Alexander Draaijer 'How and why venture capital can take you further'

Sure, you are ambitious and convinced of the potential of your business. Moreover, you regularly read about other (starting) entrepreneurs who raise nice amounts of money from financiers. So you might be inclined to think that you too will be able to get the funding you need. As is often the case, practice is just a little more obstinate.

Why such a challenge?

For startups and scale-ups, raising capital is, to put it mildly, a hefty challenge. Simply because it involves quite a few risks and uncertainties for financiers. For example, as a startup in its early stages, you do not yet have a proven track record, tangible results such as revenue, profit or customers, and not even a developed or proven product yet. And yes, the lack of solid data makes it difficult to predict whether your venture will be successful in the future.

Investing in scale-ups is also often a risky business for potential financiers. Experience shows that many of these companies, despite their growth potential, ultimately fail. Not infrequently, they already have significant debt or are growing faster than revenue generated. As with start-ups, the risks are difficult to assess. And so they offer little or no certainty as to whether the money invested will pay off over time.

In particular, traditional financiers such as banks are reluctant when it comes to risky investments. Rather, they seek stable and predictable loan repayment. Thus, a bank often asks the companies in question for collateral and guarantees when providing funding. But yes, guarantees you just can't offer as a startup or scale-up (yet). Fortunately, raising venture capital can be a great alternative.

Venture capital: what exactly is it?

But what exactly is venture capital, also known as venture capital? As the name suggests, it is a form of investing in companies with a high risk profile, including startups and scale-ups. But with the expectation that the company is going to grow strongly and therefore will have a greater market value in the future. In exchange for their investment, venture capital investors usually get shares in the company and share in the profits if the company becomes successful.

Venture capital thus provides entrepreneurs with much-needed financial resources to get their business off the ground or grow. Startups in particular often need significant investments for such things as product development, market research, marketing and talent acquisition. Scale-ups, in turn, can put the money to good use to get their products or services to market faster, acquire customers or scale up business operations. But bringing in venture capital can also boost confidence in your company. If an investor is willing to put money into it, it can convince other investors, customers and potential partners of the company's future success.

Stay critical!

As mentioned above, in many cases you sell part of your business in exchange for venture capital. This provides more financial freedom, giving you extra room to work on developing your business. Moreover, investors are generally more patient than traditional parties. They make a long-term commitment to your company and also bring their expertise and network to support you.

Raising venture capital, like any form of funding, also has drawbacks. Because if you sell part of the shares, you also lose part of the control in the company. In other words, the investor gets a say in the company's operations and future plans. So be sure that you and the capital provider are a good match. But also: weigh carefully whether venture capital actually fits your company and your growth objectives.

And the NOM?

There are several sources you can turn to for venture capital. Think family and friends, informal investors, crowdfunding, private equity firms or regional development companies such as NOM. For indeed, NOM also has venture capital available to stimulate and facilitate the start or growth of promising companies.

We believe it is important to support innovations at an early stage so that they can grow into business opportunities. We do this based on the idea that you can only strengthen the regional economy by strengthening the growth potential of innovative companies.

NOM provides venture capital in the form of equity capital and/or subordinated (convertible) loans. Which form is interesting for your company depends in part on the phase in which your company is in. Besides investing in startups and growing companies, we also invest in MBO/MBI with venture capital if necessary. After all, we want to keep healthy companies for the region. With the help of venture capital, we want to manage the succession so that continuity is guaranteed. The amount is then provided as share capital, often supplemented by a subordinated loan.

Careful selection process

Like other investors, we apply a careful selection process in all cases. We only invest if we are convinced that the company is innovative, has growth potential and will actually add something to a more sustainable, healthier and smarter Northern Netherlands. Therefore, we always expect a solid business plan first. Before we decide whether or not to provide venture capital, we naturally want to be informed as fully as possible about the company, the team, the business case, the market and the expectations and objectives.