Finance your innovation

You need money for a smart new application in your business, because innovation means investment. However, where can you find this? There are a variety of places: your own resources, the government, or external financiers. Read here what options are available and what to watch out for.

Innovation is about creating new products, services, and/or business processes. You may even be involved in innovation already, because innovation usually involves something new, an improvement for your business. This might include a new oven to increase your bread production, working from home, or a special advertising campaign for a new sales market. 

Self-financing 

If you require a small amount for your innovation, try to find funding from your own business. The advantage is that costs are relatively low, while a disadvantage is that you could inadvertently invest a large amount of money and end up with less working capital. Plus: you may not look at the gains as critically as you should.  Tip: record how much money you invest in each innovation, and find out whether this amount is in proportion to the delivered or estimated return.  

Schemes and grants 

Tax incentives 

The Dutch government encourages innovation in SMEs through a number of tax facilities . These are facilities for research and development, innovative products, process innovation, and energy and environmental investments. These will reduce your taxes. Innovation will help create new jobs and give the Netherlands a stronger competitive position. Find out what your business is eligible for. 

International focus 

If you are looking for international innovation and are running a major innovation project, there are several European facilities available, including Eurostars and Horizon Europe. You can also check with your industry association whether there are any specific facilities and opportunities available for your branch. 

Start-ups and scale-ups 

The Dutch government offers loans and other financial schemes for start-ups, scale-ups, and highly innovative SMEs. The Startup Box  will provide you with information on the various facilities provided by the government, and which ones best suit your plans. The government offers a number of accessible facilities (in Dutch), including Vroegefasefinanciering (VFF), Innovatiekrediet (Innovation Credit), and security deposits. 

Purpose-bound 

There are specific regulations and grants available for specific sectors and purposed innovations. Review the various regulations and take the time to prepare your application. You can also choose to hire the services of advisor and ask them to do so on your behalf. There are a number of nationwide implementing organisations in the Netherlands which administer and issue grants on behalf of the Dutch government and the European Union, for example RVO (Netherlands Enterprise Agency). Provincial and municipal authorities also make funds available for innovation – you will find further information on their own websites. 

External funding 

You can also choose to fund your innovation plans with external capital. Before contacting a financier, 

  • you must make an investment budget for the upcoming two to three years – this is part of your financial plan

  • Make an estimated budget, and state the purposes for which you need the money, and when you need it. 

  • Identify the amount of additional revenue or savings the innovation will generate, and what your expenses will be, drawing on your knowledge of market trends and of your customers or clients. You should also factor in your own hours and those of your staff, and finally you should include any development costs and the expenses required to market the product or service. 

  • Put your revenue, the required investments, and your financing requirement on a timeline, then translate this into a strategy that clearly reveals your approach, for example with the Business Model Canvas. This could potentially help you attract investors to back your innovation plan. 

Capital stack 

Capital stack enables you to select different types of financing to reach your funding amount; this ensures that you spread your risk among multiple investors. You should consider this if you are considering borrowing a substantial amount of money. The KVK Guide for business financing will provide you with more background information and help you make your choice. 

Tip: As a result of changed regulations or customer requirements, for example due to climate change targets, you may opt to lease state-of-the-art business assets. This will help you introduce new innovations relatively quickly using high-quality equipment that allows you to compete in the market. 

Video: Financing your business

Venture capital 

When it comes to funding your innovation, you tend to depend on venture capital. These funds are provided by venture capitalists: people who are willing to invest in your business based on the projections for your business’s growth, how you run your business, and the degree of innovation involved in what you are introducing. The financial yields of the innovation are uncertain at this point, though the profits may be substantial if the innovation turns out to be successful. However, there is also a risk of the innovation not delivering on its expectations – which is where venture capitalists come in. 

Shares 

Shares are a type of venture capital. An investor buys shares in your business, which generates additional capital. The investor becomes a co-owner of your business and shares in its profit or loss. Since the investor focuses on increasing the value of your business, you will have their full attention.  You may secure venture capital from the following providers: 

Turnover 

One alternative to venture capital is revenue-based financing. Instead of issuing shares to your investor(s), you pay them a percentage of the revenue as future returns, which is generally between 2 and 5%. The investment agreement is valid until the agreed maximum amount (the cap) has been reached – this is often two to three times the amount invested. 

Tip: If you are a woman heading up an ambitious, innovative, and fast-growing company, you can apply for funding from the Borskifund.

Subordinated loan 

A special type of venture capital is the subordinated loan: this is a loan which is unsecured and ranks behind other loans if a company falls into liquidation or bankruptcy, meaning the party that provided the subordinated loan receives their funds last. Crowdfunding is a good example of this. 

Tips when using external funding 

  • You should always wonder whether the innovation will help increase the value of your business. 

  • Pay attention to the ratio between the maturity of the loan and how the loan funds are spent. 

  • Set aside sufficient time to prepare the application, as a thorough preparation increases your chances of success. 

  • Hire the services of an independent advisor if necessary, for example due to the scope and complexity involved and the types of parties you are dealing with. 

Need financing for something else?

Are you looking for financing for something other than an innovation? Read more about financing company assets or working capital