought (requiring lower marketing investment) instead of sold (which requires a higher marketing effort).

True Innovators The crème de la crème for both techies and investors. True innovators create new technology that creates new markets. Examples include Silk, Layar and Greenpeak Technologies. Silk offers a web-based platform that allows content creators to provide their content in a more structured manner on the web. Silk just received another 1.6 million in finance (Silicon Valley based VC). Layar is a mobile augmented reality platform provider with more than 10 million installs, and 9000 developers developing on its platform. And Greenpeak Technologies is a provider of communication technology for wireless sense and control applications, offering ultra-low power wireless data communication controller chips for consumer electronics, and wireless sense and control applications for remote control and residential applications. In other words, enablers of the Smart Home.

Investing in True Innovators appears to be a good bet. The technology is difficult to copy, and the potential always seems enormous. The challenge for true innovators is to go beyond technology and actually to build the market. Technology does not sell itself, it needs to be sold. True innovators therefore need to have excellent CEO’s who are able to build a market, or develop a partner strategy that can help them build the market.

Angel Advice

In general, the Netherlands offers a decent climate for technology start-ups; we are able to innovate, we have excellent networking skills and we have a pro-business oriented working environment. Growth beyond the seed phase depends on the more traditional VC finance routes. There are various options, IT vendors offering funds for start-ups (IBM, Cisco, and SAP who recently announced a fund for start-ups in new technology like Big Data, Social and Cloud), there is Government funds available, and though there is much debate about the availability of Dutch venture capital, Dutch VC’s still  invested €189 million in 188 starters in 2011.

Companies such as TomTom, Afas, Exact, Progress, Tridion, GX Software, just to name a few, managed to become leading in their respective markets. Though not all companies may end in successful IPO’s, most of them are able to become profitable, and either succeed stand-alone or get acquired by leading vendors.

Our bet eventually goes to companies that actually create technology as opposed to those that use technology. History shows that companies that create new technology have a higher chance of succeeding than the ones that merely use technology. Businesses who create technology have business models that revolve around patents, licenses, and are less dependent on people. True innovators can cash in on their technology – and for that matter-  investors can cash out. True innovators and Money makers have the highest chance of building successful businesses. Having said that, the enthusiasm and creativity of a company like Gidsy can conquer mind and market share very quickly, creating very favourable investment conditions as well.

Note – if you’re interested in receiving the complete list of more than 100 Dutch start-ups we have run into over the past year, drop us a note and we will send it to you.