By uniting business angels in an active network, NOM and IFG want to strengthen the northern investment landscape. Together with Arches Capital, they are working on a formula that will benefit both angels and early-stage startups.
'When business angels join forces, they can make much more impact than they could on their own,' says Daan Verhorst, investment manager at NOM. 'Now they often operate in a fragmented way and are sometimes hard to find, both for us and for startups. Together with IFG, we want to change this by building an active network in the Northern Netherlands.'
Business angels, also known as informal investors, play a distinguished role in the investment landscape. Especially for very early-stage startups, they are an important, if not the most important, source of funding. They are usually former entrepreneurs who have themselves successfully built or sold their companies and now use some of their wealth, entrepreneurial experience and network to help startups move forward, with a share of shares in the company in return.
Personal and hands-on
Business angels typically invest amounts between €25,000 and €350,000 per startup, precisely in that critical phase where family capital is no longer sufficient and it is too early for venture capital funds to step in. Their added value goes beyond providing capital. The involvement of business angels is often personal and hands-on, and not infrequently they act as sparring partners and coaches for young startup entrepreneurs. Because of their experience and specific sector knowledge, they can point out pitfalls to companies at an early stage and open doors that would otherwise remain closed.
Numerous business angels are active in the Northern Netherlands, spread throughout the region. NOM and IFG know many of them, but by no means all of them. It is clear that they still too often operate as loners. While they could increase their clout considerably if they were organized.
'Most individual angels can at most build a portfolio of about four or five participations,' says Jan Timmer, responsible for NOM and IFG's fund strategy. 'There are very few who single-handedly invest €500,000 in a single startup. For venture capitalists, that's where it starts. By working together, angels can spread their investments, reduce risks and use each other's expertise. That's better for themselves, for the startups and for the regional ecosystem.'
Syndicate of angels
For the NOM and IFG all the more reason to investigate how the Northern Netherlands business angels can unite more. That's how they ended up with Arches Capital, a syndicate of angels founded in 2018 by Frank Appeldoorn, Diederik Stolk and Lotte Smit van Ditshuizen. It connects around 100 business angels and combines their knowledge, network and capital to invest in startups in the Benelux, with a strong focus on early-stage B2B software companies. This involves a structured selection and investment process with multiple pitch sessions. The 'Archangels' pay a membership fee for access to the deal flow, while Arches Capital takes care of the negotiation, legal and tax work.
'So the angels get to do what they like,' smiles Frank Appeldoorn. 'That is talking to the entrepreneurs. We take care of the rest behind the scenes. The angels are, of course, closely involved in the validation and guidance of the portfolio companies. Arches Capital may be made up of business angels, but we position ourselves as venture capitalists. Startups thus get the best of both worlds: the professionalism and structure of a venture capitalist, combined with the compassion, pragmatism and hands-on experience of business angels. And everything is focused on the follow-on round. Something venture capitalists almost always do, but business angels often fail to do.
Arches Capital Fund
This approach is proving successful. For example, Arches Capital has already invested in 23 promising startups. Daan is also enthusiastic about the model. 'The startups selected by the Arches Capital team will pitch to angels who understand the business in question. After a possible investment, these angels are in the lead when it comes to guiding the company and unlocking the network. That specific sector knowledge builds trust, which makes other angels more likely to hitch a ride. With the next case, it could be just the other way around. That just works very well.
In spring 2024, Arches Capital launched a genuine €20 million fund, of which €17.5 million was already in at the time. Now, over a year later, that has grown to €21.7 million.The Arches Capital Fund is intended for pre-seed and seed investments of €250,000 to €1 million. The goal is to use the fund to invest in 20 new startups in the coming years and to do several follow-on rounds. The NOM and IFG are also co-investing. Or more precisely: 10% of the fund is financed by the NOM and IFG. Simply because it also offers interesting opportunities for the Northern Netherlands.
Catalyst
'The aim is that for an initial investment about three-quarters of the capital will be put on the table by the angels and a quarter by the fund,' Jan explains. 'In follow-up rounds, angels who have invested before have the right to participate pro-rata, that is, in proportion to their share. If they decide not to do so, for example to spread their portfolio, the fund steps in to absorb that portion. In this way you build up a company at lightning speed. You no longer have to raise much of the capital elsewhere, so you can move quickly. If you bring a similar mechanism to the Northern Netherlands, it can be very attractive for business angels to join. Indeed, it could act as a catalyst for organizing business angels in our region. Because that's where we ultimately want to go.
Long breath
But yes, setting up a structured regional program for collaboration with and between business angels doesn't happen overnight. It's a road of the long haul. So there needs to be a smart balance between working with Arches Capital and building an independently functioning network in the Northern Netherlands. In this, Frank will provide the necessary support, of course.
'A number of our members are from the North,' he says. 'So we can connect them well. After that, it's a matter of staying active and ensuring continuity. We want to organize an event in the Northern Netherlands at least once a quarter, preferably on a monthly basis. In the form of knowledge sessions and master classes, for example. But above all, you have to make sure you have a good deal flow. If that is the case, then it will absolutely take off.'
Valuable partners
At their core, NOM, IFG and business angels have the same goal: to use their knowledge, capital and network to help companies grow. Hence, NOM and IFG see great potential in a well-organized network of business angels in the Northern Netherlands. 'Business angels are valuable partners for us in the funding landscape,' Daan emphasizes. 'Therefore, we would like to share our deal flow with them, offer access to our broad network and work together to create a stronger regional startup ecosystem. Business angels who are interested or want to know more are therefore always welcome to contact me.