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
- 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.
Startups have different needs to SMEs.
- 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 Netherlands as a destination for international 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.