Focco Vijselaar, the spider in the web of corporate finance at the Ministry of Economic Affairs and Climate, is on a working visit to Nijmegen when he hears some alarming news. It is December 5, 2019. Vijselaar and his colleague Michiel Sweers are talking in Nijmegen with people from the chip industry, including from NXP.
The two are there at the invitation of PhotonDelta, a partnership between the ministry, universities, regional development companies and the photonics companies themselves that want to stimulate the fledgling, promising sector.
Photonics is electronics based on light, but faster and more energy efficient.
The alarming news is the possible Chinese investor in Smart Photonics, a producer of photonic chips in Eindhoven. The producer must become the pivot in the emerging photonics industry in North Brabant. At that time, the company was entirely Dutch, set up by two ex-employees of Philips, with a few Dutch financiers, wealthy private individuals and Eindhoven University of Technology as owners. Smart Photonics is in the process of recruiting new, wealthy, long-term shareholders. Several parties are interested. But an investor from China? Is it possibly looking for technology to transfer the knowledge to China, so that Eindhoven is left empty-handed? There is no takeover Vijselaar of EZK reads a few days later in an official memorandum about Smart Photonics. Nevertheless, he is going to find out how the ministry can help find Dutch financiers for Smart Photonics.
Invisible capital
The ministry and the province of Noord-Brabant have a range of financing options for promising companies à la Smart Photonics. The guiding hand of the government is usually invisible in this. Public capital from The Hague and Den Bosch does not flow directly to companies. This is done through private financiers or foundations. That is how Dutch industrial policy gives companies a boost: with largely invisible capital.
Smart Photonics is an example of this. The ministry knows the company and the photonics. Eighteen months earlier, on 13 July 2018, the then State Secretary for Economic Affairs Mona Keijzer (CDA) received the National Agenda for Photonics from her ministry. In one of the photos she poses with a framed photonic chip. René Penning de Vries, former director of chip company NXP, is on the left. He is the figurehead of the photonics sector and at the time was chairman of the supervisory board of the BOM, the Brabantse Ontwikkelings Maatschappij, which stimulates the regional economy with money from the province and Economic Affairs. On the right is Richard Visser, one of the founders of Smart Photonics.
Photonics is a small industry that employs a few thousand people in the Netherlands. The industry revolves around chips that produce and process laser light on an extremely small scale. They should become indispensable for energy saving in smartphones and self-driving cars and in fast data connections. In Eindhoven, financiers, technicians and governments are already dreaming of the next ASML, the chip machine manufacturer in Veldhoven. The industrial showpiece of the Netherlands and the largest investor in research and development in the country.
Smart Photonics should become the hub of the growing photonics sector. There are customers worldwide and in clusters in and around Eindhoven and Twente. Just like Smart Photonics, these are also fast-growing companies, such as chip company Effect Photonics. These companies face a similar existential question: where do I get the capital for investment and growth?
K-3, anyone?
Smart Photonics comes from the nursery of the TU Eindhoven. Founded in 2012 by the aforementioned Visser and Luc Augustin. They want to become an independent producer of photonic chips. The three Ks are indispensable for this: capital, knowledge and customers.
They have the knowledge. The other two K’s can make or break a startup business. Without customers no turnover, no money, no people. End of story. Without capital no innovation, no growth, no customers. Also end of story.
It is precisely the provision of capital to these start-up and growing technology companies that is a traditional weak point in the Netherlands. Promising starters are ‘still unable to grow enough, partly as a result of a lack of growth capital’. the then State Secretary Keijzer noted in a memorandum on ‘The future of industry’ in 2020.
The Netherlands is overflowing with the capital of the pension funds, about 1,600 billion euros, but at most drops end up in the technology world. That is why Dutch tech companies find their growth capital from American and British financiers. Think of: Adyen (payment services). Messagebird (message service). Mollie (payment services).
In order to compensate for the private capital shortfall for Dutch growers, the central government and the province of Noord-Brabant have become financiers themselves in recent years. This makes them one of the three pillars of the so-called ‘ecosystem’ around Eindhoven, called Brainport. Such an ecosystem revolves around knowledge, assignments and capital. The first pillar, knowledge, is Eindhoven University of Technology, the basis for many high-tech starters. The second pillar is established companies such as ASML, other ex-Philips subsidiaries and VDL. They take care of assignments, knowledge exchange and innovation. The third pillar is the financiers, such as the BOM. Noord-Brabant itself also provides loans to companies. The province draws the money for this from the billions in proceeds from the sale of energy company Essent (2010).
Public capital marks the difference between Brainport and Silicon Valley, the prime example of a successful ecosystem. It is precisely there that it is teeming with private financiers, such as founders of successful companies.
