The state investment fund Invest-NL, alongside pension funds and other investment funds, wants to explore the possibility of setting up a fund of funds, which could reach a size of between €600m to €1bn in the not too distant future.
The money is supposed to help scale-ups – which are successful startups that have entered the next growth phase and need a lot of money to do so – grow into fully-fledged companies in the coming years. Invest-NL plans to pour the first €200m into the fund.
Invest-NL announced its plans on Monday on the sidelines of a dinner at the Level Up 2024 start-up event in Eindhoven, the Netherlands. The meeting, in which many pension funds participated, was an initiative of Brabant Development Company (BOM) and PME, the pension fund for people working in the metal and technology sector.
Pension funds to receive guarantees
In order to win over pension funds, Invest-NL is willing to partially hedge return risks via guarantees through a fund of funds vehicle, which is yet to be set up. Besides Invest-NL, corporate and industry pension funds, development companies and private parties may also take part. The fund of funds vehicle can strengthen private impact funds.
The current Dutch cabinet, led by Prime Minister Dick Schoof, announced in its budget that Invest-NL would receive an additional €900 million until 2029, which will allow the fund to boost its firepower. The extra funds are meant, among other things, to help startups grow into scale-ups.
“It’s all still premature,” said Rinke Zonneveld, chief executive officer of Invest-NL. “Yet we are noticing a growing willingness to invest in this. We could for example put €200m into the fund: €100m as venture capital and €100m to remove return risks for pension funds.”
‘Cold feet’
Many pension funds are reluctant to deploy their assets as venture capital. After all, products made by early-stage technology companies still need several years to become profitable and yield returns. Therefore, they often do not meet the risk-return ratios used by pension funds.
Zonneveld understands this reluctance. “They still have cold feet when it comes to investing in startups and scale-ups, because it is an asset class that has a lot of volatility.”
Pension fund PME has already invested, through various funds, including those of tech investor Innovation Industries, a total of €260m in deep tech: startups focused on chip technology and photonics, for example. Innovation Industries’ first fund has achieved an average annual return of 15% since its launch in 2017.
“Our investments have done us no harm,” said Eric Uijen, chairman of the executive board at PME. “The other metal fund, PMT, has followed us, but we see that other funds are still cautious. We have paved the way and have already gained a lot of knowledge and experience that we can share. There is now a track record.”
Lots of expertise
Regional development companies also have expertise in investing in and guiding early-stage companies, said BOM director Brigit van Dijk-van de Reijt. “As regional development companies, we have a good set of instruments, and with a total of €2.6bn we are the most active venture investor in the Netherlands,” she said. “’Despite the high risks, we achieve positive returns. But more money is needed to help impactful companies advance to the next stage in their development.”
According to Invest-NL’s Zonneveld, pension funds have long since stopped looking purely at the best returns, but are now also looking at impact. “They are quite willing to invest in the Netherlands as long as participants get a value-proof pension,” he said. In March, [Dutch pension funds] ABP, PFZW, PMT, BpfBouw and PME said they wanted to invest “billions of euros” in the energy transition, particularly in the expansion of heat and electricity networks.
Innovation gap
Zonneveld refered to a report by [former European Central Bank] boss Mario Draghi on the lack of competitiveness in Europe. “To close the innovation gap with America and China somewhat, we in the Netherlands also need to invest substantially more.”
In a response, civil servants’ pension fund ABP said it wanted to invest in innovative companies in the Netherlands to help them grow further. “We are in favour of a fund in which pension funds, development companies and private parties participate in addition to Invest-NL. This would be a nice interpretation of blended finance of public and private money.”
This article originally appeared in Dutch business newspaper FD on 1 October, 2024.
