Although some limited partners have started investing again, activity among the few Benelux venture capital firms that survived the tech crash remains fairly muted. Later-stage companies seeking expansion capital are now finding significant support, but early-stage companies are still struggling to identify backers.

Even the landmark sale of Luxembourg-based voice-over-internet- protocol (VOIP) firm Skype Technologies to eBay for $2.5 billion (rising to $4.1 billion depending on performance) last October has failed to revive the early-stage market. Such deals have fallen from 174 worth €810.2 million in the 2000 peak to 10 deals totalling €10.3 million in 2005 and just two deals worth €4.8 million in the first quarter of 2006 (source: Dow Jones VentureOne and Ernst & Young).

New VC funds have occasionally emerged, such as Solid Ventures in 2005, and some firms, such as Big Bang Ventures in Belgium and Van den Ende & Deitmers in the Netherlands, have managed to raise new funds for early-stage IT. However, in general, fundraising remains extremely difficult. “There is a lot of capital around now for expansion stage companies, so valuations are rising. But early-stage fundraising and investment remains in the doldrums,” says Floris van Alkemade, a partner at Solid Ventures.

In an attempt to revive the market and promote investment, the Benelux governments have introduced various VC-related initiatives. In the Flanders region, the government created the Arkimedes fund last year, raising €110 million for early-stage investment from private individuals, who were offered tax benefits in return. 11 VC firms were then mandated to manage the fund, on condition that for each €1 million invested, they invest a further €1 million of their own capital. A similar government initiative is underway in the Netherlands, with the €41 million TechnoPartners seed fund set up in 2005.

Early-stage VC has hardly started to recover, but there are some very good IT targets and some strong, experienced, entrepreneurs out there now – so we are cautiously positive about the future

Floris van Alkemade

However, according to some players, the problem lies not in a lack of funds, but in the quality of investment opportunities. “Some say the Benelux VC market is being rekindled now, but in reality we feel the region is still not delivering much in the way of IT investment opportunities – especially at an early stage. There are quite a few Belgian and Dutch expansion and latestage targets, but hardly any promising tech start-ups,” says Hans-Jürgen Schmitz, cofounder of Mangrove Capital Partners, a Luxembourg-based VC that was part of the Skype consortium.

The perceived lack of attractive investments could be the reason why so little of the Arkimedes fund has yet been deployed. “After one year, only 5 percent of the Arkimedes money has been invested,” says Frank de Leenheer, head of investor relations at Belgian private equity firm GIMV.

Some criticise the region's start-ups for their lack of global vision. “Most of the entrepreneurs we've seen are too local in focus. We are still looking for opportunities in the Benelux region, but given the size of the market at present, we are more likely to invest elsewhere in Europe,” says Mangrove's Schmitz.

Other VC players are more positive, however, insisting there are plenty of quality Benelux entrepreneurs around now, particularly in the biotech market. Others report that IT is showing some encouraging signs, with activity in Belgium in particular picking up in the last six months. “Early-stage VC has hardly started to recover, but there are some very good IT targets and some strong, experienced, entrepreneurs out there now – so we are cautiously positive about the future,” says Solid Ventures' van Alkemade.