Felix Zwart: Venture capital is a long game

January 28, 2025

_{This column was originally written in Dutch. This is an English translation.}

By Felix Zwart, Director of Research & Policy at Nederlandse Vererniging Participatiemaatschappijen (NVP)

Dutch startups raised an impressive €2.3 billion in investments in 2024, a 23% increase compared to the previous year. This shows that, despite economic challenges, there is still plenty of capital available for innovative companies.

Series B+ investments - aimed at mature startups - showed particularly strong growth, rising by over 50% to €1.7 billion. Larger players dominate this segment, where a small number of transactions account for a significant proportion of the total. Institutional investors, such as pension funds, are also showing increasing interest in venture capital (VC): in 2024, Dutch pension funds invested at least €400 million in VC funds, a strong growth compared to previous years.

Yet behind these positive developments lies a more complex reality. The total number of transactions fell by 18%, and the picture remained especially worrying in the early stages of funding. Smaller investments below €1 million fell sharply, partly because business angels pulled out. This not only affects early-stage startups, but also threatens the innovative strength of the Netherlands, as early investments form the basis for future scale-ups.

Looking specifically at VC funds, we see a pattern in the Netherlands that is recognisable internationally: the polarisation between ‘haves’ and ‘have-nots’. Large and focused funds raise a lot of capital - think of the €1.2 billion life sciences investor Forbion raised for its Growth Opportunities Fund III - while other, less specialised parties and new entrants struggle. Part of this tension can be attributed to the interest rate environment. VC funds that rely on high net worth individuals (HNWI) are particularly struggling. These private investors increasingly seem to be taking a wait-and-see approach.

Another striking point is the growing amount of ‘dry powder’: uninvested capital available to VC funds. While at first glance this seems positive - after all, there is plenty of money available - it also conceals a risk. The fact that this capital is not deployed indicates reluctance among VC funds. Rather wait to invest for a while than make a bad investment, the logic goes. This is the strength of the VC model, but for startups it means a longer and more difficult search for funding.

What offers hope for the future?

The exit market in private equity looks set to boom in 2025, which could also have positive implications for VC. Successful exits from VC funds will boost investor confidence and provide needed liquidity. This will be a particularly welcome development for HNWIs.

In addition, the structural need for innovation remains high, driven by challenges such as climate change, energy transition and developments in deeptech and life sciences. This is where European institutions such as the European Investment Fund and Invest-NL play a crucial, driving role.

Historical returns also point to an important lesson: investing consistently through the cycle, even in times of economic headwinds, ultimately yields the highest returns. VC funds established in the aftermath of crises, such as after the dotcom crisis or the financial crisis, achieved above-average results. For example, an Invest Europe publication shows that European VC funds founded in 2004 and 2011 achieved an average IRR of 13% and 37%, respectively. This highlights that the strength of VC lies in patience and a long-term perspective!