Equity Finance 2024 Comparisons

Early-Stage Financing

Accelerators

Following the success of start-up accelerators elsewhere, several accelerators have been established in the Netherlands (eg, Startupbootcamp, Rockstart). These accelerators are short-term programmes designed to accelerate the growth of start-ups by addressing specific growth challenges through mentorship, networking, access to investors as well as equity financing. Pre-seed financing provided by these accelerators often consists of a Dutch variant of the SAFE (simple agreement for future equity) as developed by Y Combinator (one of the most successful accelerators globally, based in California).

A Dutch SAFE is structured as an agreement for the subscription of equity against an advance payment or variations thereof. Investing via these instruments is often less time-consuming and involves less negotiation than other instruments, such as convertible loans or equity. No interest is due on the provided funds and no repayment obligation is included (as it aims to qualify as equity). Shares are only issued upon a future financing against a certain valuation (sometimes with a discount or cap on the valuation). In some cases, accelerators provide financing by way of a convertible loan agreement. Finally, as the start-up matures, accelerators may also continue to invest by participating in a future equity financing round as part of a seed or series A round.

Angel investors

Early-stage start-ups may also obtain financing from business angel investors. These are (former) entrepreneurs, wealthy individuals, networks of business angels or pooled funds. Additionally, business angels help entrepreneurs with more than just an investment (for example, by leveraging their personal network). Investments by angels typically start from EUR50,000 and tend to be structured as convertible loan agreements. Such loan agreements are likely to be more heavily negotiated than a Dutch SAFE variant, as they carry an interest component and include a repayment obligation, a maturity date and a conversion clause. In some instances, business angels invest straight into equity.

Venture Capital Financing

The Netherlands has an active, growing venture capital market. Such financing often occurs by way of equity and may include a stake of up to 20%. Preferential rights such as liquidation preference and anti-dilution protection are often part of the financing structure. Governance rights are also negotiated, such as a board seat and significant prior approval rights.

Although less common – and generally only after the relevant company has achieved several decent-sized equity financing rounds – venture capital financing may also occur by way of venture debt. Venture debt amounts are larger than the convertible loans obtained during the pre-seed or seed stage (and could include 25% to 35% of the amount raised in the most recent equity round). Venture debt may also include an equity component, such as a warrant agreement. A warrant gives the holder thereof the right to subscribe for new (preferred) shares in the company against a certain agreed subscription price. In some cases, a warranty agreement may also include a right to invest in a next equity round.

It should be noted that the difference between traditional venture capital financing and growth financing is not always directly definable (as investing, and the rights that come with it, move on a sliding scale).

Growth Capital Financing

The growth capital market is very international, and so are the players (who tend to be highly professional) and the related documentation. It often includes the acquisition of a minority equity stake. However, as the aim of the growth investor is to prepare the company for an exit or IPO, the growth investor usually secures important control rights. These include (for example) controlling the board, leading the exit process and drag-along rights. As due diligence at this stage is more robust than in earlier rounds, some investors require companies to remediate findings before or during a certain time after making the investment.

The growth investor holds preferred shares, which sit above earlier (preferred) investors. Such preferred shares may sometimes be participating (the investor is entitled to its liquidation preference, with any remaining proceeds being distributed to both the ordinary shareholders and the preferred shareholders pro rata). In the growth capital stage, secondary transactions regularly occur; in such transactions, existing shareholders are offered (or required) to sell existing shares to the (new) investors. Such shares are sometimes converted into (higher) preference shares.

Private Equity Financing

In contrast to growth capital, private equity investors typically obtain a majority equity stake or acquire full ownership of a company. This is either achieved through a bilateral transaction or an auction sale process. The acquisition by the sponsor is financed through a combination of equity and debt financing. Depending on the nature of the selling founders/shareholders, the private equity sponsor may offer such existing shareholders the possibility to retain part of their shareholding in the company, by rolling over (part of) their capital into the new acquisition structure.

Additionally, private equity transactions typically include a management incentive plan (or other incentive schemes). A management incentive plan often includes an investment by management in a combination of:

• “sweet equity” (ordinary shares, which entitle the holder to potentially significant proceeds upon an exit after repayment of all higher-ranking debt, shareholder loans and preference shares); and
• “institutional strip” (a combination of ordinary shares and preference shares invested into by management on similar terms as the sponsor).

Leaver arrangements typically apply to the participation, whereby managers are required to offer their stake to the private equity investor upon the occurrence of a (good or bad) leaver event. In the Netherlands, the most common way to implement a management incentive plan is through the incorporation of a Dutch foundation and the issuance of depositary receipts of shares to managers.

Euronext Amsterdam

Euronext Amsterdam is the primary stock exchange in the Netherlands and is part of the pan-European exchange group Euronext N.V., which includes stock markets in Brussels, Dublin, Lisbon, Milan, Oslo and Paris.

Euronext Amsterdam is a regulated market that offers both larger and smaller domestic and international issuers the opportunity to:

• trade on an internationally recognised platform;
• have access to global institutional investors; and
• benefit from the flexibility provided under Dutch corporate law.

