Swiss Startups: Safe Bet or Risky Venture?

Switzerland has long been known for its political neutrality, dependable banks and punctuality. Since the economic crash of 2008, the global economy has suffered on-going recessions, yet Switzerland has somewhat been immune to them, thanks in part to its solid foundations. There has however been a shift in the job market, as the Swiss seem to be progressively moving away from the safer, more traditional jobs like banking and law, and moving towards a riskier form of self-employment instead: entrepreneurship. Even though this phenomenon has been around for decades, especially in highly fertile places like Silicon Valley, London and Berlin, tech entrepreneurship is a relatively new concept in Switzerland.

The landlocked European country is building a strong entrepreneurial ecosystem and has already set up some outstanding startup programs, the most notable of which are on the campus of the Ecole Polytechnique Fédérale de Lausanne (EPFL). One of the main game changers was the arrival of Patrick Aebischer. After spending several years in the scientific arena at Brown University, Aebischer was named President of the school and began his mandate in 2000, infusing some much needed American DNA into the campus life. An entrepreneur himself (he launched two biotech startups), Aebischer created a whole new dynamic at the EPFL, turning it into one of the top universities for Engineering.

The EPFL Campus in Lausanne, Switzerland

Switzerland has other notable institutional pillars, like the Commission for Technology and Innovation (CTI). This federal agency, which encourages innovation through funding, consulting and networks, is paving the way for Swiss startups. Therefore the country has a relatively well-developed ecosystem that has already given rise to many Swiss success stories, like House Trip, Get Your Guide and Doodle.

According to the Swiss Venture Capital Report published by startupticker.ch Magazine (January 2015), venture capital worth $461.5 million flowed into Swiss startups in 2014, 10% more than the previous year. This is encouraging, yet the Swiss still seem to be lacking a certain “je ne sais quoi”. When we compare it to London for example, which has the same population as Switzerland of about 8 million, there is a striking difference. London-based startups obtained $1.4 billion in funding in 2014, with $795.2 million coming from US investors. The fact that London is a cosmopolitan tech hub obviously plays a part as it strengthens the startup ecosystem and therefore draws in more capital.

Is it worth taking the risk?

However Switzerland is doing very well in terms of seed funding, as there are many Business Angels who are eager to invest in Swiss startups at their very beginning. There are also platforms like Venture Kick that give up to $130,000 in funding to help entrepreneurs kick-start their ideas. But when it comes to later stage VC funding, it seems that Venture Capital firms favour foreign investments. Even Swiss-based VCs like Index Ventures look elsewhere, beyond the Swiss borders. So why are VC’s holding back? This is a conjuncture of several things.

First of all, the Swiss are risk averse. Locked in a cosy little land of mooing cows and yummy chocolates, the people have always favoured neutrality, politically as well as financially. But being an entrepreneur means taking risks, and this is something the Swiss aren’t always very comfortable with.

Secondly, the growth potential is small in Switzerland, due in part to the size of its home market. Julien Pache, COO and Managing Partner at Investiere, explains that “Top VC funds look for companies that can become very big, very fast.” In Switzerland, the possibility to scale is limited, therefore a quick and successful exit is unlikely. So if VCs don’t foresee a strong return on investment, they probably won’t risk deploying large capital.

Finally, Swiss startups aren’t always very reactive when it comes to setting up a sales office or a subsidiary in a foreign target market. Peter Pfister, a notorious Business Angel based in Switzerland, explains in an interview for Venture Kick that it is easier to penetrate and understand the complexities of a foreign market by establishing a physical presence there. Therefore this is something the Swiss could work on.

Exporting Swiss expertise

But even though Switzerland may be lagging in this area, they excel in educating top engineers, which is something that attracts foreign interest. Between EPFL and ETH Zurich, the level of education is top notch. Google for example is relying on Swiss expertise. The search engine bought the app developer Bitspin, a spin-off from ETH Zurich. Merck also bet on Swiss products and is the new owner of Lausanne-based biotech company Oncoethix. Finally, Intel acquired Lemoptix and Composyst Light Labs this year, both spin-off projects of the EPFL.

These are perfect examples of the types of exits the Swiss pursue. Successful businesses in Switzerland often exit through a trade sale rather than an IPO, which is why there isn’t as much publicity as there would be for a Silicon Valley IPO for example. Discretion is a quality that Switzerland can pride itself on, but in order to attract top VCs, the Swiss need to be much more aggressive and start thinking beyond their quiet mountains.

Special thanks to Julien Pache, Ambroise Magistretti and Michael Weber for their insights.