How the Dutch government helps startups to scale-up faster

Marcel Vos works for the SME financing unit at the Netherlands Enterprise Agency, RVO. Based in Eindhoven and The Hague, he is specifically focussed on helping startups and scaleups in the Brainport region. He explains that the goal is to increase awareness of relevant source of financial support, including innovation credit, proof of concept funding, R&D tax credit and credit guarantee schemes.

Why innovation by small companies is key to Europe’s competitive edge

Continuous research by the European commission shows that small and medium-sized enterprises (SME’s) are found everywhere and their numbers are much higher than most people expect. Together, they turn out to be a significant driving force of the European economy. The expansion of European SME’s into international markets is an important EU policy objective.
 
There are good reasons behind this: In 2014, for instance: 
 
  • SME’s accounted for 99.8% of all enterprises in the non-financial business sector in 28 states of the European Union. 
  • SMEs employed almost 90 million people – 67% of total employment, and generated 58% of the sector’s added value. Almost all SMEs (93%) are micro SMEs employing less than 10 people. 
 
The Dutch government's policy for entrepreneurs is two-fold. It aims to strengthen the Netherlands’ position as one of the world’s top five most competitive economies. They also want to increase spending on research and development to 2.5% of the gross domestic product (GNP) by 2020. 
 
“Over the last year, there has been a lot of lobbying work to boost the startup community on a national level” explains Marcel. “Just look at the work by Startupdelta, High Tech Campus Eindhoven, accelerator programs like HighTechXL as well as various sectors of the Dutch government including the Netherlands Enterprise Agency (RVO). All parties recognize that startups need special attention if they are to succeed.”

Startups have different needs to SMEs. 

Startups and SME’s may be similar in size, but their needs are different. So although most startups are classified by governments as an SME, not every SME qualifies as a startup. That’s especially true in the high-tech hardware companies in Brainport Eindhoven. Here’s the essential difference: 
 
  • Established SME’s are usually executing a known business plan, even though they may be doing it in new and innovative ways. The market is already defined by others, as are the metrics to explain success.
  • Startups are still searching for a repeatable, scalable business model, exploring untrodden paths with software/hardware that still needs to be proven. The path from idea to scale-up manufacturing can be anything from 3-10 years, depending on the complexity of the technology. 

Assistance is at hand

“The Dutch government, through the Netherlands Enterprise Agency (RVO), may be able to assist.” continues Marcel. “For instance helping to bridge the financial challenges that often occur in the early phases of startup acceleration. It’s important to point out that the government can never fully subsidize or financially support a startup. The trend in the Netherlands in recent years has always been to require private parties to also be involved from the start.”

The Netherlands as a destination for international startups

Founders originally from outside the European Union can also contact RVO for advice on startup visas. New regulations introduced in 2015 now makes it possible for international ambitious entrepreneurs to apply for a temporary residence permit for the Netherlands. The so-called “residence permit scheme for start-ups’ means that founders are given one year in which to launch an innovative business. A prerequisite is that this start-up must be guided by an accredited mentor (facilitator) that is based in the Netherlands. That list includes HightechXL, the prime hardware accelerator based on the HTCE Strip. 
 
Under this scheme, new international start-ups launching in the Netherlands are offered relevant support to grow into an established enterprise. This scenario is not only beneficial for the entrepreneur but also creates a solid foundation for job creation and economic growth in this region. There are publications on line, such as Ambitious Entrepreneurship which outline how the Dutch government is supporting the startup ecosystem.
 