A diverse range of companies active in different sectors are listed on Euronext Amsterdam, which includes (inter alia):

• large multinational corporations (eg, Shell, Unilever and Heineken);
• financial institutions (eg, ING and ABN AMRO);
• tech companies (eg, Adyen and ASML); and
• companies active in the retail, energy, real estate, and healthcare and pharmaceuticals industries.

In recent years, Euronext Amsterdam has been particularly successful in attracting large, international company listings. Furthermore, Euronext Amsterdam was an attractive listing location for special purpose acquisition companies (SPACs) during 2018–2022. As of October 2024, a total of 127 companies are listed on Euronext Amsterdam.

Euronext Amsterdam is segmented into three compartments according to market capitalisation:

• Compartment A (large-cap) – companies with a market capitalisation in excess of EUR1 billion;
• Compartment B (mid-cap) – companies with a market capitalisation of between EUR150 million and EUR1 billion; and
• Compartment C (small-cap) – companies with a market capitalisation of less than EUR150 million.

Listing Process

The typical process for an IPO of either a Dutch or a foreign company on Euronext Amsterdam consists of the following phases.

IPO readiness

Preparing the company for the IPO – such preparations (potentially) include:

• IFRS conversion;
• selecting the underwriting banks and other professional advisers;
• determining the IPO structure;
• determining the legal/capital structure and/or corporate governance; and
• developing a new long-term incentive plan for employees.

IPO preparation

The following workstreams are involved in this phase:

• due diligence;
• prospectus drafting;
• refining the equity story and positioning;
• conducting pre-marketing activities through analyst presentations and early-look investor presentations;
• negotiating legal documentation (eg, underwriting agreements, accountant’s comfort letters, legal opinions);
• preparing/amending the company’s constitutional documents (eg, articles of association, board and committee regulations, company policies) to align with the applicable requirements; and
• listing process with Euronext Amsterdam.

IPO marketing and execution

The following workstreams are involved in this phase:

• conducting further pre-marketing activities through deep-dive investor meetings and research reports;
• publication of the Intention to Float (ITF) press release;
• prospectus approval from the Dutch Financial Supervision Authority (AFM) or another competent regulator in the EEA;
• IPO launch and prospectus publication;
• conducting marketing activities through a roadshow;
• bookbuilding process for the determination of the final offer price and the allocation;
• listing and admission to trading on Euronext Amsterdam;
• settlement; and
• during the first 30 days after the IPO settlement, stabilisation or exercise of the overallotment option.

This process typically takes six to nine months, and potentially even longer, owing to the time required for preparations during the IPO readiness phase.

Reasons for Listing on Euronext Amsterdam

In general, the decision to list depends on various strategic, financial and operational considerations. A key reason for obtaining a listing is the ability to raise capital through an additional funding source by offering listed securities as well as providing liquidity to existing and new investors. Furthermore, an IPO can result in a greater ability for the listed company to grow and expand, as well as enhance its brand recognition, reputation and presence on the European market. Listed companies must meet stringent regulatory and governance requirements, which in turn amplifies a listed company’s credibility towards investors and stakeholders.

Euronext Amsterdam-specific considerations include the internationally oriented and solid infrastructure of investment banks, law firms, auditors and consulting firms in the Netherlands, as well as the strength of the AFM. Furthermore, if the listing entity is a Dutch entity, it will also be possible to make use of the flexibility provided under Dutch corporate law, which is often regarded as more favourable than other jurisdictions. Euronext also offers a so-called Fast Path procedure to US-listed issuers (that are incorporated outside the EEA) to cross-list on Euronext Amsterdam.

Besides the above advantages, there are also disadvantages for a company when listing. The IPO process itself results in material costs (eg, underwriting fees and legal expenses), and as a public company there will be ongoing compliance costs to consider. Listed companies are also exposed to market fluctuations and public scrutiny.

In times of financial difficulties, the most commonly used methods of equity restructuring in the Netherlands include:

• a share buyback, whereby a company repurchases its own shares to increase the value of remaining shares;
• a capital reduction by means of share cancellation or reduction of the nominal value of shares;
• a capital increase by means of a share issuance to raise new capital (potentially at a lower price per share than applied at previous capital raises); and
• debt-to-equity swaps, which reduce a company’s debt and interest obligations.

Companies must adhere to legal and procedural requirements applicable to specific equity restructurings (eg, obtaining shareholder approvals, complying with creditors rights, etc). The existing pre-emptive rights or other anti-dilution rights of shareholders can prevent companies facing financial difficulties from effectuating an equity restructuring. To prevent shareholders from blocking an issuance of shares for instance, the shareholders’ agreement typically includes an (emergency) funding clause, whereby shareholders who do not wish to participate in the additional issuance agree to be diluted and to waive their pre-emptive rights.

If not contractually agreed, the rights of blocking shareholders may in certain circumstances be set aside by a court ruling or decision of the Enterprise Chamber when the company needs emergency funding. The court or the Enterprise Chamber will weigh the interests of the diluting shareholders against the interest of the company that would likely become bankrupt if the emergency funding were not received.

Additionally, an extrajudicial restructuring procedure (outside bankruptcy), known as the WHOA, provides for the possibility of implementing a plan to restructure the (debt and equity) liabilities of a distressed company/group. The WHOA is described in more detail in 5.4 Rescue or Reorganisation Procedures.

