Why are tech startups so important and where does the Netherlands stand?

Technology and startups are reinventing the world, they are addressing some of the world’s biggest challenges and driving global transitions in various sectors. They apply cutting edge technologies like artificial intelligence, virtual and augmented reality and quantum computing. Startups also create more jobs, are more productive, grow faster and inject flexibility and resilience into the labour market. When we talk about tech, startups, and innovation, we mean the new economy and our ability to keep up internationally. The good news is that the Netherlands continues to catch up with the larger startup ecosystems that surround it, punching above its weight in relative terms. As the fastest growing ecosystem, the Netherlands ranks 3rd in Europe in the Genome ranking of global startup ecosystems and 12th in the world. To play big in tech means to stay competitive. But the USA and China increasingly dominate the world economy. How can startups accelerate the Dutch tech scene?

Through the Covid-19 crisis, the number of startups in the Netherlands continued to grow at a steady 6%, to almost 10,000. However, we see that startups in the Netherlands face barriers to scale. One of our major challenges is that less than 2% of all tech ventures get to the scaleup phase with over €10M in funding. The number of companies that go from being a startup (€100,000 to €10M in investment) to a scaleup (€10M+ invested) is 16% in the Netherlands, this number in the US is a staggering 51%. The difference is further compounded when you look at the average deal size with the Netherlands at €5.9M, Europe at €7.5M and the US at staggering 23.4M. We continue to gain ground in key sectors such as Healthtech with €425M investment (in 2020) and 25% conversion and Fintech with 26% conversion. Important to note is that the startup/scaleup conversion rate doesn’t tell the whole story of the Dutch startup ecosystem, but we have emerging industries we can continue to strengthen.

In terms of exits, the Netherlands has witnessed a steady rise in exits, with 137 in 2020, mostly by acquisition. If this trend continues, we expect an average 5% growth per year towards 2025. Compared to the larger startup ecosystems, the Startup Genome ecosystem monitor shows us that the total number of exits in 2020 was 4,4x higher in London compared to the Amsterdam-Delta area. In Silicon Valley this number was even 8,4x higher.

In terms of investments, 2020 was another record year with over €1.8 billion raised by Dutch technology companies. Despite the record year, the Netherlands still can’t compete with the larger ecosystems such as #1 UK (€14 billion). Also per capita, the Netherlands (€107) lags behind countries like Sweden (€289) and Finland (€189). In order to stay competitive, more capital is needed and ticket sizes must be increased. Also keeping funds raised in the country of origin is a challenge. Only 27% of the commitments to Venture Capital from Dutch LPs are to VC funds inside of the Netherlands, whereas in France and the UK this number is over 60% nationally. Another pressing issue is that the Netherlands lags behind Europe in Deep tech investments (investments in key technologies). Sadly with only 267M raised in 2020 the Netherlands sits at #7 in Europe, raising only 26% of what French deep tech companies raised. 2020 demonstrated the power of deep tech. Whether that’s the first mNRA vaccine created or OpenAI releasing a language model using deep learning to produce human-like text. And 2021 is expected to produce many more of such breakthroughs. 

Beyond capital, the lack of diversity in the tech sector remains a big challenge. To cover one area, the Netherlands has the highest number of male employees in relation to one female employee compared to the rest of Europe (4.9 in NL vs. 3.8 European average), especially when it comes to tech jobs (such as Software Engineer, Product Owner, and Growth Hacker). Research by McKinsey and others shows that a more diverse ecosystem is a more productive ecosystem. This is an important reason to promote equality, diversity, and inclusiveness. Ensuring diversity within companies remains a huge challenge in the Netherlands. The technology sector is predominantly white and male. Alongside this, we see only 12% of founders are female, with them receiving a meager 2% of all Dutch VC capital invested in NL, which also comes as no surprise when we see that 94% of Dutch partners at VCs are male. That means we’re leaving a huge portion of the population at the table, and not utilizing all the talent the Netherlands has to offer. If we are to further compete on a European level, this needs to change and needs to change fast.

So where does this leave us? We know that the Netherlands is full of startups across all sectors. If those companies are going to fulfill their potential, they need to scale. When these companies succeed, we all succeed – when startups grow they create jobs, drive the economy forward and change the world for the better. The Netherlands is ready to scale its ecosystem, we all need to work together to make it happen. Techleap.nl and partners suggest taking the challenge head-on in 2021, more information can be found in the Techleap action plan 2021. Let’s do this together since collaboration is key!