Marcel explains there are other schemes that may be relevant to high-tech startups:
  • 1. Credit Guarantee. “Several Dutch banks participate in the government's SME Credit Guarantee Scheme [the Dutch call it the BMKB scheme)]. For example, if you qualify for a start-up loan of up to €266,667 from one of these banks and you don’t have sufficient collateral, the Dutch government will act as guarantor for 67.5%. If you can show you need access to more substantial funds, you may be eligible for the regular credit guarantee scheme, which is 50% (or 60% for innovative startups), with a maximum ceiling of € 1,5 million. These credit guarantees enable your startup to borrow more than would otherwise be possible given your collateral.”
  • 2. Proof-of-Concept Funding. “We often see that startups spend a lot of time focussed on proving their idea and technology will work, but have not talked enough to customers to validate that they have product-market fit. If you're running a start-up that has been founded in the Netherlands, you may be eligible for Proof-of-Concept Funding to help accelerate early phase development of minimum viable products, conducting market research to validate customer interest or to draft and validate a business model to convince interested investors. The investor(s) must have the intention to finance the next stage after completing a positive proof of concept stage.”
  • 3. Innovation credit. “The innovation credit scheme from the Ministry of Economic Affairs gives SMEs financial support for high-risk innovation projects. In this way the Government fills the gap in the capital market in a phase where entrepreneurs are busy setting things up, but are not yet generating returns. Let’s say you have an innovative idea that has been validated. As a founder, you want to explore opportunities for a new product in the market. You have the knowledge, vision and ambition, but you lack the financial means to do so. You are looking for a partner who wants to invest in this project that is shows promise but also involves high risks. The Netherlands’ Ministry of Economic Affairs can help you by supplying a direct loan that enables you to finance part of the project development costs. There are some points will be checked to see if your company qualifies for this scheme. For instance, projects need to technologically innovative and unique to the Netherlands, Bonaire, St. Eustatius and Saba. You will also need to explain the technical challenge involved in some detail and to execute the project systematically following a plan. The technical feasibility needs to be independently established and all activities up to and including the testing of prototypes must be able to be supported. The percentage of credit provided by the government depends on the size of company. Smaller startups, for instance, can apply to cover up to 45% of the development costs which include salary costs, materials, depreciation, travel costs and costs for patent applications.”
  • 4. Research & Development Tax Deductions. Startups usually need to carry out research and development work, perhaps to turn a prototype into a product which can be manufactured. That is often not an easy route, and involves solving technical challenges. In that case, you may be eligible for R&D Tax Credit (called the WBSO in Dutch). The WBSO scheme allows your startup to claim a payroll tax reduction for the people assigned to the R&D work and lower other R&D costs. Self-employed professionals spending at least 500 hours a year on R&D for your startup can deduct a fixed amount for R&D when filing their income tax return to the Dutch Tax and Customs Administration (Belastingdienst). The R&D-development-project must meet certain conditions before you can apply for the Tax Credit. The proposed R&D activities should take place with your own company and the technological development is new for your organization. This development needs to R & D solve technical challenges and work on solutions has not yet started. In order to qualify for these deductions, the Netherlands Enterprise Agency (RVO) needs to determine and verify the costs and expenses that are directly attributable to R&D. The Agency offers several publications in English which explains the guidelines in more detail.

New Initiative for 2016: Tailor Made Advice for startups

Many SME’s in the Brainport region of the Netherlands already tap into these schemes to help boost their business. But the High Tech Campus Eindhoven, the Brabant Development Agency, Brainport as well as major banks have realized that the schemes to help startups registered in the Netherlands are not so well known. Many of the incentives are new or have recently changed.
 
As well as making more of their publications and tools available in English, RVO is offering personalized consultations. Marcel Vos is now on the High Tech Campus Eindhoven each Tuesday as part of the new VC Desk scheme. You will find him in building HTC 12, now known as HighTechXLPlaza. You can book an appointment with Marcel to discuss the journey your startup is making. He can help to explore the possibilities both within and outside the RVO schemes. Marcel has a financial and investment background and knows the way through the various procedures. The discussion is informal.  This service is offered free of charge, but please contact Marcel in advance to arrange a meeting. Remember your startup company will need to be registered in the Netherlands in order to qualify for the government support. 
 
We encourage you to reach out and make the maximum use of this new service. You can reach Marcel by email [email protected] He can also tell you about other RVO colleagues doing similar work in other parts of the StartupDelta region. Please mention that you read about the service on the Startupdelta site.