The duties and responsibilities of corporate bodies (both of private and public Dutch companies), as well as rules on appointment, dismissal, representation, conflict of interest and liability, are primarily governed by the Dutch Civil Code. The Dutch Civil Code provides flexibility in respect of certain corporate governance aspects – for example, regarding the possibility to have either a two-tier or a one-tier board structure or the possibility to construe a binding nomination right for a shareholder for one or more supervisory board directors.

Private Companies

In light of the flexible framework provided by the Dutch Civil Code, specific rights and obligations are generally further specified in the company’s articles of association and/or in the relevant shareholders’ agreement. In general, the arrangements contained in the shareholders’ agreement have contractual effect and are binding only on the parties to the agreement. Considering that the shareholders’ agreement is not required to be publicly disclosed, it often reflects tailor-made shareholders’ rights. On the contrary, the articles of association are publicly accessible by third parties and have a direct legal effect on the company and its shareholders.

The shareholders’ agreement generally provides for the following.

• Specific information rights regarding financial and other reasonable information, to supplement the legal right for shareholders to request information during general meetings.
• Specific exit rights, such as drag-along and tag-along rights and/or a right of first offer (ROFO) or right of first refusal (ROFR).
• Specific consent rights (reserved matters) that require the prior consent of all or a substantial number of certain shareholders and/or the supervisory board, which could include shareholder representatives. Certain shareholder approval rights are prescribed by the Dutch Civil Code, such as for:
1. the amendment of the articles of association;
2. adoption of the annual accounts;
3. issuance of shares; and
4. the company’s dissolution.

Listed Companies

The Dutch Civil Code contains more stringent requirements for listed companies. For instance, the supervisory board of the listed company should consist of at least one third men and one third women. An appointment in violation of this rule is null and void. Besides the Dutch Civil Code requirements, the Dutch Corporate Governance Code (DCGC) and the Dutch Financial Supervision Act contain additional rules applicable to listed companies. The DCGC contains various provisions regarding (inter alia):

• clear division of responsibilities between corporate bodies;
• shareholder engagement and information obligations;
• mandatory disclosure and (financial) reporting; and
• diversity and inclusion obligations.

Investors typically do not provide both equity and debt financing to the same company. However, some venture capital firms, as well as private equity firms with private debt arms, may in certain situations provide both equity and debt financing, typically only alongside other investors.

From a commercial perspective, equity investments can generate the potential for higher returns through dividend payments and capital growth, though this comes with higher risks as equity investors are the last to be paid upon an exit or liquidation event. Unlike equity, debt investments usually have lower returns but offer more security owing to fixed-interest payments and priority upon an exit or liquidation event. From a legal perspective, equity investors typically have voting rights and – depending on the size of the equity stake – influence over key decisions through supervisory/non-executive board representation at the company.

Debt investors usually have limited control over the company’s decisions, but can impose certain restrictions or conditions in the applicable debt financing agreements (eg, restrictions on additional borrowings, notification and disclosure obligations). Structuring debt through convertible loans, whereby debt can be converted into equity, can be beneficial for investors as it provides them with early-stage protection and later-stage equity gains. Furthermore, both tax and – depending on the size of the financing amount – regulatory compliance considerations play a role in the investor’s decision of whether to invest through equity, debt or a combination of both.

Investors who provide both equity and debt to a company need to be aware that their interests as a shareholder and a debt provider may not always align, or may even conflict with one another. This typically arises in financially distressed situations. Furthermore, Dutch courts can requalify a shareholder loan as equity under certain specific circumstances, particularly in an insolvency event. The risks of requalification include (inter alia) the loss of creditor priority and a higher probability of financial loss. The requalification typically arises when the loan resembles equity rather than debt (eg, when a loan lacks debt-like features or when a loan is provided during the time of financial difficulties and none of the third-party lenders would have granted a loan) and poses a significant consideration for investors who provide both debt and equity. 

In the Netherlands, equity financing encompasses any transaction involving an investment in a company in exchange for shares or similar rights. The key distinction between equity and debt financing lies in the uncertainty of potential returns and the risk of losing the entire capital investment in the event of bankruptcy in equity investments, whereas debt financing typically involves fixed returns, secured rights and senior ranking in bankruptcy proceedings.

The Dutch equity finance market is highly developed and diverse, incorporating both public market equity offerings and private transactions. The market features active participation from private equity firms, corporate investors and venture capital firms, focusing on a wide range of transactions. The strong Dutch banking sector and the steady growth of private equity and venture capital markets over the past decade have further bolstered this landscape. The Netherlands also has a strong public market, Euronext Amsterdam, through which primarily larger companies raise capital.

Hybrid financing options such as convertible loans, mezzanine financing and asset-based financing are increasingly utilised in the Netherlands, and such structures are implemented for seed financing rounds by angel investors and venture capital firms.

Equity financing in the Netherlands is typically provided by corporate investors, private equity firms and venture capital firms.

The Private Equity Market

The private equity market is mature and very active with both Dutch and international private sponsors, in particular in the mid-market segment. Private equity firms invest primarily in growing and mature companies across a broad range of regulated and unregulated sectors. According to the Dutch Private Equity and Venture Capital Association (NVP), since 2020 private equity acquisitions in the Netherlands have primarily focused on the following sectors:

• IT and technology;
• consumer products and services;
• business services;
• healthcare and life sciences; and
• financial and insurance activities.

