Why Promoting Global Mindset is Critical to Build a World-Class Dutch Startup Ecosystem

Recently I had the opportunity to read the Nov 2022 report, "Building a world-class Dutch start-up ecosystem," prepared by the team at McKinsey & Company ( Tobias Henz, Laura Hofstee, Peter Jacobs, Mohcine Ouass, and Sven Smit). It was an excellent read.?

In this report, the authors analyzed where the Dutch ecosystem today, where it could be, and how the gap could be filled. Below are some highlights from this report (which can be downloaded from: https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/building-a-world-class-dutch-start-up-ecosystem). I will then add some of my observations and feedback on what could be critical areas of improvement.

Let's start with where Dutch Ecosystem is now:

1- The Netherlands ranks fourth in terms of start-up value creation in Europe, and among cities, Amsterdam is one of Europe's fastest growing start-up hubs.

2- The Netherlands is also doing well in the number of start-ups per capita (ranking fifth in the EU).

3- Homegrown start-ups have an impact on job creation, with over 130,000 local jobs across all provinces

Key areas of improvement (per McKinsey):

1- Creating More Start-Ups: Netherlands is behind Estonia, Ireland, Luxembourg, and Denmark in terms of start-up creation pace by capita. The authors point out the following ways to achieve that goal:?

(a) Increase the share of founders without a university education by making entrepreneurship an essential part of secondary education, promote structured mentoring programs and run a public campaign to highlight success stories of founders who studied applied sciences or vocational education.?

(b) Increase the share of female founders by promoting diversity at the VC level, increasing public awareness of gender bias in funding processes, and promoting structured mentoring programs and networking events

(c) Increase the share of founders with non-Western Immigrant backgrounds by increasing public awareness of funding bias, promote VCs to infuse diversity in founder seats, identify talent pools by partnering with organizations with a track record of reaching immigrant communities, and promote targeted mentoring and networking programs

(d) Increase the share of experienced (a.k.a older) founders by establishing dedicated programs to increase the percentage of entrepreneurs with experience and creating more public awareness of the success stories of experienced founders?

(e) Increase the number of spin-offs from Dutch Universities and research institutions by encouraging an entrepreneurial mindset among students and university staff, providing support for commercializing R&D with more favorable terms like the US, and creating independent entrepreneurship centers close to university hubs.

McKinsey article also talks about the start-up scaling-up challenges and how the Netherlands perform worse at scaling than other leading countries (and even the EU average). For example, while the EU success ratio is measured per their model between 8-17% US 40-88%, the number for Netherlands is only 4-9%.?

The authors of the article then recommend the following:

1. Focus on sectors that are both globally relevant and strong suits of the Netherlands

2. Adopt a global mindset from the outset

3. Attract top talent

4. VC ecosystem: Give start-ups sufficient guidance and funding, especially in the late stages

5. Capital: Investment from a variety of investors

6. Facilitate a supportive start-up environment

McKinsey article claims that if the Dutch Start-Up ecosystem were to unlock these five levers for increasing the number of start-ups founded and address the six priorities for improving successful scaling, start-ups founded in the Netherlands between 2022 and 2030 could potentially contribute an estimated €250 billion to €400 billion market capitalization.

My observations and view on where to focus

It is hard to be not impressed by the scale of this optimistic outlook of what is possible.?

Despite having some good points about increasing the start-up creation activity by promoting entrepreneurship and diversity of founders, the impact of a growing quantity of start-ups will be much less effective than increasing the support network of existing start-ups already created.?

The Netherlands's current start-up ecosystem, investor network, market size, and trends could only support a certain number of successful start-ups to evolve into more scalable and stable companies. One way to achieve a larger capacity for more start-ups to grow for the Netherlands is to invest and promote outbound US-based growth opportunities for the Dutch start-ups. There is a lot more room for Seed Level start-ups from the Dutch ecosystem to US ecosystem since most of the attention right now is either at the pre-seed level (accelerator) or post-Series A.?

Given per the article, the major below-par success rate for Dutch start-ups is happening between Seed to Series D level (almost half of the EU average). Therefore, the most effective and short-term feasible output improvement to the overall success rate lies in improving the success rate at that stage.?

How are some of the ways that can be achieved:

- provide more funding and operational support to help these start-ups expand to the US without losing focus or negatively impacting their current operations. The Dutch government is already doing that successfully to some extent, but there is room to do more.

- remove some of the existing limitations -due to some grants and loans - of some of these Dutch start-ups currently face regarding making their parent company US entities (to attract more US investors at an earlier stage). Booking.com is an excellent example of how the value creation to the Dutch ecosystem would continue (such as job creation in the Netherlands and wealth creation by the Dutch taxpayers) despite an US company being the parent holding.??

- provide and encourage more funding for the Dutch start-ups to be used directly towards of the global expansion plans

In summary, in this increasingly challenging global environment with more virtualization of consumers and workforce, the Dutch (and, for that matter, all countries that want to support their start-up ecosystem) should focus beyond promoting entrepreneurship and start-up creation. Another critical determinant would be supporting the globalization of their start-ups at an earlier phase.?