If you’re a brand-new Dutch entrepreneur with a great business idea you might have heard the term ‘seed capital’, but what exactly does this mean and how do you obtain it?
Seed capital is a phrase that simply explains the initial money that you have to start a brand new business. The way many founders find their initial seed capital is from their own personal finances. Basically, from savings or from close friend and family that are willing to lend you money.
Unfortunately, not everyone has access to savings or friends and family to help them out, so they need another source of money to start off. Some entrepreneurs will put their initial business expenses on their credit cards, but this isn’t a great idea since most people’s line of credit is quite low and the interest that you have to pay back is typically high.
The next port of call for many entrepreneurs in the Netherlands is a traditional bank. Unfortunately, unless your business has a solid foundation and is already trading you’ll not likely find the banks that open to lending you money, outside of a personal loan, which most entrepreneurs would prefer to avoid since it makes better sense to split your personal finances away from your work ones where possible.
If you’re a Dutch entrepreneur looking to start a business in the Netherlands, and maybe open an office, store or manufacturing facility in and around one of the major business trading hubs in the country, such as Rotterdam, Utrecht, Eindhoven or Amsterdam, you are going to need a fair bit of money for rent. Unless you can work from home and start your business with minuscule start-up costs most businesses will need some kind of seed capital to start trading.
More than this, the seed capital needs to be sufficient to keep trading for a while because most brand new businesses have a period of time, which can go on for months and even years where they are not strictly profitable.
The good news is that even if all other lines of credit and finances are closed off to you as a new business there is one group of people who look to fund start-up businesses and provide seed capital, when nobody else will. This group of people are private investors, also known as angel investors.
What is an angel investor? An angel investor is a person, or group of individuals who look to invest in start-ups and fledgling businesses and to provide seed capital and finances to facilitate business growth. The way this works is that the entrepreneur typically gives up a share of their business ownership to the angel investor, who in return provides the finances the entrepreneur needs to launch their business idea.
Angel investors are less risk adverse than banks and traditional financial institutions which provides a valuable opening for entrepreneurs with great ideas, but that have limited access to capital.
Angel investors will not invest in just any business in the Netherlands. They will need to see a business plan and they will expect to see some evidence that the project or idea you have is viable and can make money.
In return for a stake in your Dutch business, there are some other potential benefits to using an angel investor. This is especially so if you are new to entrepreneurship and are inexperienced. This is because some angel investors like to take an active roll in the businesses that they invest in, and this means that they can provide advice, help, support and even mentorship to the business. This isn’t the case for all investors, some prefer to remain as a silent partner, but for some entrepreneurs, an angel investor can be a valuable asset for not only finance but for their experience.
If you’re an entrepreneur based in the Netherlands and are looking for seed capital for your start-up the Netherlands Investment Network can potentially help connect you with investors looking to finance businesses and ideas just like yours. Not only could you find an investor close to home in the Netherlands but because our Investment Network is a global enterprise you could also attract investors from overseas and around the rest of the world.