Investment money versus subsidies

With some regularity entrepreneurs knock on NOM's door with the idea that we provide subsidies. A misunderstanding that we would like to clear up with this article. With our investment funds we encourage innovation and economic development in the northern Netherlands, just like SNN does with certain subsidies. Yet there are essential differences between the two sources of funding. The main one: our capital costs entrepreneurs money in the form of interest or shares, while subsidy is given (project) money within strict conditions.

NOM's core task is to strengthen the economy in the northern Netherlands. To provide venture capital to companies that contribute to sustainable growth and innovation in the region, we are funded by the three northern provinces and the Ministry of Economic Affairs. In addition, we manage several of our own funds. Because we are partly funded by the government, there may be confusion that NOM provides subsidies (as well). However, we are purely an investor, offering opportunities to companies with venture capital. In order to apply that model cost-effectively and also be able to absorb long lead times or failures, we work only with loans and shares.

Entrepreneurs can turn to us for subordinated loans, risk capital—in exchange for shares—or a so-called convertible loan, which can be converted into shares at a later stage. It can also involve a combination of these options, or co-financing with other investors, banks, or funds. Subordinated loans are often used to strengthen the equity position of a startup. This is frequently a requirement of banks when funding is sought from them as well. An important feature of a subordinated loan is that, in the event of bankruptcy, the NOM is repaid only after regular creditors have been satisfied. The entrepreneur pays a relatively higher interest rate for this type of loan.

The NOM focuses on seven sectors that contribute to a sustainable and strong region: agri-food, chemicals, energy, high-tech systems & materials, life sciences & health, and water technology & maritime. Entrepreneurs working with or within these sectors can submit a business plan to the NOM if they need funding for growth or innovation. It is important that the funding needs are clearly identified and that any potential grant opportunities are also explored. In addition, the investment manager assesses the extent to which a company contributes to regional growth. Return on investment is particularly important to the NOM because sound business operations contribute to innovation, sustainable development, and employment in the Northern Netherlands.

If an application falls within the NOM’s criteria, an initial assessment is conducted to determine which form of funding is most suitable. If a letter of intent is signed, a comprehensive business analysis is performed. If the results are favorable, the investment proposal is presented to the investment committee. The time it takes from the funding application to the final decision varies by situation and depends largely on the information provided by the entrepreneurs. Good to know: in most cases, funding is provided in stages. The installment amounts are then tied to the achievement of specific objectives.

The Northern Netherlands Partnership (SNN) serves the same three northern provinces as the NOM and also contributes to the region’s development. However, the SNN does so explicitly from a different perspective. By offering grant opportunities to entrepreneurs, individuals, research institutions, housing associations, and civil society organizations, the SNN fosters ideas and ambitions for sustainable and innovative development in the Northern Netherlands. In doing so, it implements both grant programs commissioned by the national government, provinces, and municipalities, as well as European grant programs, such as the European Regional Development Fund (ERDF) and the Just Transition Fund (JTF).

Companies looking to invest in growth, innovation, and future-proofing may be eligible for business grants through the SNN. Grant funds are available for, among other things, developing new products or services, conducting research, digitization, sustainability initiatives, and labor market transition. Various grants encourage the development of innovative solutions and technologies that contribute to an even stronger Northern Netherlands. This aligns with the NOM’s objectives, which is why the NOM regularly encourages entrepreneurs to explore grant opportunities. If they are eligible, this can reinforce any potential funding from the NOM.

Discover and find out appear to be key words when it comes to subsidies, because there is a multitude of schemes and possibilities. Independent grant advisors can be hired to help entrepreneurs with this, both during the application and during the project period for which grants are provided. The SNN encourages SMEs as much Investment money versus grants as possible to cooperate with each other and with knowledge institutions, because sharing knowledge is of value to the region. Applications from consortia are more complex and take longer, but can yield more grants. The average time between an application and grant award is 20 weeks and faster where possible. The better the coordination on what is needed in this process, the smoother it can be.

Each subsidy scheme has its own and often strict conditions, which can be found on the SNN website. Before making an application, it is important to first have a project proposal check how promising an innovative idea is for obtaining a grant. Entrepreneurs are advised to contact the SNN or their own province about this at the earliest possible stage to gain a better understanding of the application process and support in submitting the right information. After that, an application can be awarded in several steps - including a subsidy test. Important to know: European grant funds are rarely provided all at once. Entrepreneurs receive a work advance of 30 percent on average. Additional advances require interim reporting to substantiate the use of grant funds.

This article was created in collaboration with Stijn Kamminga - investment analyst at NOM - and Michella Mensinga - senior project officer European grants at SNN.