© Jochem van Hattum

XYZ Dynamics is working on a solution that allows existing commercial vehicles to drive completely emission-free in city centers. For this purpose, a modular electric powertrain is added to the vehicle’s existing internal combustion engine. A nice and welcome solution within the generally still rather conservative automotive market, especially now that more and more inner cities are becoming forbidden territory for diesel traffic. Alex Pap, the CEO of XYZ Dynamics, was therefore at an advanced stage in the talks with an investor who saw the potential. But then Corona came along and that investor – like many others – adjusted his focus. The result: the further development of XYZ Dynamics was in immediate danger.

More on XYZ Dynamics here

Alex Pap, XYZ Dynamics

“Of course, it was a setback that this investor put our conversation on hold,” says Pap. And so alternatives had to be devised. “We looked at our own cost structure first. We talked to the landlord, the Automotive Campus in Helmond, we had to let a few people go and submitted a reduction in working hours”. In addition, Pap was one of the first companies in the region to apply to the BrightMove fund, an emergency facility that the municipality of Eindhoven, Brainport Development, and Rabobank, together with several partners, have set up to help startups survive the Corona crisis.

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Paul van Nunen

According to Paul van Nunen, Director of Brainport Development, XYZ Dynamics is a typical example of a young company that could be helped from the BrightMove fund. “It’s so important that we use everything we can to make sure that this kind of company doesn’t collapse. We are a high-tech manufacturing region. Not only do we design things up here, but we also build them. The advantage of this is that, through this industrialization, you end up creating a lot of jobs in this region, at all levels of education. And those startups give a lot of dynamism to that. Maybe Alex will be the next ASML in 15 years’ time, who knows. Still, you have to be honest: not every startup is going to make it, but if you don’t start with 100 startups, you know for sure that you won’t end up with that one big company – and that would mean that we have a problem with employment in the long run.” And it’s not just about employment. Van Nunen: “These companies – and we see a lot of them in this region – are working on the necessary societal transition. Ultimately, you can also exploit and export their products, so it also means something to the earning power of the whole country.”

The Brightmove fund is certainly not the only one available. Nevertheless, there was a need to supplement the existing emergency arrangements, says Van Nunen. “Many of those schemes provide compensation for loss of sales. But a lot of these startups – many of them in very important markets – have no turnover at all. They are still building their company. We saw that these businesses would fall between two stools, just when it is so important that they could continue to pioneer for a few more years.”

In order to give the fund – with a treasury of 1 million euros – real strength, the participation of a bank was essential. Gerard Zwartkruis, director of businesses at Rabobank Regio Eindhoven, did not have to think long about this: “After Alderman Stijn Steenbakkers of the Municipality of Eindhoven and Paul van Nunen came to us with this idea on behalf of Brainport, it quickly became clear to us that this could offer a nice addition to all the other solutions we already offered. This emergency fund really meets the need of the moment. With benefits of between fifteen and thirty thousand euros per case, we can help many startups.”

Bridging the gap

Gerard Zwartkruis

The fund offers a ‘bridging’, both for the applicants and for the bank itself. Zwartkruis: “We’ve all done quite well in this region in recent years, but the crisis is ubiquitous at the moment. We don’t know what’s yet to come, but we do know that all we can see now is the tip of the iceberg. So we expect that even after this bridging period there will continue to be a need for opportunities to grow. We are ready for that as well.”

Every effort has been made to keep the implementation of the scheme as easy as possible. “Of course, as a company you have to show that you are doing everything you can to put things in order, we’re really not going to bring good money to bad money,” Zwartkruis emphasizes. “But apart from that, we realize that something has to be arranged quickly now, so we remain pragmatic.” Alex Pap noticed that, as well. “The whole procedure was actually not so bad. We quickly wrote a plan. A week after the submission, we were already at the fund’s negotiation table; with a virtual pitch in front of a committee of evaluators, we were able to demonstrate that we would make good use of the money and a week later, the requested amount was in our account.”

Meanwhile, Alex Pap looks to the future with optimism, especially because his company has an essential solution for the transitions we are facing. “We talk a lot with companies that want to support us in this. Maybe not right now, but in a few months they certainly will.”

Sustainability

That is also what Gerard Zwartkruis focuses on, in the choices he makes with Rabobank. “We look at the innovations that contribute to the transitions to a sustainable living environment, for example in the field of energy and circularity, but certainly also in healthcare and Medtech. There are so many young businesses that have good ideas about this and I think that we should continue to encourage that kind of entrepreneurship, it’s crucial. But we are well aware that high tech also means high risk, a lot of things can go wrong. So you have to keep looking critically at the startups you want to support. We’re not going to throw money over the bar, we’re being frugal about that. But there is always money for a well-founded story”.

Part of the support will also have to come from the national government, says Paul van Nunen. “The activities we are talking about are contributing to our national earning capacity, to broad employment, and to the transformational steps we need to take for society right now. Our government needs to understand that out of 100 startups, 90 are going to fail. But the 10 that do succeed are desperately needed for our future. So there’s high-risk money there anyway, which you won’t get a quick return on investment with because of that unprofitable first part.”

What also plays a role is that the high-tech manufacturing industry is quite different from the soft tech we know from, for example, Silicon Valley, or closer to home, Amsterdam. Van Nunen: “I’m finding out more and more that the word ‘tech’ is causing us problems. Because what do people think of that word? They think of Airbnb and Uber, and the other large tech companies from Silicon Valley that are so interesting for many investors because of the lower investment costs with faster turnaround times and tons of upscaling possibilities. But the work that a company like XYZ Dynamics does – and so many others here in the region – is much tougher. You have to assemble machines, have long lead times, and much slower upscaling capabilities. In short: if you want to stimulate this kind of societal transition, you have to accept that there needs to be government money to support it.”

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Author profile picture Bart Brouwers is co-founder and co-owner of Media52 BV, the publisher of innovationorigins.com.