By Thomas Mensink

“A Rainforest is a human ecosystem in which human creativity, business acumen, scientific discovery, investment capital, and other elements come together in a special recipe that nurtures budding ideas so they can grow into flourishing and sustainable enterprises.”

Venture capital investors Victor W. Hwang and Greg Horowitt use the analogy of a biology ecosystem to describe the distinctive elements of successful entrepreneurial ecosystems in their book The Rainforest – The Secret to Building the Next Silicon Valley. Entrepreneurial ecosystems are, to put it really short, subject to the (diversity of) people who are in it and their ability to interact and collaborate.

An entrepreneurial ecosystem is not something you just decide – on a good day, with a drink in your left hand – to build. It is something that needs to grow organically (hence: ‘rainforest’), which you can speed up at best. Ecosystems need their momentum to attract (or retain) talent, ideas, and capital (to name just a few ingredients).

While I was studying the entrepreneurial ecosystem of Twente (the Netherlands) and success factors of other ecosystems not too long ago, it got me thinking; can the success of a company that is ‘raised’ in an ecosystem have a negative impact on the very same ecosystem?

The contradictory challenges of VCs in regional ecosystemsQuite recently I had a conversation about entrepreneurial ecosystems with a venture capitalist from a large fund in Belgium. His firm is headquartered in Leuven, a reasonably small city in Belgium, and invests in early-stage companies in Europe (mainly Benelux). We found similarities between the ecosystems of Leuven and Twente (where my company is located): both have a strong technology reputation with reputable universities and countless spinoff companies, and both lack the presence of large corporates. We discussed the contradictory challenges of venture capital investors (VCs) in regional entrepreneurial ecosystems, like Leuven or Twente.

For VCs, IPOs are said to be the ‘holy grail’ exits, because they are likely to make a hell of a lot of money as an early stage investor at that event. Since there hasn’t been much IPO activity of tech companies in the Benelux recently, a strategic acquisition by a large company may be the preferred or at least most realistic exit strategy of Belgium and Dutch VCs. In case of a strategic acquisition of a company in a ‘small’ regional ecosystem, like Leuven or Twente, the acquirer is likely to be located elsewhere.

As an investor in a regional ecosystem, an exit by acquisition can therefore cause mixed feelings. On the one hand, the exit monetizes the added value of the investor, and creates both capital gains and legitimacy for the investor (e.g. for future investment plans). On the other hand, the entrepreneurial teams of acquired companies often leave to the new headquarters, causing great people to leave the local network and therefore causing the overall quality of the ecosystem to decrease. There are some example of entrepreneurs and companies that left Twente or Leuven in this way.

What will keep champions from leaving?It can hence be quite tough to keep the success stories of VCs inside the regional entrepreneurial ecosystem in the long term. Success is obviously a relative term. Of course, success stories can boost the reputation of the ecosystem and attract more startup companies, but will it be enough to offset the loss of the champions?

Companies from Twente that got acquired recently, like X-Flow (sold to Pentair in 2011), Axiom IC (to Teledyne Dalsa in 2013) and Xsens (to Fairchild Semiconductor in 2014), have to have a value-adding ecosystem to keep them from leaving. To illustrate, Pentair X-Flow participates in a regional Open Innovation Center Advanced Materials (OICAM), Axiom IC has a strong bond with the University of Twente, and Xsens says in its press release that it continues to operate under its own brand and leadership and remains headquartered at the current location near its origin: the University of Twente.

Therefore, there lies a task for the ecosystem to consistently show its added value, both to the people and organization within the ecosystem and outside of it. If there is sufficient added value and the ecosystem is able to demonstrate it, companies and entrepreneurial minds can stay in the ecosystem, keeping the rainforest sustainable and dense.

Over Thomas Mensink

Thomas is business engineer at Golden Egg Check and part time blogger at

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