‘The Netherlands has too few funds with deep enough pockets and the right knowledge’

By Aafke Eppinga

Yesterday, EFFECT Photonics announced that it raised a Series D funding round of $38 million. Innovation Industries led the investment: an Amsterdam-based European venture capital fund investing in impactful deep-tech, focusing on sustainability and scalability. Enough reason for a conversation with Nard Sintenie, co-founder of the fund, about the state of the investment climate in the Netherlands, the hoax of a lack of funding for young companies and unicorns. 

Anyone sitting across from Sintenie cannot help but notice how passionate and enthusiastic he is about the Dutch deep-tech ecosystem. “As an investor, I have learned two things. One: the Netherlands is bursting with raw deep-tech diamonds, but many tech entrepreneurs are unconsciously inept at telling their stories to non-techies. Two: you have to value young deep-tech companies based on their technology, not their sales and profits. So that requires knowledge about the technology and the industry. BOM is pre-eminently a party that has this knowledge.”

Let’s get straight to the point. How do you look at the current Dutch investment climate for the deeptech sector?

“Well, I’m really very hopeful. Look at ten or five years ago. Back then, it was common for promising start-ups to not find financing. Now that is no longer an issue, partly due to the work of BOM and the Dutch government. Huge strides have been made. We can all whine about how the National Growth Fund needs to be implemented better, or that Invest-NL is not performing well, but in Belgium, for example, they are jealous of how our government is shouldering the burden of deep tech.”

Still, the idea that there needs to be more money for early-stage deep tech resonates…

“That is simply not true. There are many regional investors who are willing and able to invest in early-stage deeptech. The problem is that their clout is often too limited, making funding in the scale-up phase difficult. Take the scale-up semiconductor and photonics companies. There we are talking about funding rounds of around 50 to 100 million euros, while these companies still have relatively little turnover and are dependent on financing. This applies to deep tech: much funding is needed before significant sales (and later profits) are made.

Look at EFFECT Photonics or Smart Photonics, for example. Innovation Industries and the BOM have been involved with these companies from the early stages. Both are about to break through – one with communication modules based on integrated photonics, and the other holds all the cards to become a central production facility in Europe for photonic chips. Smart Photonics’ latest round of funding was one hundred million euros, while the company is still in a build-up phase and making relatively little revenue. In building up such a photonics production facility, you have to take a long breath, but in the end, they are of enormous added value for the Netherlands and Europe; the whole ecosystem benefits from that. It’s very motivating to be able to help roll out those technologies.”

And Dynaxion? This Eindhoven-based company had everything it needed to revolutionize scanning systems. It went bankrupt because it couldn’t get financing for the prototype. We called that the “classic deep-tech dilemma of the Netherlands…

“I disagree. Dynaxion developed a unique technology, but its defensibility, for example, needed to be more robust for us. There are roughly two groups of investors for these kinds of young companies. The first group, of which only a few, appreciates these companies. They look at the unique technology in conjunction with the market, can make sense of it, and set high standards for defensibility. Among other things, through patents. That defensibility is essential. Otherwise, large corporations with more funding power could pass such a company by.

The second group values the young company by examining the numbers and commercial rollout. For them, prospects for shorter-term revenue growth are more important. Dynaxion fell between the cracks in that respect. That’s not necessarily a good representation of the Dutch deeptech ecosystem. As far as deeptech is concerned, the funding gap is more on the scale-up side than the start-up side.”

Innovative Dutch firm Dynaxion folds despite groundbreaking tech – exposing deep-tech’s big funding issue

Dynaxion Security has been declared bankrupt. Despite the potential to revolutionize material identification, the company struggled to secure the necessary funding for a pivotal prototype.

There is no shortage of promising deep-tech innovations, yet deep-tech unicorns are failing to materialize. What needs to happen to facilitate those large-scale investments?

“There should be more funds like Innovation Industries; I wish we had more competitors. We must consider financing options more flexibly, as private investment is one of many options. The option for debt, loans, or grants also helps. So we can make the ecosystem around deep-tech sectors stronger. Then, the unicorns will naturally follow.

Mind you, this is a European problem. For example, the whole ecosystem around deeptech started much later than that of life sciences. Companies also have to deal with very long lead times before money can be made. Think, for example, of drug development. But, a whole ecosystem of investors has already installed itself in this sector. Who knows: sometimes things fail, but the successes make up for everything. I see that ecosystem now emerging around deep tech as well. Although I must also confess: I do feel a particular rush. We need more deeptech unicorns in Europe. We have the technology, but these companies need more support. Asia and the United States are ahead of us.

To change this, we need more parties that understand what deep-tech companies need and can have this discussion. The BOM is one such party. Once upon a time, BOM was founded as a regional development company. With success. Thanks in part to their contribution, the region has developed well. However, the BOM still depends on private parties, and they should stay in the way of the market. If you ask me, they should get rid of that. They have grown into a big party with an awful lot of expertise. As an independent venture capital fund, they can help younger deep-tech companies even better.”