Furthermore, NVP research shows that in 2007–2023 funding sources for private equity funds for buyouts in the Netherlands primarily consisted of:

• funds of funds;
• pension funds;
• banks and private individuals; and
• to a lesser degree, family offices, insurance companies and other asset managers.

Venture Capital

The venture capital market is a growing market in the Netherlands, but is not yet as mature as the private equity market. Venture capital investments focus primarily on investments in the start-up and later-stage phases of growing companies, as well as on growth capital investments. According to NVP research, since 2020 venture capital investments have had a particular focus on the healthcare, life sciences, IT and technology sectors. NVP research also shows that in 2007–2023 funding for venture capital firms in the Netherlands was primarily provided by:

• governmental institutions;
• corporate investors;
• private persons; and
• family offices.

Besides venture capital firms, other investors are also active in the venture capital market. One of these is the Dutch government, which since 2020 has provided equity financing to high-potential start-ups focused on innovation and/or sustainability through Invest-NL, its private investment vehicle, in an effort to accelerate the Dutch start-up scene. There are also regional Dutch development funds for boosting regional economies, with the relevant Dutch provinces as their shareholders. Corporate venture capital is also becoming more active in the Netherlands.

The Public Equity Market

Although the IPO market in the Netherlands slowed down in 2023/2024 owing to rising interest rates and geopolitical uncertainty, the Dutch public equity market remains attractive both for Dutch and international companies. The Dutch equity capital market offers a well-regulated, liquid environment for public listings, with a mix of domestic and international issuers across various sectors and market capitalisations. The Dutch public equity market is typically financed by a mix of institutional investors, specialised funds and professional investors (investment banks and proprietary traders), whereas retail investment in Dutch public markets is relatively low.

Restrictions

Generally, other than antitrust, regulatory and foreign direct investment screening (which applies to investments in telecommunications, electricity and gas providers, as well as to providers of high-end sensitive technology and businesses active in vital processes – see 3.1 Investment Restrictions), no limitations apply to:

• the qualification and or nationality of investors;
• the number of shares held by investors; or
• the number of shareholders a Dutch company may have.

Dutch law further provides for flexibility in shareholding structures. Disclosure requirements apply in respect of substantial shareholdings and short positions in Dutch listed public limited companies.

Finally, a declaration of no concern (verklaring van geen bezwaar) from the Dutch Central Bank (De Nederlandsche Bank, DNB) is required for equity investors seeking to acquire or increase a qualifying holding (ie, the ability to exercise at least 10% of the voting rights) in certain financial undertakings – including, but not limited to:

• credit institutions;
• investment firms;
• insurers;
• premium pension funds; and
• payment institutions.

Size, age and industry tend to influence capital-raising decisions. Both debt and equity are raised for financing needs, with capital-intensive or high-growth industries generally required to seek comparatively more financing, both debt and equity. Market conditions are also an important factor in the choice of raising debt versus equity financing. According to the Netherlands Bureau for Economic Policy Affairs (CPB), the leverage ratio of Dutch companies has, on average, decreased over the past decade, with larger companies generally having higher levels of debt.

The type and structure of financing attracted depends largely on company size, as follows.

Small and Medium Enterprises

Small and medium enterprises (SMEs) typically raise equity through initial insider (own) funding, angel investors, government investment, venture capital and private equity. SMEs can attract debt financing through bank loans, venture debt, bank overdrafts and (revolving) credit facilities by banks and government loans.

Small and Mid-Cap Companies

Small and mid-cap companies generally raise additional equity through private equity buyouts and investments, and, to a lesser extent, through public listings (eg, IPOs or subsequent offerings). They can access debt financing through (revolving) credit facilities by banks, syndicated bank debt, A and B term loans, and high-yield bonds.

Large-Cap Companies

Large-cap companies are well positioned to raise equity through private equity buyouts, investments and public listings. These companies have many forms of debt instruments available to them, such as corporate bonds, syndicated bank debt, A and B term loans and (revolving) credit facilities by banks.

The Netherlands has a strong trading and investment tradition, is a strong financial player in Europe and has a well-established equity finance market (as described in more detail in 2.2 Equity Finance Providers and Potential Restrictions on Them).

H1 2024

The Netherlands experienced record years during 2022 and 2023. However, up to October 2024, the 2024 deal flow slowed compared to previous years, and was moderately active. High interest rates and geopolitical tensions have contributed to a more cautious market environment, leading to the postponement of several deals. According to data from PitchBook, the total number of completed transactions in the Netherlands in 2024 (as of 14 October 2024) stands at 350 (excluding deals without a submitted deal size). Although early-stage venture capital investments account for a significant portion of the total deal count up to 14 October 2024, the average deal size in this category remains relatively low. Private equity investments and buyouts dominate the mid-market and large-cap segments, while corporate growth capital, strategic buyouts and business combinations constitute a smaller portion of the overall market.

