Advice: A better start. The key to growth of knowledge-intensive start-ups
The climate for start-ups in the Netherlands has improved in recent years, but the growth of knowledge-intensive start-ups after the initial phase falters, especially compared with other countries such as the US, UK or Israel. Upon request of the Dutch parliament, AWTI analysed why too few knowledge-intensive start-ups progress to become scale-ups and advises what can be done to improve the growth of knowledge-intensive start-ups.
In order to improve the chances of growth of knowledge-intensive start-ups it is key to help these start-ups focus more on entrepreneurship and the prospect of growth right from the start. In addition, the capital market for financing the growth of these companies must be improved so that more capital is available for such growth with investors that are better attuned to the specific situation of knowledge-intensive start-ups and scale-ups.
The infographic below shows the recommendations in more detail.
“Entrepreneurship and ‘knowledge’ must be in balance within the knowledge-intensive start-up”, explains Jos Benschop, AWTI Council Member. “Such a balance is crucial for their growth. Knowledge may be the basis for the start-up, but entrepreneurship determines its success. Public and private financial backers of start-ups must make this balance a condition for providing funding and actively help start-ups to achieve it.”
It is also important that knowledge-intensive start-ups set and maintain their ambitions at a high level.
“Start-ups can be helped if they operate in an environment which incentivises them to remain ambitious,” continues Benschop. “It should, for example, be made more attractive (including from a tax perspective) to pay staff of start-ups (partly) in shares. In other countries that is much more common. This would provide a strong incentive for recruiting the talent needed to enable the start-up to grow.”
There is also a need for more funding to be made available for growth, with investors who are tuned in to the specific situation of knowledge-intensive start-ups and scale-ups. The government can play a role here by making investing in knowledge-intensive start-ups and scale-ups more attractive through tax breaks and by taking the lead in setting up public-private funds to finance growth. Setting up such funds at EU level would increase the impact further.
To analyse the development of knowledge-intensive start-ups in the Netherlands, AWTI commissioned a study from the Erasmus Centre for Entrepreneurship (ECE), which can be found here.
From ECE’s background study and AWTI’s own research four main reasons were identified for the stalled growth of knowledge-intensive start-ups in the Netherlands. Knowledge-intensive start-ups are often slow to develop their business model; their level of ambition is limited; agreements made at the beginning can inhibit later growth; and they struggle to obtain adequate funding. The main impediments to growth are shown in the infographic below.