Rebecca van Drongelen 421046 2016 Master Thesis Success factors for converting Amsterdam based start-ups into Amsterdam based scale-ups. Mentor: Peter de Wolf Co-reader: Wim Hulsink Major: Strategic Management Rotterdam School of Management (RSM), Part-Time MScBA Business Administration Rebecca van Drongelen / 421046 DISCLAIMER All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author. The work presented in this publication is original. No other sources, besides those mentioned as references, have been used. The copyright of the master thesis rests with the author. The author is responsible for the contents of this publication. The Rotterdam School of Management (RSM) is only responsible for the educational coaching and cannot be held liable for the content. 1 Rebecca van Drongelen / 421046 Executive summary Over the last couple of years governments, cities, press and other stakeholders have increased their focus on start-ups. Nearly every big city in Europe wants to become the new Silicon Valley. Also the city of Amsterdam is investing significantly in attracting start-ups and supports entrepreuneurship. Many wonder if these investments are worthwhile, as research shows that more than half of the new ventures do not last longer than five year and most of the start-ups struggle with the problem of finding a scalable business model to overcome the critical stages in their growth path. For Amsterdam specifically is stated that it is hard to find access to growth capital and mentorship. This research wants to identifiy critical success factors for start-ups in Amsterdam and the challenges they face in their growth path. This thesis attempts to investigate how Amsterdam can facilitate start-ups in their growth process into a scale-up. This leads to the following research question: How can Amsterdam based start-ups be helped into becoming scale-ups without the need to leave Amsterdam? The research is performed in three main phases: in the first phase, a literature study was performed on the important and relevant new venture creation theories, success factors of new vantures and definitions in order to formulate research questions about start-ups in Amsterdam. In a second phase, a selection of ten Amsterdam-based start-ups were interviewed based on the questions formulated in the first phase. In the last phase, an analyse was made on the second phase where the outcome of the interviews was compared with the theories. Based on the results of this analysis, it appears that there is plenty of capital, seed capital but also later stage funding available in Amsterdam, which enables the growth of start-ups in Amsterdam. Every entrepreneur with an idea has access to capital, regardless the quality of business plans, track record or entrepreneurial skills. In addition, the existence of social and human capital in the form of strong networks and mentoring are very important success factors for start-ups. According to the research, the ecosystem of Amsterdam offers enough opportunities to strengthen both social capital as well as human capital. The interviews contradicted on two subjects: internationalisation and on organisation. According to the literature, certain processes for internationalisation could be followed as well as a clear understanding of the advantages of internationalisation. However, interviews revealed that neither a specific process is followed nor are the advantages thought out, it is more a matter of doing it, resulting from the homogeneous market and the fact that most habitants in Amsterdam and on this 2 Rebecca van Drongelen / 421046 planet speak English, and have access to internet. With respect to organisation, the literature indicates that start-ups need to hire people with the right skillset, while the interviews revealed that certainly the young generation of entrepreneurs find it more important that employees have the right mentality rather than the desired skillset. 3 Rebecca van Drongelen / 421046 Table of contents DISCLAIMER .......................................................................................................................................................... 1 EXECUTIVE SUMMARY ....................................................................................................................................... 2 1. INTRODUCTION ............................................................................................................................................... 7 1.1 RESEARCH PURPOSE AND RESEARCH QUESTIONS ........................................................................................................ 7 1.2 STRUCTURE ......................................................................................................................................................................... 8 1.3 METHODOLOGY .................................................................................................................................................................. 9 2. THEORETICAL BACKGROUND .................................................................................................................. 10 2.1. INTRODUCTION ............................................................................................................................................................... 10 Start-ups ................................................................................................................................................................................. 10 Scale-ups ................................................................................................................................................................................. 11 Entrepreneurship ............................................................................................................................................................... 11 2.2 INDIVIDUALS .................................................................................................................................................................... 11 2.3 PROCESS ............................................................................................................................................................................ 13 Start-up process .................................................................................................................................................................. 13 Growth and scale-up processes .................................................................................................................................... 14 Life-cycle theory .................................................................................................................................................................. 14 Critical stages in the life cycle of a start-up ............................................................................................................ 15 Lean start-up growth process ....................................................................................................................................... 16 2.4 ORGANISATION ................................................................................................................................................................ 17 Team ........................................................................................................................................................................................ 17 Funding structure .............................................................................................................................................................. 17 Scalability .............................................................................................................................................................................. 18 2.5 ENVIRONMENT ................................................................................................................................................................ 20 What makes an environment attractive .................................................................................................................. 20 2.6 INTERNATIONALISATION ............................................................................................................................................... 23 Internationalisation theories ........................................................................................................................................ 24 Dunning’s OLI model ......................................................................................................................................................... 24 Uppsala model ..................................................................................................................................................................... 25 Born globals .......................................................................................................................................................................... 26 Relocation .............................................................................................................................................................................. 27 3. METHODOLOGY ...........................................................................................................................................