Patient capital for an impatient transition

In the breakout session ‘From idea to market by organising capital for upscaling’, about 50 participants, including policymakers, investors, researchers and entrepreneurs, explored how to direct available capital towards risky innovations and transitioning sectors. The session built on insights from Angelique Erkenbosch of InnovationQuarter and Liz Duijves of Invest NL. Liz set the tone: ‘It does not start with more capital alone, but also with stimulating bold entrepreneurship.’

With finite capital and long lists of needs in society, making the right business plans bankable is tricky but key. We’ve all heard the questions: where does scaling get stuck? And it’s easy to claim we need higher percentages of capital flowing into the Dutch ecosystem. But if we look at the power in the room: what can these peoples do to enable great entrepreneurs? Which instruments do they have to make innovation more bankable and scalable?

Steering direction together

The group called for clearer selection on what not to support, alongside a dedicated scale-up policy with an explicit unicorn ambition. A potential here is the support of our home-built spin-offs. Spin-offs from Dutch knowledge institutions are still known to receive too little financing with the right risk appetite. Extending the incentive all the way from research through to commercialisation for universities, professors and investors enables us to not only research the right topics, but grow them too.

‘If we believe more choices should be made right now, new or established investment bodies need independence from temporary focus and budgets and an explicit goal to make our startups reach unicorn status.’

Patient capital with shared risk

The group identified concrete mechanisms to share risk for those businesses. Cross sector funding panels, where public investors such as the EIB and Invest NL work alongside private financiers, can jointly identify potential financial support mechanisms for first of a kind projects and anchor entrepreneurs through scale up tables. Financing roundtables can structure instruments for entrepreneurs that are potentially unknown to them such as contracts for difference (where government guarantees a viable price if the market falls short) and double sided auction mechanisms. Triodos and the Bill Gates Foundation were named as financiers whose approach was named patient and worth further researching.

Putting a price on broader value

But, financial return alone does not necessarily capture the full value of transition-oriented innovation. Going from problem to solution thinking was complicated, as they often go hand in hand. Topics came up such as pricing externalities directly so societal costs and benefits appear in the financial case from the start, building blending mandates, or offtake risk intermediation, where a dedicated party makes the future revenue of a transition investment visible and tradeable, reducing the uncertainty that keeps investors on the sidelines. However making these solutions actionable, a large number of players need to change the way we finance businesses.

Simultaneously, high-impact innovations require longer development cycles than conventional investors accept, especially in deep-tech, infrastructure and health. If capital is only available under short-term conditions, promising innovations struggle to cross the gap between pilots and market. Can we embed broader value into investment decisions?

‘Societal transitions might be financed project by project, but as coordinated, long-term investment portfolio it can truly enable sector transformation.’

Developing the whole value chain

And as we jump from small day-to-day solutions to the drafting of massive undertakings like pricing externalities, the development of the whole value chain starts to show its complexity. A promising technology cannot scale if suppliers, customers, regulators and talent do not develop alongside it. An investor cannot invest when permits, space and energy access remain bottlenecks too. In a true transition, financing individual companies and developing the broader ecosystem must go hand in hand: the whole value chain often needs to move together.

The group called for organising sectors around frontrunners, for scale up buddy arrangements pairing start-ups with experienced scale ups, and for stronger sector organisations ensuring demand side coordination keeps pace with supply side innovation. Coordinated procurement commitments, with government as first time buyers, can break open a cycle to enable capital to flow towards new ideas and businesses. Steering regulation and consumer behaviour side-by-side. Not denying that larger innovation budgets in mid and higher TRL can bring co-investment and risk absorbing methods to a structurally higher level.

It’s a bit of you, and a bit of us

The session surfaced shared ideas for many financing challenges, and often highlighted the need for private capital and public capital to enable societal goals. Private capital follows attractive returns. When societal transitions generate compelling returns, private capital can follow to speed up the impact.

The challenge is that today investors often do not, not because the value is absent, but because the business case has not yet been made to work. Public parties can play a catalysing role by absorbing early risk, setting long term direction and creating the conditions that turn bold entrepreneurship into bankable opportunity. At the heart of that responsibility lies the willingness to provide patient capital for an impatient transition. It’s up to all of us ecosystem players to put the right instruments and the right knowledge in the business case at the right time. What the Netherlands needs now is the alignment and the courage to use our capital.