It is an understatement to say that the funding landscape has changed dramatically in recent decades. But what does the current playing field actually look like in broad terms? What is going on and what, for example, is the role of private equity, venture capital, banks and the NOM?
'If you take risk you will also be rewarded,' says Marco de Jong. NOM's Investment Manager calls it investing with guts. Of course, he knows that many parties NOM finances do not make it in the end. 'But if we can execute a Catawiki or Polyganics once every ten years, then we are doing just fine. And then we have also helped a large number of companies on their way to new funding partners.'
It marks the development that the organization has gone through over the past 50 years. NOM grew from a classic development company into a modern, integral development partner. The focus was shifted from stimulating and improving northern employment to a role as investor in promising (young) companies and booster of growth, innovation and sustainable economic development. So from jobs to impact, including funding opportunities for companies in the pre-seed and seed phases, among others.
Extra room
Not only NOM, but the entire funding landscape has changed dramatically over the years. Where entrepreneurs in the past relied primarily on traditional bank loans, there is now a wide range of alternative sources of funding available.
The 2008 financial crisis marked an important turning point. Banks became more cautious with their lending, creating additional space for other players and other funding models. For example, venture capital and private equity have long been full-fledged alternatives to traditional bank funding. Venture capital for startups and young companies with high growth potential and private equity for more mature companies with a stable cash flow.
Especially in the past decade, the number of venture capital investors has grown substantially. So for startups and scale-ups, there is a lot of venture capital available. The question then arises: what can NOM add to the funding landscape in that area? 'Well, quite a lot,' smiles Marco. 'Not least because we see that venture capital investors have become more cautious about funding high-risk cases over the past few years. While we, on the other hand, have shifted back to companies with a high risk profile. That's where you just run into fewer private parties now.'
Slowing effect
Thomas Mensink sees that too, of course. He is CEO of Enschede-based startup analyst Golden Egg Check and partner of GEC Capital, Golden Egg Check's coinvestment fund that invests venture capital in tech startups and scale-ups with a fund size of 5 million euros. 'There is a kind of reset taking place in terms of venture capital in the pre-seed and seed investment market,' he says. 'A lot of venture-capital parties seem to be taking it a little easier on fundening and focusing mainly on their current portfolio companies.'
The cause? That is difficult to say, according to Thomas. I sometimes compare it to a traffic jam. Somewhere it gets stuck and everyone starts braking. We are in the middle of that now. There is just a slowing down effect. If you are not completely sure that a good follow-on investor is ready, you may want to keep more money in reserve to take a company to the next stage. Investors then become more critical and focus more on safe deals and less on the hidden gems with a higher risk profile.'
However, there is no question of any delay at GEC Capital itself. Launched in 2022, the co-investment fund has already made some 24 investments. 'We participate in a small part in a big round and help a startup find a lead investor,' Thomas says of the investment strategy. 'Unlike most other investors, we are relatively hands-off and focus mainly on access to capital. That allows us to build a large portfolio. And that's exactly what you want when you invest in startups.'
Innovation loan
What about banks? What is their role in the current funding landscape? What can they do for startups, for example? 'Usually not very much,' Thomas thinks. 'Because there is usually no structural revenue stream, collateral or proven track record, it is virtually impossible for startups to successfully approach a bank. With the exception of Rabobank, which supports startups with an Innovation Loan. It is, as far as I know, the only bank that says: we accept that it doesn't always work out, but if it does, we have a long-term relationship with the startup. I think that's a valuable addition to the ecosystem.
Indeed, the Rabo Innovation Loan is a subordinated loan to finance innovative ideas. A condition is that the company contributes to digitalization or making society more sustainable. 'We are a meaningful bank and want to remain so,' stresses Renate Venema-Zomer, director of Rabobank Heerenveen-Zuidoost Friesland. 'Our cooperative structure allows us to distinguish ourselves emphatically from other banks. For example, Rabobank has no shareholders for whom profit maximization is the primary goal. In fact, in order to make an impact, we give part of the profit back to society.'
Stack funding
Renate explains that Rabobank's focus is increasingly on sustainability and social transition. Sustainability has really become a license to operate. For example, the bank is actively committed to supporting companies in their transition to sustainable business models. 'Of course there are rules and regulations,' she explains. 'And yes, as a bank we have to maintain larger buffers. But if you look at our financial ratios, we exceed them. That's why I want to emphasize that as a bank we want to finance and help companies grow.
Rabobank is increasingly joining forces with other financial parties to finance companies. This has everything to do with accelerating transitions and innovations. 'As a bank, we obviously cannot do that alone,' says Renate. 'In order to help companies and society move forward, sometimes capital also needs to come in from a venture capitalist, crowdfunding, a private equity party or a party like the NOM. This is called stacked funding, combining different forms of funding. We just desperately need each other.'
Profitable story
Greater and more targeted collaboration, along with a growing focus on ESG criteria (Environmental, Social & Governance), is one of the aspects that characterizes today’s funding landscape. At NOM, for example, this is also reflected in the funding of growth or acquisitions. For instance, since 2018, investments have been made in the Growth Fund of Berk Partners, a private equity investor that focuses on existing, fast-growing Dutch SMEs, primarily in the food industry, innovative manufacturing, and healthcare suppliers.
'You have various private equity parties taking over ailing companies in which banks have no confidence,' says fund manager Willem Kamps of Berk Partners. 'Under the motto: on the edge of the abyss grow the most beautiful flowers. We don't do that. We only provide venture capital to established companies with a profitable story, good management and well-founded growth plans. With such companies you often also see that banks are quite willing to co-finance. They also know that good entrepreneurs, and fortunately there are many of them in the Netherlands, make the right choices even under difficult circumstances.'
Impact investor
Berk Partners was founded in 1992 and stems from the private investment company of the late Ben Pon, one of the former shareholders of Pon Holdings. Fundamentally, says Willem, the investment strategy has remained virtually unchanged since then. 'We have traditionally focused on the same segments and the same type of companies. The food sector, manufacturing industry and healthcare suppliers are segments that we know inside out and which we also believe are somewhat less sensitive to economic cycles. Certainly, ESG criteria are becoming more and more important. In social terms, but also for the investors in our fund. But our aim has always been to return companies more sustainable after five years than when we entered. On top of that: the expectation is that selling a company with an ESG character will lead to a significantly better price in a number of years.'
Attention to ESG criteria is a must for the funds and companies in which NOM invests. Logical, if you are working towards a sustainable, healthier and smarter economy in the Northern Netherlands. But at the same time, the sustainability and ethical impact of companies are becoming increasingly prominent for financiers. 'The obligation to report on ESG is still a bit further in the future,' Marco de Jong explains. 'But we want to be well ahead of that, partly through our cooperation with an investor like Berk Partners. We have to if we want to be an impact investor like NOM.'