Are you ready to bring a fresh idea to the market or take your business to the next level after a successful launch? One of the key factors for your success is securing the necessary capital. But where do you find it? How does venture capital in Europe compare? And more specifically, how does Belgium measure up?
In this article, we explore data from the Invest Europe Databank, the Belgian Venture Capital Study (BVA-PwC), and other sources. We’ll uncover what you need to know when turning your idea into reality. Our aim is to inspire new entrepreneurs, guide them towards success, and provide valuable insights into the world of venture capital.
To enhance readability, early-stage funding encompasses pre-seed to Series B funding, whereas later-stage funding starts from Series C funding. Startups encompass startups and scaleups. We also distinguish data between the viewpoint of VCs and the viewpoint of startups/scaleups.
Key Take-aways
- Belgium and its neighboring countries are among the most interesting regions for venture capital.
- Venture capital always assesses the management team as a determining factor, making the acquisition of knowledge and skills key necessities.
- Navigating the investor landscape requires presenting your idea or business in the best possible light and using the correct metrics to convince investors to support your vision.
Trends
Let’s begin by outlining historical data and identifying trends in our region. Depending on the source, the region may refer to Belgium, the FR-Benelux region, or the Western EU region (including the UK and Ireland).
The FR-Benelux region stands out as the largest contributor to European venture capital, accounting for 37% of the total amount of venture capital raised in Europe. The runner-ups are Southern EuropeSpain, Portugal, Italy and Greece (20.5%) and the U.K. & Ireland (11.4%). It is noteworthy that the DACHGermany, Austria and Switzerland region experienced a nearly 14% drop in VC funding in 2023. Fortunately, they appear to have reversed the trend.
On average, a substantial 60% of the capital raised by a country flows back into its domestic market, while the remaining 40% originates from foreign investors. According to Invest Europe, this corresponds to approximately 1,266 companies receiving venture capital funding in the FR-Benelux region in 2023.
While deal sizes across Europe declined significantly, Belgian VCs limited reductions to single digits, compared to a double-digit average (>20%) for the rest of Europe. This resilience reflects strong confidence among Belgian investors.
We believe the overall decline in European VC funding in 2023 reflects a correction after the overfunding boom during the pandemic and its aftermath. The rapidly changing environment likely drove significant investment into specific sectors at the time.
For example, venture capital funding in 2022 surpassed its preceding five-year average by an impressive 59%. This suggests the 2023 decline is most likely a natural market correction.
And there’s good news ahead, funding in the first half of 2024 is on par with early 2020 levels, signaling a potential recovery from the 2023 downturn.
Successful funding in Flanders
In Flanders specifically, the places to be for startups are Antwerp (770+) and Ghent (747+). Though it seems that East Flanders has better access to VC funding, receiving a record of €450 million in funding, which is more than twice as much as Antwerp in 2023 .
Combined, all startups represent an enterprise value of €54 billion, suggesting that Flanders has a vibrant startup scene!
Passion, Product, Place
Despite these positive signals, entrepreneurship is not for the faint-hearted. Persistence is needed because in Western Europe, Benelux, France, U.K. and Ireland an average of 988 investment proposals are received by VC funds in 2023 but only 36% ever make it through the door. Of those 988, an average of only 7% ultimately secures a closed deal.
Studies are unanimous when it comes to the most import asset of startup/ scaleup: the quality of the management team! In every study that reports on this factor, the selection of management is the most important factor. Founders need to display strong leadership capabilities, along with expertise and passion. Early display of these qualities along with a careful curation of the executive team is key to secure a closed deal. Strong partners that assist in management, operations, and strategic decisions are also valuable. In many cases, VCs additionally offer their expertise in these matters or take a seat on the Board of Directors.
Second place goes to the offer—product or service—and its market potential. Intuitively, the latter becomes more important in later stages whereas the offer is more important in earlier stages. The targeted industry, syndication partners and other existing investors are reported as less important when a VC makes a decision.
Both in Europe and Belgium, ICT (EU 23%) is the most interesting sector to invest in. In Belgium, B2B SaaS are top focus (16%), followed by Industry 4.0 and Robotics (14%) and Mobility & Logistics (13%). In comparison with Europe, this makes Belgian investors less interested in BioTech and Healthcare (both 4,7%) whereas across Europe, Life sciences are a more popular investment (19% of total amount). However, when viewing from the startups, Health startups are by far the most funded, suggesting they receive a lot of foreign funding from the U.S. and the rest of Europe.
Who are these investors?
There are four types of investors that are most likely to help a startup/scaleup:
Family offices or Private individuals
Wealthy families or individuals are the least particular about the investment stage and show similar interest in early-stage investments and later-stage investments. They are also a stable source of funding as their share remains relatively steady.
Government funds
Seeding innovation seems the main focus for governments, accounting for ±37% of raised venture capital in 2023. Again we presume that this discrepancy between government funds and others is likely due to effects of the pandemic. With the aforementioned 59% increase of funds raised in 2023, we might assume that the additional spending of 2023 came directly from government funds aiding new ideas to get a head start in the recovery. BVA-PwC confirms this, showing that 43% of Belgian funds come from Governmental and Institutional Funds. Though the others together make up 54%.
