Jeroen van der Kroft
Jeroen van der Kroft

EY Netherlands Partner Financial Services Consulting

3 minute read 26 Oct 2023

Capital is crucial for starting up and scaling operations in FinTech. Beyond initial capital, external funding plays a pivotal role for growth.

In brief
  • Venture capital and private equity is the main source of financing for Dutch FinTechs, mainly driven by foreign investments
  • Attracting foreign capital is considered one of the key promoting factors of the Dutch Investment Climate for FinTech companies, whereas the costs of capital is one of the key limiting factors
  • The current economic pressure creates uncertainty for Dutch Fintechs on the national and international investment climate.

External capital has been obtained by 53% of FinTechs, while the remaining 47% operate independently without relying on external funding. Venture capital and private equity have become substantial funding sources, with 30% of FinTechs depending on them. This marks a significant rise compared to 2009 when only 4% of FinTechs were utilizing venture capital and private equity as funding sources. FinTechs are seeking more venture capital investors to support their growth. The FinTech sector thrives thanks to ample liquidity from foreign investors, with over half of these companies having foreign investors. The Netherlands is one of the world’s largest recipients of foreign direct investment due to its competitive economy, traditionally favorable corporate tax environment and multiple investor protection treaties. However, since investors tend to be cautious about capital investments, FinTechs must demonstrate reliable and transparent business practices to attract investment. 

Graphic chart image

Several factors impact the capital-raising efforts of FinTechs in the Dutch market. Promoting factors of why the Dutch investment climate is considered attractive by FinTech companies include the availability of various financing options, the industry’s good reputation for attracting foreign investors, networking opportunities offered by government and sector initiatives, and the diligent reputation of FinTech entrepreneurs focused on stable and responsible operations. On the flip side, limiting factors of the Dutch investment climate include increased capital costs due to tighter European Central Bank policies, a cautious risk appetite among investors, and challenges related to scale-up financing, where some companies find themselves in a size limbo.

How EY can Help

Turnover and profit serve as critical indicators of FinTechs performance and attractiveness to investors. In the fourth quarter of 2022, over 60% of FinTechs expected their 2022 revenue to surpass that of 2021, with 44% forecasting growth between 21% and 80%. Profit numbers were relatively restrained, with 41% expecting profit growth in 2022. The challenges posed by a tight labor market and geopolitical uncertainties have tempered growth expectations.

Despite that FinTechs are satisfied with the availability of and access to private capital, recent developments are creating uncertainty on the international capital market. The investment landscape has undergone a significant transformation, with a shift from chasing revenue growth to prioritizing profitable growth. This change is driven by economic pressures stemming from rising interest rates and geopolitical uncertainties, prompting investors to adopt a more critical stance. This shift has notably affected the valuations of FinTech companies due to higher capital costs. As a result, there's a growing focus on B2B and technology integration in traditional finance, creating added challenges for B2C. Additionally, the investment landscape has seen an uptick in M&A, driven by lower valuations and FinTech consolidation. However, the overall volume and value of M&A deals are declining. Investors are now prioritizing businesses that emphasize sustainable and profitable growth over explosive expansion. This shift underscores the importance of long-term value creation and prudent risk management. Moreover, investors are paying closer attention to managing their existing portfolios and relationships rather than seeking new investments. This adjustment reflects a desire to optimize current holdings, recognizing that successful investment extends beyond initial capital allocation. In this evolving landscape, adaptability and a discerning approach are crucial for both investors and businesses navigating economic uncertainties and changing market dynamics.

In conclusion, the Dutch FinTech landscape is a vibrant ecosystem marked by opportunities and constraints in the pursuit of capital. As the landscape evolves, FinTechs will need to adapt and demonstrate their resilience to secure the funds required for their future endeavours.

You can read the full FinTech census report 2023 here.

Related articles

Dutch FinTech Census 2023 Report

What is the status of the Netherlands as a FinTech country and how can the sector be further facilitated and stimulated?

Martijn Gerritsen + 2

    Summary

    One of the key topics in the Dutch FinTech Census 2023 is capital. The FinTech sector has experienced remarkable growth over the past decade, with many startups and emerging companies reshaping the financial services landscape. However, the journey from inception to maturity in the world of FinTech is not without its challenges, especially when it comes to securing the necessary capital for growth. In this article and webinar, we delve into the dynamics of financing in the FinTech industry in the Netherlands, exploring both the opportunities and constraints faced by FinTech companies.

    About this article

    Jeroen van der Kroft
    Jeroen van der Kroft
    EY Netherlands Partner Financial Services Consulting
    Transformation leader helping clients transform and sustain improved business performance.
    Related topics
    Banking and capital markets
    Growth

    Related articles

    The complex landscape of capital and growth in the fintech industry

    Capital is crucial for starting up and scaling operations in FinTech. Beyond initial capital, external funding plays a pivotal role for growth.

    Jeroen van der Kroft

      EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.