The Scale Lab Special: 2021 wrap-up & lessons learned with Constantijn van Oranje & Joe Wilson

Joe [00:11:05]: I think from a money perspective, it seems to be both too complicated to be an investor as well as it seems to be too conservative to be a founder – you’re negotiating valuations & your round in a twice more complicated way than you’d need to – when compared to US or Israel. They’ve found their way to simplification at least within the early rounds. Investors at the same time try to push the valuations down, so there is almost a combative situation there between investors and founders. Just to give an example without giving any names, there have been at least 5-6 companies in the last 6 months who were hesitant to raise money in the Netherlands. They much want to go for UK & US investors because – 1) they will get better valuations; 2) they’ll be getting more money continuously, round after round; 3) they think they will get a fairer deal. While the first 2 are accurate, for the third one – I am not so sure if it’s fairer or less fair. But there is a specific perception there that Dutch VC are making it too hard to raise money in the Netherlands.

Constantijn [00:12:42]: Agree. I also think it has to do with maturity and supply & demand –  demand for capital & limited supply. Also, there is a lot of competition from funds & VCs outside the Netherlands, which will drive better service & terms of getting investments in the long term. What we hear a lot is that investors want a lot of control. Data shows that early rounds are relatively small, though the volume of investments has been continuously rising. Therefore, the largest share of the money is being raised in the later stages. A lot of the founders are made to be looking beyond their local investors. The limited supply of investors in some parts of the country and the terms applied have created an environment where people feel that venture capital is a bad thing. So they will shy away from even having capital conversations because they don’t want to give away control. They know that investors want board seats in the company instead of supporting founders. However, I don’t want to generalise here, as I also don’t know the situation in other countries. I assume a lot of this stuff is out there in other countries as well.

One thing is clear – we need to identify those practices that you do not want to experience – both as an investor and a founder. I remember during our podcast with Pieter van der Does, he said that the terms are more important than the money. You have to enter into a good relationship with your investor and know that you’re aligned on the shared purpose, otherwise, it will cause a lot of stress. We saw founders that were unhappy with the investors’ terms but still went for it for the money without thinking about the consequences and the next rounds that they are going to raise. I really do think that more learning is needed from the founders’ side and more responsibility from the investors’ side.

Joe [00:16:44] I think founders need to be smarter about it. You cannot just go into your series A without knowing your investment bread and butter. There is a lot of information online, just go to the Y Combinator website and you’ll get insights from A-Z, such as signing safe agreements, valuations, etc.

Constantijn [00:17:08] Absolutely! But a lot of that knowledge comes from experience. ‘You own your board’ is what a lot of our podcast guests, who are the more experienced entrepreneurs, would say.