Institutional investment portfolios in Europe could do with more venture capital, especially when it comes to making green impact investments, the Netherlands’ technology investment envoy Constantijn van Oranje-Nassau said in an IO Talks podcast interview.
“It’s pretty ridiculous that our institutional investors are not actually investing in that space,” said Van Oranje. “When it comes to the portfolio of investments of Dutch and European institutional investors, venture capital is still far too small. If you compare that to the US, where for instance the Yale Endowment fund has 20 per cent invested, you know, it’s a completely different ballpark. We miss that.”
Van Oranje, who leads Amsterdam-based Techleap, a Dutch government sponsored tech investment initiative, spoke to Investment Officer about the global business climate for technology investments, about rising interest rates and inflation, about artificial intelligence, about the new Nato Investment Fund where he serves on the board, and about his qualified enthusiasm for technology.
“I’m not a kind of total tech enthusiast,” said Van Oranje, brother of the Dutch King. “I think tech can do a lot. But you know, we humans are driving this. And if we humans drive it just for more convenience, and for serving only our purposes, and not, for instance, the planet, or biodiversity and other things - those are quite sometimes quite difficult dilemmas - then tech can also do a lot of bad.”
Van Oranje is currently engaged in discussions with Dutch economics minister Mickey Adriaansens about his role at Techleap. The government recently decided to reduce Techleap’s budget to 15 million euro for the next three years, from 35 million for the past four.
At the end of this month a formal announcement is expected on Van Oranje’s future role at Techleap. During the podcast interview, Van Oranje declined to be drawn on how that will look like. He did say however that he was particularly pleased to learn that the government now has allowed Techleap to raise its own funds.
‘Down round’
“We were financed for four years, so the programme was coming to an end anyway. The question was: is there going to be anything? And yes, definitely, here is going to be a new programme and the budget is going to be lower,” he said. “So I see this as a kind of a down round. It does mean we have a clear horizon. And also, the government has allowed us to raise our own money. So we will be growing. We said: okay, they halved the budget. We are going to double the company. We are really ambitious in where we think we can take Techleap.”
For four years Techleap, based in a start-up office in Amsterdam’s former naval yard, has run a programme to encourage investments in technology firms, bringing together entrepreneurs and investors. It has built a community with 600 entrepreneurs and about 300 companies. “We do interventions at a kind of system level where we help create a better environment for tech entrepreneurs,” Van Oranje said.
‘Key for transitions facing us’
During the interview, Van Oranje made clear his enthusiasm for the world in which Techleap operates.
“This is a super interesting sector to be in. We are always looking for new opportunities. There is a lot of relevance and purpose. People don’t start a company just for the money. There are other ways you can earn money much easier than by starting a company. They do it because they want to change something. We’re seeing so much activity around really important topics like food security, healthcare, waste reduction, mobility, next generation computing. All of those things that are really key to going through transitions facing us. These companies are developing real tangible solutions, and they’re also creating the jobs of the future. So it’s a really exciting sector to be in at this time. There’s a lot of very strong dynamics.”
Financing growth and jobs has been a leading theme for many years at the European level, also when Van Oranje served in Brussels as chief of the cabinet of former European Commissioner Neelie Kroes, in charge of the EU’s digital agenda. Brussels still actively advocates the creation of a Capital Markets Union.
“We always talk about the internal market. It’s just not there,” he said. “A capital union would be great. But we don’t have a capital union.”
’Europe needs more major VC funds’
Instead, Europe needs more major venture capital funds like Northzone, EQT, Atomico and Lakestar for example, Van Oranje said. “We need more of those really substantial funds that can fund from the earliest stage to the latest stage. That we do need.”
Van Oranje is encouraged by the way Europe’s tech innovation system has grown over the last decades but noted that Europe still needs to improve the way technology is transferred into the market.
“We’re not very good at tech transfer,” he said. “I also think that the kind of raw entrepreneurial drive and skill and ambition that you find in the US with someone like Elon Musk, you know, you will rarely find in Europe. But even that is improving. People like Daniel Ek, what they are doing, also in terms of green steel development, it comes from Spotify, but he’s now really focusing on building other kind of big companies ”
“So we are seeing it happening here too, We’re just a generation behind I think. I am quite optimistic about the potential for Europe.”
Dual use to guide Nato investments
Asked about the one billion euro Nato Investment Fund, announced in March, Van Oranje said that the fund will be headquartered in Amsterdam with a staff of about 20 people. The legal entity for the fund will be based in Luxembourg. Van Oranje, who serves as board member at the fund, said attracting suitable companies to invest in still is challenging, given that the defence market traditionally has hinged on government procurement.
“Startups and scientists developing technologies don’t look at the defence market as a market. It’s the ministries of defence that typically procure from existing players. So innovation is not procured. And many of the investors out there, the LPs, will actually restrict the VC to invest in defence related applications,” he said.
“So what the NATO fund is going to invest in is dual use. These are technologies that can be applied in civil and in defence environments. Not weaponry. But for a company to decide to go after a more defence-related application, they of course need to know that there is actually a market. That is going to be the biggest challenge: how to create the demand side of this.”
Europe’s businesses lag in AI investments
Next to drone and radar technology, the Nato fund also is expected to consider projects in the field of artificial intelligence, or AI.
Van Oranje sees the current discussions on AI as only the beginning, and noted that Europe is lagging behind the development elsewhere, notably China and South Korea and also the US, where the likes of Google and Meta are pushing their AI developments thanks to European brain power.
“At Meta there are many French people. The French are actually really good at AI. The brain from Google was originally also British, and actually their AI developments are in the UK. It’s just that the US is a combination of tech savviness, available capital and the risk to actually invest in these new technologies that is far greater than in Europe.”
What’s more, Europe’s AI investments are made on the academic side, not on the business side, he noted. “We see that our business is really lagging in investing in these kinds of new technology. That’s across the board.”
Ethical issues are going to be a major part of the discussions on AI, given also the risks that several senior AI experts have highlighted in recent months. “Obviously artificial intelligence that overrides human controls, or that tricks humans. Humans are also kind of very programmable. We think we are not. That we are unique. But in fact, we behave in patterns. And if the AI understands patterns, you can basically fool anybody because they can mimic sounds, they can mimic the kinds of conversations. It’s very hard to know who’s on the other side of the surreal person or not. And it’s very hard to know whether an image you see is actually real, or synthetic.”
AI needs to be aligned with human interests
Van Oranje said he was particularly concerned over the lack of understanding of AI among policymakers and governments.
“For governments, it’s really challenging to see how we can protect human rights. How would we ensure that there is an alignment between AI development and human interest? What we clearly, clearly lack is a deep understanding of these kinds of technologies in our policymaking cohorts and in politics. We don’t really see a lot of understanding of the technology. We saw discussions in the Senate in the US, but also in the European Parliament, where people clearly are not very well aware of how the technology works. And with AI, this is going to be exponential. We’re going to have a new layer on top of that with quantum computing. It’s not going to stop here. This is just the beginning.”