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There are various types of equity financing available to Dutch entrepreneurs. However, the term equity financing is a catch-all term that can refer to a few different things.

Here are some of the more common types of equity financing you might come across in the Netherlands, and how each of them works. Each entrepreneur has different needs, and so it is up to you to determine what is the right type of financing for your business.

What is Equity Financing?

When it comes to defining equity financing the simple explanation is that equity financing is a process where a person raises capital in their business through the means of selling stock or part ownership of that company to another in return for a financial contribution.

Simply put, equity refers to the ownership of an asset, such as a business. So, entrepreneurs can sell part of the equity of their business to a third-party to raise capital. Typically, the value of equity is the assets minus any liabilities or debts that the business might have. However, an entrepreneur could also technically sell a part of the equity of a business idea, that is still in the planning phase, so the equity doesn’t necessarily have to be classed as a tangible asset. Here, tangible assets refer to physical things that are owned as part of the company, including cash.

Ways to Use Equity Financing

When an entrepreneur first launches a business in the Netherlands, they will need a certain amount of money to get the business going. This is called seed Capital. Sometimes an entrepreneur will look to fund this themselves, but for many individuals without the luxury of having a lot of money to invest in their business, they will look to equity financing to fund this. Seed capital is often referred to as the first round of financing.

Because seed capital funding usually occurs in the first stages of a new business, perhaps where the project has yet to begin angel investors usually play a key role in this stage.

The reason for this is that angel investors are typically attracted to business investments that have a higher risk and reward. Because of this seed capital investments tend to attract these investors more so than other types of investors, such as Venture Capitalists. When it comes to venture capital, the decisions to invest in a business usually are group decisions and will usually require an evaluation of activity to date, such as reviewing the financial data and performance of the company.

Generally, seed capital is not a large amount of money, but it is usually slightly higher than basic grants from the Netherlands government, or personal loans from the bank. You can expect this type of equity financing to fall within in the 10-30k range.

Equity Financing Using Venture Capital

For Dutch businesses that are already running and are profitable, then the next equity financing step is used for growing the business. Often an injection of cash is required to do this effectively. Angel Investors still play an active step in this role, however business owners may also start to see Venture Capital firms pay interest in a business at this point.

When venture capital firms invest in a business this typically involves significantly more money and virtually always requires the investors to be involved in part of the overall running of the company and its decision-making process.

The average financial amount for this step is often in the 6 figure range and is invested as a type of Private Equity. So again, the business owner relinquishes some part of the ownership in their company.

When an angel investor comes on board at this stage, they may also wish to play an active role in the running of the company, but this is not always the case. Just as often angel investors will want to remain on the side-lines and let the founder run the company as they wish.

When it comes to growing a business via VC funding the overall aim is that the investors will generate a good return via the growth of the company. Long term the overarching goal will be to work towards the Initial Public Offering (IPO) of the company on the Amsterdam Exchange (AEX). Venture Capital Investments are usually made in exchange for a percentage of the company's shares, which will provide a strong return on investment if the company is successful.

How The Netherlands Investment Network Can Help

Dutch entrepreneurs who are looking for equity financing for either seed capital or business expansion can leverage the Netherlands Investment Network to help finance their business.

Signing up to our network allows angel investors in the Netherlands to find your business and evaluate it to see if they are interested in investing in it. One of the benefits of the Netherlands Investment Network is that it is a global enterprise, so often investors for your business will come from outside the Netherlands. Since the network is available worldwide you will have the ability to leverage this reach to attract global investors who are looking to invest in a Dutch business or enterprise.

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