Outlook for H2 2024 and 2025

A slight rebound by the end of 2024 is expected, with growth continuing in 2025, particularly for small and mid-cap activity. This expected rebound is driven by (among other things):

• the expected stabilisation of interest rates;
• the expected clarity on policy direction following the various national elections that have taken place (eg, the UK, France, European Parliament) or that are yet to take place in 2024 (eg, the USA); and
• the expected continued private equity activity on the buy-side, and the strong pressure on private equity sponsors to return capital to their investors.

The Dutch private and public capital market is well positioned in the EU and has grown significantly over the past decade, as described in more detail in 2.2 Equity Finance Providers and Potential Restrictions on Them. The public market continues to play an important role, especially for larger companies, though the private equity market seems to be driving more growth and innovation. For companies seeking first-time equity investment and for those companies that are not publicly listed, the private market is more important for attracting equity financing.

A key trend is Dutch companies remaining privately owned instead of going public or for a longer period of time before going public. The private market is considered more attractive owing to a significantly lower regulatory burden and related costs, higher valuations and more flexibility in financing terms, in particular for small and mid-cap enterprises. With the continued growth of private equity and the current state of the IPO market, this will also increasingly become the case for large-cap companies.

The EU has recognised that it is critical to make the public capital markets in the EU more accessible and attractive for companies of all sizes (including SMEs) seeking to raise capital and list shares, and aims to reduce regulatory and compliance costs as well as the administrative burdens of such listing. In light thereof, the EU Listing Act has been proposed, which in particular aims to:

• simplify and streamline primary and secondary issuances in public capital markets;
• expand the prospectus exemptions; and
• alleviate certain requirements for listed companies.

The legislative process for the proposed EU Listing Act is expected to be successfully completed by the end of 2024.

The Netherlands has a well-established and organised investor scene that sets it apart from other European markets. Deal sourcing is largely propelled by participants such as corporate finance advisers and bankers, whose primary functions include searching for investment opportunities and connecting businesses with equity investors. Therefore, investors and companies in need of capital in the Dutch market benefit from the expertise of the various advisers in the Netherlands. Furthermore, in an equity transaction, parties generally engage financial and legal advisers to ensure strategic guidance throughout the transaction.

Sale Transactions

The typical, traditional exit path for a financial investor is generally achieved through a private sale to a third party (one or more other private equity sponsors, a strategic buyer or another third party).

For transactions involving multiple investors, parties will generally arrange detailed exit rights (eg, the right to initiate an exit process, drag-along and tag-along rights, rights of first refusal, etc), and investors wishing to realise created value should carefully negotiate such provisions in their investment or shareholders’ agreements. The rights will depend on the position of the shareholders (eg, majority/minority shareholders, management and founders).

In order to facilitate a successful sale of the company in which an equity investment has been made, management incentive plans are often implemented to ensure the alignment of interest with management, who will be crucial for the successful implementation of an exit – for example, by:

• facilitating due diligence requests;
• giving management presentations; and
• giving or validating business warranties in the context of transaction documentation.

Warranty and indemnity (W&I) insurance has become very common in the Netherlands, particularly for private equity transactions, resulting in the possibility for equity investors to realise a “clean exit”.

The Secondaries Market and Continuation Funds

In recent years, the international secondaries market has grown extensively as an alternative to a private sale for private equity sponsors and their investors, and is also evolving as such an alternative in the Netherlands.

These types of transactions can either be led by a limited partner (LP) (an investor in a fund) or a general partner (GP) (a private equity sponsor). In an LP-led secondary transaction, the interests of such LP in a single interest in a fund or a portfolio of interests held across several different funds is sold to a third party. In a GP-led secondary transaction, the ownership of one or more portfolio companies is restructured, for example by means of a sale of such portfolio companies to a newly formed continuation fund that is managed by the same sponsor.

A continuation fund enables the GP to (inter alia):

• extend the holding period for the relevant portfolio companies;
• raise new capital from new and rolling investors; and
• negotiate new terms and economics for the continuation fund.

For LPs, the sale to a continuation fund creates liquidity as well as the opportunity to roll over parts of their interests into the new fund.

The Public Equity Market

The Dutch public equity market remains an exit route for investors in mid-cap and larger companies. It should be noted, however, that the IPO market in the Netherlands slowed down in 2023/2024 owing to rising interest rates and geopolitical uncertainty.

Companies in the Netherlands use both debt and equity financing. The Netherlands has a robust banking sector, and traditional bank loans remain a cornerstone for working capital financing of companies of all sizes. For growth financing, where rapid growth and innovation is envisaged, private equity and venture capital are among the more important equity providers. These parties are crucial for scaling businesses, particularly in capital-intensive sectors such as technology and life sciences.

Important factors in the choice of either debt or equity financing for companies include:

• the cost of capital;
• control and ownership;
• risk tolerance; and
• growth stage and expectations.

For investors, the following aspects are of importance when choosing to provide equity or debt financing:

• risk and potential returns;
• the company’s investment horizon;
• market conditions; and
• available collateral in the company.

With interest rates on the rise, debt financing is expected to become less attractive, and future financings will likely impose more conditions. Shareholders may also be required to offer equity in order to raise capital. Higher interest and inflation may lead to increased liquidity problems and higher financing needs, as well as to an increase in distressed restructurings and distressed M&A.

The time period it takes for companies in the Netherlands to raise equity financing can vary quite significantly, depending on:

• the type of financing;
• the maturity of the company;
• the amount of capital being raised; and
• market conditions.

