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Venture capital companies manage investment funds and institutional investors' assets in a fund, often totalling several tens or even hundreds of millions of euros for periods of around ten years. From this fund, they invest amounts of several million euros in promising companies. The capital they invest is also referred to as private equity.
Venture capital companies are also interested in start-ups or fast-growing companies, in which case their capital is referred to as venture capital. Some Dutch provinces even have their own venture capital companies for local businesses called regional development corporations (RDCs), in Dutch: regionale ontwikkelingsmaatschappij (ROM).
What is a venture capital fund?
A venture capital fund is a fund for high-risk investment in innovative and/or fast-growing businesses, generally within a certain sector or industry. You can apply for funding from a venture capital fund directly. Investments in the Netherlands usually start at €200,000 in exchange for ownership equity and average between €1 million and €3 million.
Level of investment
RDCs and venture capital funds generally invest 'smaller' amounts. Venture capital funds invest amounts of €250,000 or more, and RDCs €1 or 2 million or more.
Larger capital investments of several tens of millions of euros regularly receive a lot of attention in the media, but in practice 80% of investments are less than €5 million. This makes them particularly suitable for larger SMEs.
Influence & control
A venture capital company usually takes a share in your business in the expectation that this will increase in value over time. Participation of this type can contribute greatly to your business, providing more than just funding. They can provide expertise, experience and access to their extensive network of contacts in order to help your company grow to the next level.
Venture capital companies often specialise in a certain sector or industry.
How to stand out when applying for a venture capital fund
Venture capital funds receive hundreds of applications every year. They only select the most promising proposals. If you're planning to approach a Dutch venture capital fund, it's worthwhile learning how they assess and invest. Investors like to see that you can understand their position and view the proposal from their perspective too. Later in the process, negotiations and contractual agreements play an important role. It's wise to hire a professional to help you with these aspects. The fund's main aim is to generate a return on investment (ROI) for its participants. To achieve this, they're looking for your company's shares to increase in value over time. They'll aim to resell their shares to you or other financiers in three to seven years' time. This is their 'exit' strategy.
Netherlands Venture Capital Association NVP
The Netherlands Venture Capital Association (Nederlandse Vereniging van Participatiemaatschappijen, NVP) represents the private equity and venture capital funds that manage 90% of such investments in the Netherlands.
Around seventy venture capital companies are members of the NVP, as well as several large affiliates. The NVP has a listing of all these funds. Visit their website for additional information about venture capital funds in your sector or industry.
Customer Due Diligence (CDD) and foreign investors
If your company attracts a foreign investor, for example in the form of an equity stake, you should contact your bank before the investment is actually made. This will enable the bank to carry out the Customer Due Diligence (CDD) process correctly, as is their obligation under (amongst others) the Prevention of Money Laundering and Terrorism Financing Act (Wwft). Part of this process is gaining insight into money flows (from abroad) and, sometimes, the organisations and persons involved.
If a new foreign investor becomes involved in your company, and the ownership structure of your business might change as a consequence, you will have to inform the bank of these changes beforehand. The bank will then inform you of the information or documentation it needs to carry out their CDD policy. This also enables you to prepare for the actual investment by a foreign party in your business. You can start collecting the necessary information yourself, while requesting part of the information from the intended investor. This may prevent delays and disappointments in the process later on.