Groningen is the second startup city in the Netherlands, but can our startups compete on an international level? And can our scale-ups go on to grow into real unicorns? Angel investor and former Senior Product Manager for Google AI (Brain) Stef van Grieken shares a couple of insider tips from Silicon Valley, about how universities can play a central role in unicorn creation, if they play their cards right.
Stef studied industrial engineering and philosophy at the University of Groningen and started working for Google in 2014, as a product manager for departments like Google Automotive and the semi-secret research and development facility known as Google X. As an investor, he’s part of Operator Exchange, a group of angel investors who've founded or built fast-growing startups and held senior positions at Uber, Facebook, Apple, Google and Palantir. This collective also includes Dutch founders like Jobert Abma (HackerOne), Stefan Verkerk (WeTransfer), Alexander Klöpping (Blendle), Daniel Gebler (Picnic) and Mark de Lange (Ace & Tate), to name just a few. Stef thinks the Groningen startup and scale-up ecosystem is on the right track, but there are some things in need of change to take it to the next level.
Give entrepreneurship a bigger stage in higher education
Something that a lot of Silicon Valley and Bay Area tech giants have in common, whether it’s PayPal, Google or Netflix, is that many of their founders went to Stanford University. “I gave a couple of guest lectures at Stanford and literally every student there can tell you what a cap table is, which growth models exist and how to go about hiring someone”, Stef says. “Entrepreneurship is a big part of almost every curriculum. And in the Netherlands, if you’re lucky, it’s a Minor.”
Stef thinks entrepreneurship should play a much bigger role in Dutch education: “We have one of the best performing systems of higher education in the world, but how many unicorns has it produced in the last decade? Zero. There’s this outdated notion that the role of a university is to train academics, but let’s be honest here, how many students go on to pursue an academic career? Why not also make sure top research translates into top companies, by giving talented and ambitious students the entrepreneurial skills they need to start them?”
Don’t be greedy with equity
Almost on a weekly basis, Stef sees investor decks from founders coming out of Dutch universities, with great ideas, a great team and very promising tech. “I would love to invest in them, but I won’t, because of the equity deal they made with their university. Around 20% to 50% equity deals are pretty standard in the Netherlands, which is a good way to kill a startup before it even goes out the door. That’s because no serious investor is ever going to come on board during follow-up rounds. It’s really sad to read the investor decks of academic startups with great potential, knowing they’re gonna go under in a few years, simply because they’re being strangled by the terms of their own universities.”
“Most academic startups are centered around complex technology”, Stef continues. “It takes a lot longer for them to become successful, so they’re going to need all the equity they can get. Not just to attract new investors, but also for their employees, to attract new talent and to bridge the gap between investment rounds when development takes a little longer than expected. If a university effectively owns half the company, there’s virtually no wiggle room for any of these key ingredients for success.”
Cambridge, ETH Zurich, Stanford and CalTech are doing a great job in terms of equity, according to Stef. “Stanford is in the 3% to 6% equity range. That may sound really low, but remember Larry Page and Sergey Brin? They were PhD students at Stanford, developing the search engine that ultimately became Google. When a company like that goes public, 3% is more than enough to run your university for the next couple of years.”
Stop being overprotective and conservative
When it comes to things like IP and licensing rights or fees in the Netherlands, Stef has a pretty straightforward opinion: “It’s a constrictive mess, sometimes downright ridiculous even. Founders have very little or no control over strategic decisions, have to deal with things like exclusive rights and not being able to sublicense anything.
“In my own experience, I’ve heard the term ‘bidirectional technology transfer’ twice now, in trying to set up a collaboration with a Dutch university. That literally means that I would have to rent out my own IP to another knowledge institution in return. If any VC would read that contract, you’re done. No more funding. So I would much rather set up a partnership with CalTech for example. Not because their research is better, but because they’re not as ridiculously restrictive.”
Another problem Stef points out is risk aversion. “It’s a Dutch thing I guess, but there’s this outdated idea that a startup needs to be cash positive before you can raise funding. It’s this wait and see and playing it safe attitude, but it’s based on the assumption that you have time, because what you’re doing is unique. It isn’t. Competition is global now and VCs have learned that risks pay off. I mean, they’re funding rockets doing backflips and self-driving cars now, right? So if you have this really promising startup coming out of your university, take a risk! Because if a Bay Area startup with a similar idea can easily raise 20 million, it’s a race you won’t win if you’re waiting for cash positivity.”
