Martijn Koerts, marketing manager of InnoEnergy in Eindhoven (an organisation that invests money from the European Commission and private financiers in innovative start-ups in the energy field) is on the phone a lot these days. Children’s voices sound in the background as Koerts is working from home. Like most employees, he’s trying to avoid being infected with Covid-19.
He is doing fine. But the question is how are the 250 start-ups that InnoEnergy invests in faring? “We are now taking stock of their problems. We’re phoning them all. We started that last week. But we don’t have a clear picture yet since the problems can vary a lot from one start-up to the next.”
Koerts cites several examples. “Since yesterday we know that the Dutch government’s measures which have partly shut down social life and hence the economy, will be in force at least until June the 1st. This has huge consequences. For example, all festivals have been cancelled until then. That’s a setback for a start-up like Wattsun who we have invested in. It supplies batteries for sustainable electricity on location, like festivals. You can imagine that this is bound to have an impact.”
Another example. “Some start-ups make portable solar panels. I heard that one of our start-ups hasn’t received any panels since January because production has shut down in China. It hasn’t been able to deliver its product to its customers. One more example. The manufacturer of a new type of heat pump in which we are investing is in the middle of the certification process for their product. This is now being delayed because of the current situation. This means that it will take longer for this product to reach the market.”
As soon as Koerts has an overview of the stumbling blocks that risk causing start-ups to run into or who already face financial problems, InnoEnergy will seek out solutions. “Those start-ups are our new, sustainable economy. We don’t want that to slip away.”
Financial problems within three months
The picture painted by Koerts corresponds with the figures published last week by Techleap. This is a Dutch organization that supports innovative start-ups who are developing scalable tech products.
This report reveals that 445 start-ups surveyed by Techleap foresee financial problems practically across the board. Half of them say they will need between €100,000 and €400,000 within one to three months in order to be able to continue. One third say they have problems due to cancelled orders. And another third are seeing investors withdraw, which means that they are more or less running into acute financial problems.
Why is this happening? “Start-ups have no fat on their bones, so to speak”, says Arjen Strijker, co-founder of Fundsup, a platform that links start-ups (according to Strijker, defined as “scalable companies younger than five years old”) to investors relevant to them who, in addition to capital, also provide advice on the company’s development.
Most start-ups spend a large part of their time arranging funding. Moreover, a great many of them are not yet generating any turnover as they are still in the process of developing their product. Therefore, they are in immediate trouble if no more money is coming in from investors.
Extra support measures
Techleap’s initiative to enter into talks with the Dutch Ministry of Economic Affairs and the state investment fund, Invest.nl, that was announced in the Dutch newspaper Financieele Dagblad, is something that Strijker wholeheartedly welcomes. According to an initial report, the talks concern the Dutch government guaranteeing up to 75 % of the capital that an investor invests in an innovative start-up. There are also discussions about financing start-ups with up to 75 % of the capital they need. The remaining 25 % would then have to come from a private party.
Angel investor Steven Jongeneel: “Right now, I’m really seeing a lot of pain amongst start-ups.”
The problem with the proposed measures by the Dutch government is that at the moment, it is unclear how they will be implemented and when the money will be credited to the bank accounts of the start-ups, says Steven Jongeneel. He is an angel investor who is affiliated with the Fundsup platform and has thus far invested in six start-ups. “The Netherlands is a wonderful and kind country. All the measures announced by the Cabinet are excellent. But right now, I’m really seeing a lot of pain amongst start-ups. Some start-ups are doing tremendously well. Like a start-up I spoke to whose employees are prepared to put off their holiday in May until December. They will probably make it. But not all start-ups can do that.”
Hope of recovery in the third and fourth quarters
Jongeneel can understand that investors are now reluctant to step into start-ups that are new to them and instead prefer concentrating on those start-ups which they have already invested in. “Everyone is looking out for themselves and waiting to see what’s going to happen. I spoke to a bank today. Over there, they think that we’re going to be dealing with the corona crisis for another two or three months. And then that we’ll make a U-turn and simply have a good third and fourth quarter. Because the economy itself is healthy and there is no underlying problem. Also, you can’t immediately start transferring money because most investors are involved in multiple start-ups. So first you want to see how they are all coming along.”