Dexel

Hungary – EU - Israel Workshop on Start-Ups and Innovation

Impact of innovation policy in the Dutch venture capital market

Developments on industrial policy and the venture capital market in The Netherlands

Tel Aviv 30th May 2011Jan DexelDirectorate General Enterprise & Innovation

Dutch Ministry of Economic Affairs,Agriculture and Innovation

Ministry of Economic Affairs, Agriculture and Innovation2

The new Dutch Innovation and Industrial policy landscape

• Organizational changes• Ministry of Economic Affairs, Agriculture and Innovation

• Policy changes• Shift in financial approach;

• Budget cuts• From subsidies to loans and risk capital• More emphasis on tax measures: corporate tax

reductions and WBSO (wage tax reduction for R&D)

• Shift in focus of research and innovation, focus on 9 top sectors and development of revolving innovation fund.


Economic Top sectors

Focus on the nine economic top sectors of the Dutch economy• Water• Food• Horticulture• High tech• Life sciences• Chemistry• Energy• Logistics• Creative industry


Economic added value

Technicalrisk

Typical forms of finance

“grants” / subsidies

subordinated/soft loans

garantees/mezzanine finance/vc - pe

DevelopmentScience Research

Fundamental research Industrial research Experimental development Market introduction

Sales GrowthPhases of “maturity”:

Innovation

Conceptual framework of revolving innovation fund (1)

high

low


Economic added value

low

high

Conceptual framework of revolving innovation fund (2)

1. Direct co-finance of companies in innovation projects

Range in revolving phenomena 60 – 100 %

3. Finance through garantees financial intermediaries


Project finance Company finance

2. Finance through co-funding of investment funds for innovative companies


Aiming at early and later stage venture capital market

DevelopmentScience Research

Fundamental research Industrial research Experimental development Market introduction

Sales / Economic growthPhases in innovation proces

Innovation

4. Co-finance /garantee schemes at market introduction Range rev. 90 – 110 %


• Don’t disturb the market.Only in case of a real market or system failure, public intervention is acceptable. Aim at creating a supportive business climate for companies and finance sector, including the regulatory and fiscal environment.

• The intervention must be market oriented.The market selects and is the lead investor. Follow the ‘market economy investor principles’.

• Intervention requires an integrated approach. A balanced mix of policies/instruments covering access to finance, R&D support,

investment readiness, stimulating business angels, use of incubators, etc. is key to improve the success rate of companies and the governmental operations.

Public intervention:basic principles and constraints (1)


• Stimulate access to finance. E.g. by improving the risk-return profile for early stage venture capital funds.

• Avoid getting involved in subsidising management fees.

• Reduce risk by scheme structure and exit strategy.E.g. the fund-of-fund approach with professional private venture capital funds has a better risk-return profile. Define the exit strategy in advance !

• Broaden scope cross-border if possible.National initiatives are often limited to operate within a national context. This constraints the market conform business model of venture funds. Stimulating pan-European approaches could tackle this constraint.



Developments of the Dutch venture capital market


Schematic representation of the equity gap among early stage high-tech SME´s and fast growing companies.


Developments of the Dutch venture capital market


Afbakening en begrippenkader

Developments in the Dutch venture capital market for early stage high-tech SME’s.

BA-pledge

funds

“Side-car” funds of later stage funds

New boutique funds and CV

New early stageventure capital funds


7

5 5 56 6

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009 2010

Total 34

Generated funds

47,240,5

32,3 30,239,0

48,0

-

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0

50,0

2005 2006 2007 2008 2009 2010

Total 237,2 mln euro

Raised capital

1

11

34 33

2327

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010

Total 129

Investments

Developments of theDutch venture capital market:the impact of the seed capital scheme


Some examples of limited partners joining the Dutch seed capital funds


Some portfolio companies

Jan 29, 2010Merus closes EUR 21.7 million Series B financing and enters

option agreement with the Novartis Option Fund.

Layar maker of augmented reaility applications



Developments of the Dutch venture capitalmarket

New challenges ......early and later stage.


• Don’t disturb the market.Only in case of a real market or system failure, public intervention is acceptable. Aim at creating a supportive business climate for companies and finance sector, including the regulatory and fiscal environment.

• The intervention must be market oriented.The market selects and is the lead investor. Follow the ‘market economy investor principles’.

• Intervention requires an integrated approach. A balanced mix of policies/instruments covering access to finance, R&D support,

investment readiness, stimulating business angels, use of incubators, etc. is key to improve the success rate of companies and the governmental operations.



• Stimulate access to finance. E.g. by improving the risk-return profile for early stage venture capital funds.

• Avoid getting involved in subsidising management fees.

• Reduce risk by scheme structure and exit strategy.E.g. the fund-of-fund approach with professional private venture capital funds has a better risk-return profile. Define the exit strategy in advance !

• Broaden scope cross-border if possible.National initiatives are often limited to operate within a national context. This constraints the market conform business model of venture funds. Stimulating pan-European approaches could tackle this constraint.



External Due Diligence of

fund by Advisory Committee

Global set-up of the Dutch Seed Capital Scheme fund-of-funds structure

TechnoPartner Seed Capital

fund

Techno-starter

Techno-starter

Techno-starter

Techno-starter

Techno-starter

Techno-starter

Techno-starter

Private

investors

Risk capital

Management costsGovernment

‘loan’/co-

investment

Cash flow share

Investments through equity or mezzanine.

Cash flow share


Seed Capital Financial Engineering

Pay back ratio´s Period A Period B Period C in [%] - Private limited partners 80 % 50 % 80 % - Government 20 % 50 % 20 %

‘Cash in’ ∑ cash flow [mln€]

∑ Cash flow Nederlandse staat

∑ Cash flow to private limited partners

5

‘Cash flow based risk sharing approach’ - maximum of 50 % government funding- simple example of a € 8 mln fund- € 4 mln from private limited partners and € 4 mln from government

0

4

∑ Cash flow [mln €]

1

11

7 ∑ Cash flow to Government


Dexel

Economy & Finance

real market

risk capital

innovation proces innovation

new dutch innovation

dutch seed capital funds

public intervention

finance sector

seed capital scheme