Earlier this week I spent 2 days in Amsterdam as part of a Creative Industries KTN sponsored mission to connect British and Dutch startups.
There are some striking similarities between the two countries. On the upside both have booming creative and digital sectors, and are strong trading partners (The Netherlands is the UK’s 4th largest export market and vica versa). Both also have a growing number of accelerators, angel and VC networks, although it’s notable the UK been more successful in attracting international capital in the start-up scene.
So – the downside. A common problem in terms of start-ups is the difficulty for investors to achieve the kind of ‘exit’ they’re looking for. This is an interesting structural issue. Boris Veldhuijzen van Zanten, founder of NextWeb, puts this down to a lack of entrepreneurs within big business in Europe (it is, afterall, an acquisition of a startup by a bigger business that will give the investor their exit, unless of course the startups goes on to IPO).
Boris points to the US – if you take into account startups, acquisitions and mergers, the average Fortune 400 company is about 20 years old. If you look at a similar set of companies throughout Europe the average big business is around 80 years old (quick disclaimer: I don’t vouch for these numbers – blame Boris if they’re wrong!) The result is European companies are usually run by career managers, not entrepreneurs, and so the knowledge and first-hand experience needed to understand the start-up scene is lacking – from how to value startups, how to identify promising people, or to understand often new business models. It means there’s less competition to acquire startups amongst European companies. No clear exit = no investment.
But it’s not all bad news – Boris spoke about how European entrepreneurs in start-ups are often better than their American counterparts – in the face of such adversity they have to be leaner, quicker and smarter to succeed.
One particular bright note from the UK side are the tax breaks being created to incentivise investment in SMEs. Up until now there’s been the Enterprise Investment Scheme (E.I.S.) which has given investors a 30% tax break, but from April 6th there will be a new scheme – the Seed Enterprise Investment Scheme (S.E.I.S.) which will give tax breaks of 50% for investments of up to £150k in small UK startups under 2 years old. What’s more with capital gains relief investors can gain an additional 28% relief – making a £100k investment effectively cost the investor just £22k. Of course these things are always open to abuse (did anyone see Mackenzie Crook’s film ‘Three and Out’ which was supported by a similar tax relief scheme?) but it could be a lifeline for UK startups, and certainly something the Dutch delegates were incredibly envious of!