December 20, 2023

Why are angel investors so important in closing the early stage funding gap?

Angel investors play an essential role in the early, most risky, phase of a startup, providing much needed capital and expertise. However, the share of angel investments in early-stage investments is significantly lower when compared internationally. That is why we are looking into how angel investors can be incentivised. The current early-stage funding gap further highlights the urgency to act upon this now.

Despite reaching new heights in investments, early stage deals in the Netherlands have been consistently decreasing.

Dutch startups and scaleups have been raising new heights in fundings in the past years. This is mostly due to larger rounds. However, the total amount of early-stage investments stagnates. The share of early-stage deals, meaning lower than €1 million, have also been following a downward trend.

Graph - Number of rounds in the Netherlands per year (2010 - 2021)

Source of the graph: Dealroom – Note: due to reporting lag, the last 12 months are systematically under-reporting on rounds especially small rounds; often occurring under the radar

Also, when comparing on an international level, The Netherlands is lagging behind with early-stage investments per capita.

Source of the graph: Dealroom – Note: due to reporting lag, the last 12 months are systematically under-reporting on rounds especially small rounds; often occurring under the radar

Furthermore, when looking at early-stage investors, we see that VCs are shifting more towards later-stage investing, having cut their share of early-stage investing in half since 2018.

Graph - Involvement of angels, RDAs and VCs in deals up to 1 million euros

Source of the graph: Golden Egg Check – Note: most of the ROM numbers only become available at the end of the year, not yet providing a complete image

Now, more than ever, angel investors are key to Dutch startups’ development

As VCs’ early-stage investments have diminished, the role of angel investors is, more than ever, the key to startups’ development. Why? Here are a few reasons:

Angels hold significant knowledge and connections in a specific field, often having been entrepreneurs of their own, their insights are highly treasured by startups.
Their higher risk appetite and lower level of bureaucracy makes them more accessible for early-stage startups. However, angels operate more privately, making them harder to reach.
Nevertheless, they can help startups accelerate and set the crucial steps required to grow to their full potential. Once grown, startups themselves can then pass on their knowledge and capital gains to the next generation of startups, as angel investors. This valuable learning and funding cycle should be nourished and maintained, to enhance the Dutch startup ecosystem.

FLywheel of funding. From startup employees receiving stock options to receving their rewards and reinvesting in and founding news startups

The Dutch ecosystem lacks angel investors, leaving startups with fewer opportunities to secure the much-needed funding and expertise

When looking from an international perspective, the percentage of angel investments in The Netherlands significantly lags behind its peers.

Bar graph per country - Percentage share of total investments in 2020 (The Netherlands 8% compared to Sweden 24% for example)

Source of the graph: Dealroom – Note: due to reporting lag, the last 12 months are systematically under-reporting on rounds especially small rounds; often occurring under the radar

Overall, this results in an early-stage funding gap, leaving startups with fewer opportunities to secure the much-needed funding and expertise from angel investors in the earliest, most risky phase of their business.

What can we do to incentivise angel investments?

Therefore, Techleap.nl is looking at how angel investments can be incentivised, to close the early-stage funding gap and to nourish the flywheel of innovation. We are currently comparing how other countries have done this, for example, the UK with the Seed Enterprise Investment Scheme (“SEIS”).

To ensure the effectiveness of possible incentives, we also need to capture and map the Dutch angel investor community and their investment practices.

How many angels are there, how do they invest and what is holding them back at the moment. This has proven particularly difficult, with investors and deals operating often under the radar.

As a solution for this, we would like Dutch angel investors to fill in a short survey. The answers will be treated as highly confidential and can be submitted anonymously.

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Techleap is a non-profit organisation, funded by the Ministry of Economic Affairs and Climate Policy, helping to quantify and accelerate the tech-ecosystem of the Netherlands. Constantijn van Oranje is Special Envoy of Techleap.