M.I. asks:
A few years ago I started a semiconductor startup with a few other PhDs as a spin-out from our technical university. Our technology will lead to a significant reduction in energy consumption within a number of wireless standards and a much better performance. The prices will be competitive because we work in CMOS.
We’ve been talking to VC’s for months for our series A round and no results have yet been achieved. Although our business case is considered very strong, it is not possible to convince investors. The most important reason for this is the suspicion of trade restrictions that the US has imposed on Iran. Some of our company’s key figures have an Iranian background. However, our IP is of Dutch origin and is patented in Europe. There is no advantage for Iranian economy at all. At the request of potential investors, all possible links with Iran have been eliminated, but this was not enough in the eyes of the Dutch fund.
We are now standing with our backs against the wall, because we don’t know what else we can do to meet the investors’ desires. Our technology is not even on the IP list that falls under the embargo, in particular there are applications in the field of (Industrial) IoT that benefit from it.
We recently came in contact with Chinese investors. We expect a lot from this: not only is China a very interesting market, they also have a great willingness to invest and have sufficient financial resources. I do believe that our market strategy will be completely turned upside down if funding continues.
The headhunter answers:
I think it is likely that more than just your market strategy will change. I recently heard of a start-up in a similar situation that was conditional on financing to bring the IP into a holding in Hong Kong, while a design team would be set up in China. The founders were given a minority share in the proposal and the focus of the company would be moved to the other side of the world. Such a scenario would mean that the Dutch inventors have completely lost control of their company and, moreover, completely lose sight of the business activities. Agreeing to such a deal would merely imply facilitating ‘Made in China 2025’ program.
This form of ‘financing’ is not new in itself. You also see this regularly with acquisitions by American companies. In the beginning, not much changes after the takeover, but after the ‘technology transfer’, the European site is often closed.
You may wonder if this is what you want, but in your situation you don’t really have much choice. On the other hand, you are not bound to the Netherlands either. There is really nothing that could stop you from setting up a design center in Asia and accepting an offer – as long as it’s good enough.
All in all, this is not a situation that is in the interest of the Dutch (European) knowledge industry. If the inventions that are made at the technical universities are put on sale for next to nothing because there is no financing available in the Netherlands, I find that very sad. I can imagine that from now on the valorization institutes of universities will be even more careful than before when hardware startups apply for seed capital. For VCs, this has been a trend for quite some time, because High Tech (incl. semiconductor, equipment and med-tech) has a significantly longer time to market, a higher financing requirement and a high risk profile compared to Software startups. That’s why there are no more semiconductor startups in NL – not because of the lack of good ideas.