Public Equity

See 1.3 Public Equity Markets, which describes the timeline and stages for a public equity financing transaction.

Venture Capital and Private Equity

In venture capital transactions, the lead investor often commits the largest amount of funding and leads the equity funding round. It also attracts other investors to join the funding round (for example, corporates, individuals or other venture capital investors). Such equity funding round often consists of issuing new preference shares, and may also include other changes to the capital structure (see 1.2 Growth and Private Equity Financing). The duration of these processes depends on various factors, including:

• the structure of the transaction;
• the complexity of the transaction; and
• regulatory requirements, such as FDI or sector-specific (eg, for the financial or healthcare sector) filings and approvals, which must be obtained prior to completion of the transaction.

However, in the absence of regulatory filings and consents (which are less common for start-ups), the equity financing process can take one to three months.

Dutch law provides for various investment-screening regimes, focusing on protecting national security and continuity of certain vital processes in the Netherlands. Such regimes focus on (in)direct investments in, or acquisitions of, businesses that are active in:

• the telecommunications sector;
• the gas and electricity sector;
• vital processes;
• (highly) sensitive technology; and
• management of high-tech business campuses.

Transactions falling within the scope of any of the aforementioned investment-screening regimes must be filed with the Dutch Investment Assessment Agency (Bureau Toetsing Investeringen, BTI), which is part of the Dutch Ministry of Economic Affairs and Climate. The BTI subsequently assesses and screens the proposed transaction and, in particular, the acquirer. Further to the screening, the BTI can:

• clear the transaction;
• impose conditions; or
• prohibit the transaction.

Transactions that are completed in violation of a decision of the BTI are void, or, in the case of a merger or transactions that are completed through a regulated market, are voidable by a court order.

Typically, investment screening and the related filing obligation only applies if a certain threshold in terms of influence over the target business is met or exceeded. The applicable threshold depends on the relevant regime and nature of the target business.

Notwithstanding the foregoing, the applicability of the Dutch investment-screening regimes is not limited to share transactions. Mergers, demergers, creating joint ventures as well as asset transactions can also be subject to investment screening. Finally, Dutch investment-screening regimes apply to direct and indirect transactions in relation to businesses that are located/active in the Netherlands, irrespective of the nationality of the investor (ie, including Dutch and EU investors).

When engaging in investment activity in the Netherlands, it is advisable to timely consider whether an envisaged transaction falls within any of the Dutch investment-screening regimes (directly or indirectly when the target business has operations in the Netherlands), as this affects timing considerations, deal certainty, risk allocation among the parties and (potentially) investment decisions.

The Netherlands favours free capital flows and, as such, generally few limitations apply to distributions and the repatriation of capital.

The general meeting of shareholders can resolve to make the following distributions:

• (interim) dividend (profits);
• reserves (retained earnings, share premium, etc); and
• paid-up share capital by cancellation of shares, or reduction of nominal value (equity).

Different tests apply depending on whether the relevant company is a Dutch private or public limited company.

Private Limited Company

For a Dutch private limited company (besloten vennootschap, BV), the following two tests should be performed.

Balance sheet test

A BV may only make distributions to the extent that it has shareholders’ equity in excess of:

• any statutory reserves; and
• any reserves that must be maintained pursuant to the BV’s articles of association.

The managing board should (based on a recent balance sheet, without any audit requirement) assess whether sufficient equity exists to pay the distribution.

Liquidity test

Each resolution to make any distribution requires the prior approval of the managing board in order to have effect. The managing board may only withhold its approval if, at the time the distribution is made, the managing board knows or, acting reasonably, should have known that the BV would not be able to continue to pay its due and payable debts after the distribution. The managing board should (on the basis of expected income and expenses for approximately the next 12 months) assess whether the BV could continue to pay its due and payable debts.

Public Limited Company

For a Dutch public limited company (naamloze vennootschap, NV), the following is required.

Balance sheet test

An NV may only make distributions to the extent that its shareholders’ equity exceeds:

• the amount of paid-up and called-up capital;
• statutory reserves; and
• any reserves that must be maintained pursuant to the NV’s articles of association.

Publication requirements

In the case of distribution of (interim) dividend (profits) or reserves (retained earnings, share premium, etc), only profits available for distribution as apparent from the adopted annual accounts may be distributed. Interim dividend or reserves may only be distributed if the articles of association provide for the possibility thereof, and based on an interim balance sheet:

• signed by all managing directors; and
• not older than three months at the time of the distribution.

Such balance sheet should be published with the Dutch trade register within eight days after adoption of the distribution resolution.

In the case of distribution of paid-up share capital by cancellation of shares, or reduction of nominal value (equity), the shareholders’ resolution to distribute equity should be published with the Dutch trade register, and such publication should be announced in a Dutch daily newspaper. The distribution may only be effected after a two-month creditor objection period has lapsed, unless any creditor objected thereto, in which case additional security may need to be vested.

International money transfers are generally permitted, subject to sanctions law and anti-money laundering (AML) restrictions. For certain regulated sectors, additional capital requirements and distribution limitations may apply. Finally, tax consequences of any distributions should always be considered prior to distributing any dividends.

