Deeptech/Analysis/

While Dutch tech sizzles, it’s a cold winter for the country’s deeptech founders 

In our latest Sifted Report, we found out how investors are tripping over themselves to fund new startups in the Netherlands but deeptech founders would love a bigger piece of the action

By Éanna Kelly

While Dutch tech startups have raised record amounts in the past year, there’s one group feeling left out: deeptech founders. 

Take artificial intelligence, a fiercely competitive deeptech segment. Per capita, the Netherlands has the highest density of AI startups in the EU. But while Dutch AI startups attract 8% of all VC deals, per 2021 data, this translates to only 3% of total funding raised by Dutch startups last year, according to Techleap. 

That marks a sharp contrast with funding and success in other tech sectors. Of the 10 largest deals raised by European tech companies in 2021, two — MessageBird and Mollie — were Dutch, which in turn has made it fifth in Europe for unicorns with 24, or startups valued at over $1bn. A gold-rush mentality reigns. Money invested in Dutch tech is rising not only thanks to more rounds but also the growing size of rounds. 

It’s been a general observation that Europe needs more specialist investors in order to nurture novice deeptech startups. And the Dutch definitely do. “Deeptech companies are more capital intensive — requiring expensive engineers, hardware and equipment — which requires a certain risk appetite that many Dutch investors don’t  have,” says Thomas Mensink, startup and investment analyst at Golden Egg Check, an analytics company. 

“Whenever I do a round of funding, I can take out my list I made five years ago — and the list is not that long”

Sifted discovered that of the 10 most active deeptech investors — the ones that have racked up the most deeptech rounds, including follow-on rounds, in the past five years — none have an office in the Netherlands. The list of the 10 biggest deeptech funding rounds of 2021 is dominated by British, German and French companies. 

“Whenever I do a round of funding, I can take out my list I made five years ago; the names haven’t changed really — and the list is not that long,” says Johan Feenstra, CEO of Smart Photonics, a factory for semiconductor components, in Eindhoven.

“It’s a needle in a haystack to find the right investor,” agrees Lex Hoefsloot, CEO of Lightyear, a startup building a long-distance solar-powered car. “The pockets of money for these kinds of startups are smaller, that’s the biggest problem. You can get to €10m, €20m, €30m rounds, but if you’re still pre-revenue after that, then good luck, there are no VCs that go beyond those kinds of numbers.” 

For many, the problem begins in universities

Deeptech companies — many of which emerge from universities — would benefit from having better advice at the very beginning of their journeys, multiple investors and founders tell Sifted. 

To start with, it takes too long to disentangle spinouts from Dutch universities, says Ton van ‘t Noordende, investor-in-residence at Quantum Delta NL, a state programme backing quantum tech. A standard intellectual property model shared among universities “is the first change I’d like to see”, he says. 

The next problem for spinouts is that they risk meeting investors who tie them to “an insane term sheet” — one that involves giving away too much equity, he adds. “This can be the starting point of the whole problem with deeptechs. Local investors or accelerators — usually with the best effort in mind — can sometimes provide the wrong advice or solutions to young companies.”

Institutions can also levy revenue royalties, adding further complications for spinouts. “There’s an information asymmetry here; a lack of knowledge for founders about how to play that game,” van ‘t Noordende says. Getting the right sort of angel investor — as opposed to the “scavenger” kind — more engaged in Dutch deeptech hubs would also be highly beneficial, he adds. “Adyen, Mollie, Otrium — these companies have been able to prosper because they have the advantage of access to an experienced angel community,” he says. 

Only a few universities, almost all of them in the US and the UK, have a consistent record of spinning out successful companies and being amply rewarded as a result. If Dutch universities want to remain world-class, they should have a closer look at these precedents and take a very different approach from their current one, founders argue. “It is hard to spin out in the Netherlands in a way that leaves your company in a position where you’re attractive to investors,” says Tim van de Rijdt, chief marketing officer at Mosa Meat, a food tech company in Maastricht. Big successful spinouts remain a rarity: of the 24 Dutch unicorns, none emerged from academia. “There’s another way here; we could learn from other successful models,” van de Rijdt adds. 

“We’ve built walls made of reinforced concrete between academia and the startup world, which is incredibly sad”

“The spinout process felt difficult to me,” says James Woolner, a New Zealander who previously worked for Dab, a biotech company and TU Delft spinout. Woolner said the university wanted too big a stake in the company initially, which frightened investors off. 

Institutions taking 20% to 50% equity stakes in a spinout is not uncommon in the Netherlands, “which is a good way to kill a startup before it even goes out the gate,” according to Stef van Grieken, cofounder at Cradle, a biotech company — Stanford University, by contrast, usually takes 3-6% equity in spinouts. 

“It’s really sad to read the investor decks of academic startups with great potential, knowing they’re gonna go under in a few years, simply because they’re being strangled by the terms of their own universities,” he adds. Sifted contacted several Dutch universities to ask about spinout arrangements. A spokeswoman for TU Eindhoven said “every case is customised” and depends on a number of factors, including patent cost and the question of whether the founder will remain at the university part or full time. 

Other founders, it should be noted, report they’re perfectly happy with their spinout story. “In our case, the hard part was convincing the university that [spinning out] was a good idea; there’s a little bit of inertia at the beginning,” says Simon Gröblacher on the experience of spinning his quantum company, QphoX, out of TU Delft. “Once they understood things, they came on board and played it all by the book.”

Still, van Grieken would like to see some kind of university reform, noting that of the 250 fastest growing companies in the Netherlands last year, only 2% (five startups) are university-backed. “We’ve built walls made of reinforced concrete between academia and the startup world, which is incredibly sad,” he says. For his new company, Cradle, van Grieken says he really wanted to hire a Dutch professor to come on board as an adviser but was defeated by the “layers of bureaucracy involved. So we ended up having to get two American professors instead.”  

This is an extract from the latest Sifted Intelligence report — “The future’s orange? How the Netherlands can become a tech master” — sponsored by Techleap and published today. 

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