Money, politics, money
You can see how the Brabant ecosystem works in the steady growth of Smart Photonics since it started in 2012. There was a loan of eight tons from Eindhoven University of Technology. A few tons from an EZK scheme for fast growers.
A learning program with established companies, such as ASML. A provincial loan of several tons. European grants for research.
Politicians soon became interested. Two candidate MPs from D66 visited Smart Photonics in 2017 during the campaign for the elections to the House of Representatives. In that campaign, D66 presented itself as the party for knowledge and innovation. Eight months later, D66 was in the Rutte III cabinet and photonics was included in the coalition agreement. “There will be a stronger focus on that,” the cabinet promised.
Noord-Brabant then gave a subsidy of 350,000 euros to draw up the National Agenda for Photonics and to hire a figurehead, a man or woman who would represent the sector. That was René Penning de Vries. This resulted in the meeting with the photo opportunity with Keijzer in 2018.
Shortly afterwards, serious capital was also put on the table for photonics companies for the first time: 236 million euros. Among the lenders were Noord-Brabant (12 million) and BOM (5 million). The largest contribution came from the Ministry of Mona Keijzer: 34.6 million.
A new foundation, PhotonDelta, would invest the capital and promote knowledge sharing between the companies. Ewit Roos became its director, who years earlier financed Smart Photonics and Effect Photonics in a different position. One of PhotonDelta’s first loans was 3.75 million for Smart Photonics.
However, that was not enough for the ambitious company goal: to build our own factory for photonic chips and become the link in a production chain with international potential. In order to realize this ambition, Smart Photonics got a new director at the beginning of 2019. Co-founder Visser made way for Johan Feenstra, an experienced manager with a past at Philips.
That is the state of affairs when ‘industry financier’ Focco Vijselaar hears of Chinese interest on December 5, 2019. He switches quickly. Photonics is a spearhead. Of European interest. Industrial protection policy against buyers from China is no longer a dirty word in Brussels, Berlin or The Hague.
Smart Photonics is becoming an urgent file at EZK in a period when everything screams urgency. From the end of January 2020, Vijselaar will also be involved in the rescue of shipyard IHC. There too, a Chinese financier would be on the fence. In the course of March, business financing in the corona crisis will be added to this. From the end of March, he has also been closely involved in a request from HEMA for a capital injection, which was later canceled.
The financing of Smart Photonics will be completed at the end of June 2020. Purely Dutch money. The capital injection amounts to 35 million euros. More than half of that is government money. EZK lends 20 million euros to BOM, which invests it in Smart Photonics. The other financiers are Innovation Industries, KPN, BOM for its own account, PhotonDelta and some of the original investors. Behind Innovation Industries are traditional Dutch parties, including Rabobank and metal pension funds PME and PMT. Eindhoven University of Technology has also invested money in it. This completes the circle: the university spin-off Smart Photonics is maturing with support from the same TU. The capital injection will finance an expansion of Smart Photonics to just over 100 people, says director Feenstra in an interview. “With this investment, you can see how consistently the government supports this industry,” Ewit Roos of PhotonDelta told NRC.
Money attracts money
The capital injection for Smart Photonics acts as a dynamo for photonics. For example, extra capital is also flowing to Effect Photonics, a client of Smart Photonics. Effect Photonics makes industrial components and orders custom chips from Smart Photonics. Two of the financiers in the start-up phase of Effect Photonics, Jan Dobber and Chris Oomen, are financiers à la Silicon Valley. They are shareholders of the highly profitable financial trading house Optiver and invest part of their capital in other companies. Earlier this year, Oom bought news agency ANP.
In the past year and a half, Effect Photonics managed to raise more than 50 million euros in capital from BOM, PhotonDelta, state investment fund Invest-NL and Innovation Industries, among others.
Two new plans are in the works to tap additional capital for photonics. First of all, the Ministry of Economic Affairs wants Brussels to allow a more flexible regime for state aid to the photonics sector. This is possible if the sector becomes a so-called ‘Important Project of Common European Interest’ (IPCEI). That would provide scope for a government investment of i230 million euros. “Our competitors in China and the US are not affected by state aid rules as we know them in Europe,” says Ewit Roos of PhotonDelta.
For the second plan for additional capital, companies in Brainport are looking at the National Growth Fund, a government fund worth 20 billion euros. Their foundation PhotonDelta asks for 470 million euros. Companies and knowledge institutes are putting another 630 million on the table.
Isn’t it strange that business relies so heavily on government money?
Smart Photonics director Feenstra sees the role of the government as a modern development. “From what economist Mariana Mazzucato says: without government support for universities and knowledge development, Silicon Valley would never have become so big.”
A version of this article also appeared in NRC on the morning of December 16, 2021
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