Dutch AML Legislation

Equity financings (ie, any transactions that relate to an investment in a company in exchange for shares or similar rights) as such are not subject to Dutch AML legislation. However, the equity finance investors and/or the company in which the equity finance investors are investing may be subject to the AML and know-your-customer (KYC) rules as set out in the Dutch AML Act (and related laws and regulations) if they qualify as one of the financial undertakings (eg, banks, investment firms, investment funds, payment institutions, e-money institutions, other financial service providers) or other legal persons as set out in Article 1a of said Act.

Dutch Sanctions Regulations

The Dutch Sanctions Act 1977 is applicable to Dutch equity finance investors and/or Dutch companies in which equity finance investors are investing (as these qualify as Dutch legal persons). This means that these Dutch legal persons must comply both with Dutch sanctions regulations and with related EU sanctions regulations – eg, when a transaction, such as an equity financing, is carried out.

Governing Law

The documentation for equity financing transactions is, in principle, governed by Dutch law.

Dispute Resolution

Disputes are generally resolved either through Dutch courts or arbitration. 

Dutch courts

The Dutch judiciary is ranked among the most efficient, reliable and transparent judiciaries worldwide. Dutch courts are known to be highly experienced in handling complex and/or cross-border (corporate) litigation matters. Besides being knowledgeable, the courts often taken a practicable approach and handle matters with the required speed. The courts objectively rule on the interests of all parties involved, irrespective of whether or not foreign investors are involved.

In addition to the general Dutch courts, the Netherlands has a dedicated court called the Enterprise Court, which is a dedicated chamber of the Amsterdam Court of Appeal (Ondernemingskamer). It handles corporate litigation matters only, including:

• enquiry proceedings (enquêteverzoeken);
• proceedings related to the annual accounts (jaarrekeningenprocedure);
• shareholder disputes (geschillenregelingen); and
• buyout proceedings (uitkoopregelingen).

The Enterprise Court is extremely experienced and is highly valued for its fair decisions, its practical approach and the speed within which matters are handled.

Furthermore, on 1 January 2019 the Netherlands Commercial Court (NCC) was established. The NCC’s proceedings are held in English, and its judgments are also rendered in English. The NCC (handling both first-instance and appeal proceedings) is well positioned to swiftly and effectively resolve international business disputes (including international corporate disputes). The reputation of the Dutch judiciary, as mentioned above, provides a solid basis for the NCC in handling complex litigation matters.

Arbitration

Parties also often choose to have their disputes resolved through arbitration. In particular, the fact that arbitration proceedings are not public proceedings is often a reason for parties in equity financing transactions to opt for them. Parties can choose to submit their dispute to an international forum such as the ICC or the Netherlands Arbitration Institute (NAI).

FDI Screening

Since 1 June 2023 – when the Vifo Act entered into force and introduced screening of transactions relating to businesses that are active in vital processes, (highly) sensitive technology and the management of high-tech business campuses – investment screening and enforcement has gained importance, and investment-screening filings with the BTI have exponentially increased. The European Commission is working on a revision of the EU Screening Regulation, which is expected to harmonise investment screening by member states and to expand the scope of investment screening in the Netherlands.

Dutch AML Legislation

A new AML/CFT legislative package has entered into force and will apply from 10 July 2027. It consists, among other things, of:

• the Regulation establishing a new EU-level Anti-Money Laundering Authority (AMLA);
• the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLR); and
• the sixth AML Directive on the mechanisms to be put in place by member states for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, repealing Directive (EU) 2015/849 (AMLD6).

This will affect the Dutch AML legislation currently in place.

Dutch Sanctions Regulations

There has been a proposal from the Dutch Ministry of Foreign Affairs to modernise Dutch sanctions regulations. This proposal is still at an early stage of the legislative process as applicable in the Netherlands.

Withholding Tax on Dividends

Profit distributions made by a Dutch company are, in principle, subject to Dutch dividend withholding tax (at a rate of 15% in 2024), unless an exemption applies or the withholding tax is reduced under any domestic provision, applicable double tax treaty or directive. Such tax is withheld by the Dutch company making the profit distribution.

A domestic exemption from Dutch dividend withholding tax exists for shareholders located in EU/tax treaty jurisdictions, subject to certain conditions (eg, beneficial ownership, 5% shareholding in the Dutch company and no abusive element).

Conditional Withholding Tax on Dividends, Interest and Royalty Payments

A conditional withholding tax (at a rate of 25.8% in 2024) applies in respect of profit distributions, interest and royalty payments to certain affiliated recipients. In short, this levy relates to:

• profit distributions, interest and royalty payments to affiliated recipients that are located in listed low-tax or non-cooperative jurisdictions for tax purposes;
• certain (reversed) hybrid entities; or
• those located in non-listed jurisdictions in the case of an abusive element in the structure.

This tax must be withheld by the Dutch company making the distribution/payment.

Given the anti-abuse character of the levy, the Netherlands may, in practice, take the position that it cannot be reduced under any double tax treaty or Directive. Anti-accumulation rules apply in respect of the withholding tax on dividends and the regular Dutch dividend withholding tax, subject to conditions.

Dutch Taxation of Capital Gains (Corporate Shareholders)

In general, for Dutch-resident corporate shareholders of a Dutch company, capital gains deriving from qualifying participations should be exempt from Dutch corporate income tax based on the participation exemption (which is a full – ie, 100% – exemption).