Fund of Funds
This type of investor remains more in the shadows as it is described as private equity fund that primarily takes equity positions in other funds. It is unclear what their motivations, strategies, and influences are.
Corporate Investors
To stay competitive, many corporations have a venture capital branch that seeks out new and innovative ideas. The long-term strategy is to fully acquire or purchase a controlling interest in the startup and integrate it into the corporation.
Let’s Connect!
Interestingly, Belgian VCs like to have a more direct or personal connection with the people they invest in. Personal networks and networking events contribute to over 50% of deal flow. Old-fashioned emails (18.9%) are also still popular, and incubators (17.9%) prove their worth in aiding funding efforts.
And they all like new and refreshing ideas. Nearly 90% always or often invest in early-stage ideas, keeping it going with nearly 60% in later stages. To offset their risk, they seek a considerable participation stake and expect an internal rate of return (IRR) of 31–40% in the early stage and 21–30% in the growth stage.
It cannot be stressed enough how important a strong network and building strong connections will be in securing funding. Immerse yourself in the startup scene and thrive in the Belgian VC landscape!
Close the Deal!
In the previous section, we discussed the most common ways to connect with investors. Now, let’s focus on convincing them. Even with the best idea in mind, persuading investors requires mastering the art of presenting yourself and your idea effectively, backed by strong numbers.
According to the Belgian VC market study, four main evaluation methods are:
- Industry multiples.
- VC method.
- Assessment of comparable financing rounds.
- VCs experience.
We consider the latter two to be variables that can’t be influenced when you’re about to propose your idea, so let’s focus on the Industry Multiples and VC methods.
EV: Enterprise Value. EBIT/DA: Equity Before Interest, Taxes, Depreciation and Amortisation. CF: Cash Flow.
For early stages, Enterprise Value over Sales is the most important factor by survey respondents. The sales components in this ratio are forecasted sales and contracted sales. It provides investors with insight into the cost relative to per-unit sales. A high ratio suggests a company is overvalued, whereas a low ratio suggests an undervalued company. Very important is to compare IMs with the correct sector because they can vastly differ.
*CFOrent-tip*: In a startup, sales are often limited, but the company typically holds valuable assets, including knowledge. Relying solely on existing sales is therefore not sufficient—investors will expect a reliable sales forecast.
A forecasted EV/Sales ratio can be calculated and presented as part of your pitch. While investors will verify these calculations themselves, a well-prepared forecasted EV/Sales ratio can instill confidence. Over time, by periodically updating the ratio with actual results, the forecasted figures will become tangible, reliable metrics.
VC method
The Venture Capital (VC) method determines the ownership percentages for investors. By estimating an exit valueEither the moment the VC plans to exit or when the startup aims to sell or go public. for the startup, they calculate the Pre-Money and Post-Money valuation. By dividing their investment by the Post-Money valuation, the VC has insight into it’s stake in the startup.
CFOrent’s Hands-On Approach
Based on the obtained insights, an overview of our best practices for anyone seeking funding from VCs:
- Immerse yourself in the VC network. Given the volume of ideas seeking funding, having a recommendation is your way into the network of capital.
- Build a strong team. It is stating the obvious but VCs will delve deep into the capabilities of the founder(s) and their teams. Determine strengths and weaknesses and find suitable partners to help you.
- Present a positive but realistic forecast. Whilst Venture Capital might seek high returns on their investment, equally important, are the chances of success. It is crucial to carefully consider the metrics by which you will assess success and justify your assumptions. Provide a realistic timeline for when sales might begin and forecast growth based on competitors or industry trends. Once you have chosen your metrics, adhere to them to guide sound decision-making for your company.
- Be ambitious but not overconfident. Everybody likes a Unicorn but sustainability is for the Zebras. Founders might be very confident in their ideas but that idea still needs to translate into ambitious but realistic numbers. A forecast that differs too much from the original does not reflect well on the capabilities of guiding a company.
The key is focus!
It is unrealistic to expect to be able to develop your idea and, at the same time, worry about how your business needs to be structured and financed. At CFOrent, we specialise in helping startups and scaleups grow. Our associates have lots of experience helping to present your business idea in an attractive way to investors, calculating and interpretating business ratios and providing the best possible outcomes. We want to take finance off your mind and let you do what you are good at!
Conclusion
At CFOrent, we hope this article has offered valuable insights for aspiring entrepreneurs navigating the world of business and VC funding. Belgium and the Western European region continue to be dynamic and attractive areas for venture capital investment.
While your idea is at the heart of your success, surrounding yourself with the right people and presenting your business effectively are equally crucial. Knowing where to find investors and understanding the metrics they use to evaluate your business can make all the difference.
CFOrent is here to help you secure funding with tailored solutions that meet your unique needs. Get in touch with us today and take the next step toward turning your vision into reality.
Sources
- Invest Europe: downloadable PDF’s year 2022, 2023 and H1 2024
- BVA-PwC: Belgian VC market study 2023
- Flanders Investment & Trade: Dealroom
- Joint study: Soderblom, Anna and Le Pendeven, Benjamin and Verbouw, Jeroen, Practices of European Venture Capitalists (April 04, 2023).