Quality, not quantity
“Incubator programs are great and so is an initiative like Founded in Groningen, but you have to watch out for programs that are somewhat self-congratulatory”, Stef says. “If you say you want to have like a hundred spinoffs in the next five years, that’s a vanity metric. Market cap, employee growth and later revenue generated, would be better metrics, because it’s about quality. Otherwise it’s like shaking a tree until 100 founders fall down and seeing what happens, right? We also don't measure academic quality by the number of students that enter. It's the number of highly trained students with a diploma. Or the research that gets cited, not the amount of papers produced.”
One thing universities can do to foster quality startups is by being founder friendly, Stef says. “You don’t always have to be the first one to go all in and go in deep. As a university, you could say, let’s invest a maximum of 5% first, with founder friendly terms, where you keep the rights without being constrictive. Let the founders do their thing, so you can play a bigger role in following investment rounds when you start seeing the potential. It’s a good way to plant seeds and let them grow a little ”
Connect with international VCs
Talking about the Groningen investment climate, Stef noticed a couple of things: “It’s mostly local players, like Carduso, the NOM and the RuG Holding Company. That’s not necessarily a bad thing. In fact, it’s a good thing because you want to create a super local loop of invest, build and exit. That’s what happens in Silicon Valley too, and it’s a major driver for high quality employment.”
“But you need a really good network of angel investors and knowledgeable founders to keep that loop going, so ideally, you would want to attract other parties too. Not just for extra capital, but also the expertise and the international network.” He thinks universities are perfectly suited for that role. “It’s also something Stanford does really well. They make a real effort to connect with the best and biggest VCs in the world and are able to rely on their expertise and network.”
Pay it forward, be part of the community
Another thing that sets Silicon Valley apart, is the culture of paying it forward. “Someone once made a great comparison; Europe is a fish tank where big fish eat little fish and SIlicon Valley is a cozy aquarium where dinner is served a little later. One of the reasons why I see so many fantastic investor decks coming out of the Bay Area, is that experts are accessible and it’s easy for talented founders to get successful entrepreneurs and professors to serve on the board of advisors.”
And that’s also where Stef thinks the ideological crux of the problem lies in the Netherlands: “Science here needs to be pure and strictly separated from industry. But honestly, I think it’s a little naive to think science still has to operate in a strict vacuum, when it’s perfectly aligned with economic opportunity in service of society. If I were on a university board, I would ask myself how Stanford is able to create an amount of revenue they can put into research, that’s bigger than the entire Dutch national education budget combined.”
“As a founder, I would love to give away a small amount of equity to a professor whose help and expertise was instrumental to my success. But I can’t. Sure, you need rules to avoid conflicts of interest, but a lot of Dutch academics I talked to would have loved to help out, but were more than a little hesitant. Not because of the ethics, but because the rules are so numerous, complex and ambiguous here. Funny sidenote, I’m looking at my speaker now. Bose was an MIT professor, did you know that?”
Pick a theme, stay ahead of the curve
Something Stef thinks the Groningen ecosystem does very well is focusing on themes like energy, sustainable society and healthy ageing. “If there’s one thing Silicon Valley is great at, it’s predicting future trends and working towards that, rather than hopping on the bandwagon of what’s popular today. I think it’s both a little funny and sad when policy makers in 2021 suddenly decide to hop on the A.I. bandwagon, form a coalition with a big budget and the ambition to become world leader. You’ll never win, because the winners have already been picked a long time ago. So good luck fighting the wall of cash in the US and China.”
“Don’t look at what’s popular today”, Stef continues. “Find what’s missing, where there are no winners yet. For Groningen, it could be hydrogen for example. You need to build the top 5 hydrogen startups as soon as possible. And Groningen has a Nobel Prize winner, for crying out loud! Feringa’s research group is one of the best in the world and could easily produce 10 successful spin offs.”
One last thing Stef points out, is to be wary when forming coalitions. “It’s a very Dutch thing to do, haha. And don’t get me wrong, it’s good that you want to involve everyone and work together so things can go smooth and fast. But despite good intentions, what usually tends to happen is the opposite, and you don’t want that of course. So make sure you work together to create conditions where startups can grow really fast. Don’t slow things down by making the founders attend 16 different meetings a week and create extra noise by involving everyone in the decision process.”