Where a foreign-resident corporate shareholder holds a so-called substantial interest in a Dutch company (ie, 5% or more) and the foreign resident company can be considered to be interposed to avoid Dutch personal income tax at the level of individual(s) up the chain, capital gains could be subject to non-resident Dutch corporate income tax (headline rate of 25.8% in 2024) at the level of the foreign company. Such levy is only due under certain circumstances, is to be reviewed and may (for instance) not be imposed based on application of a double tax treaty.

Stamp Duty and Transfer Tax

No stamp or registration duty is levied in the Netherlands on share subscriptions or transfers of shares in Dutch companies, unless such company is a Dutch real estate rich company, in respect of which Dutch real estate transfer tax may be triggered.

Tax Incentives

Several tax incentives exist in the Netherlands in respect of R&D activities carried out by Dutch companies, such as:

• the innovation box, whereby certain profits derived from innovative activities concerning qualifying intangibles are subject to an effective tax rate of 9% (in 2024) and subject to conditions; and
• a Dutch wage tax facility relating to certain R&D activities.

Extensive Double Tax Treaty Network

The Netherlands has an extensive double tax treaty network designed to (inter alia) prevent double taxation in an international environment.

EU Directives

Dutch companies may benefit from favourable provisions included in EU Directives regarding (for instance) cross-border payments of dividends, interest and royalties, and cross-border mergers, provided all relevant requirements are met (including beneficial ownership and no abusive element).

Once an insolvency process is commenced, the company as debtor (and therefore its shareholders) will lose all control rights over its assets, as the bankruptcy trustee will take control of the division and sale of assets. Assets can only be disposed of by this bankruptcy trustee.

Assets, including shares, are also part of the bankrupt estate. Legislation stipulates that security rights over such assets may be enforced against these assets as if there was no bankruptcy, meaning that the secured creditor may sell the pledged shares and keep the amount of the proceeds thereof. However, the bankruptcy trustee can order a so-called cooling-off period, which can take up to four months for a suspension of payment and up to four months for a bankruptcy. During this period, the pledgee may not enforce its security rights.

As the bankruptcy trustee is in charge of managing the company’s assets and has the exclusive power of disposal over the assets, there is no role for management (or the shareholders) in that respect.

Under Dutch insolvency law, equity investors, assuming they are shareholders in the bankrupt company, are last in the ranking of payouts following the sale of assets. This means they will only receive a distribution if all other creditors (including secured and unsecured creditors) have been fully paid.

For completeness, uncalled capital commitments can still be called in by the bankruptcy trustee or the liquidator to the extent that these relate to contributions on subscribed shares, which must be made pursuant to the law or articles of incorporation (eg, share capital that is not paid up). This will generally concern relatively low amounts. Funding provisions in investment or shareholders’ agreements do not typically contain upfront unconditional commitments to fund additional capital.

The length of insolvency proceedings under Dutch law can vary depending on the specific facts and circumstances of the bankruptcy, including the complexity of the debtor’s financial situation and the nature of the claims involved. Additionally, the timing and amount of distributions to creditors are also influenced by these factors, making the process highly case-dependent.

Under Dutch law, there are two forms of rescuing operations for companies in financial distress before the bankruptcy procedure is commenced:

• suspension of payments (surseance van betaling); and
• the Dutch Act on Court Confirmation of Private Restructuring (WHOA).

Suspension of Payments

Suspension of payments can be requested by management if a company is experiencing liquidity problems, by filing a petition with the court. The procedure seeks to protect companies that are unable to meet liabilities when they are due, by imposing a court order standstill, under the condition that there is a reasonable prospect of the company being able to satisfy its creditors. However, in practice suspension of payments is often only requested when the company experiences extremely severe financial difficulties. Therefore, a suspension of payments procedure is usually followed by a bankruptcy filing.

WHOA

The WHOA allows a company to offer an extrajudicial restructuring plan to its creditors and shareholders. A restructuring plan can be proposed by a company in a position where it is reasonably likely that it will not be able to continue paying its liabilities, or can be initiated by creditors, shareholders and a works council of a debtor, by requesting the court to appoint a restructuring expert to prepare a restructuring plan on the company’s behalf. It takes the form of a contract between the company and the relevant creditors and shareholders, and could include:

• the amendment, deferral or haircut of current or future (payment) contractual obligations; and
• a debt-for-equity swap.

In contrast to a bankruptcy or a suspension-of-payments procedure, a restructuring plan entails that management remain in place and not lose the rights to dispose of the company’s assets.

When a WHOA procedure begins, the company aims to negotiate with creditors on how to meet its liabilities, meaning that the company is normally in the driver’s seat. Equity investors typically have limited influence, especially if their equity is at risk of being wiped out. Their role may be more significant if they are crucial for ensuring the company’s continuation or restructuring.

The general rule under Dutch law is that shareholders cannot be held liable for the damages suffered by (the creditors of) a company. Instead, the liability is limited to the amount contributed as share capital to the company by such shareholders. However, piercing the corporate veil can occur when an equity investor (for example) acts as a shadow director or negligently creates justified expectations of the company’s creditworthiness.