European entrepreneurs who Wanting to start startups could do worse than Switzerland.
In a report that analyzed the overall economic health of Europe, the cost of doing business, the business environment and the quality of the workforce, analysts looked for well-educated populations, strong economies, a healthy business environment and relatively low costs to run a business. According to Nimblefins, Switzerland took third place among 31 European nations. (Germany and Great Britain came out first and second, respectively).
According to official estimates, the number of new Swiss startups has increased by 700% since 1996. Zurich tends to make up the lion's share, as the acceptance of startups in the city has accelerated development, although Geneva and Lausanne are also hotspots.
In addition to the traditional software engineering startups, Switzerland's largest city has a startup culture that focuses on life sciences, mechanical engineering and robotics. Compared to other European countries, Switzerland has a low regulatory burden and a well-trained, highly qualified workforce. Google's largest research and development center outside of the US is in Zurich.
It's also one of the more expensive places to start a business because of the high cost of living, salary expectations, and the relatively small job market. Domestic startups need 25,000 Swiss Francs to open an LLC and 50,000 more to set it up. While they can get these funds out of business the next day, the local founders still need to ensure adequate support to get started in the first place.
Switzerland has thus earned a reputation as a start-up location – and as a moving location, which is something completely different. This is one reason why many fintech companies are based in the region Companies that were born elsewhere and need proximity to a large banking ecosystem, as well as the blockchain / crypto mass that has found a very accessible regulatory environment in Zug, right next to Zurich. The “Crypto Valley” in Zurich / Zug is a global blockchain hotspot and is home to the Ethereum Foundation, among others.
Lawyers and accountants tend to be wrong on the conservative side, resulting in low corporate failure rates, but less “moonshot innovation,” we say.
In recent years, corporate documents have been created in English in order to facilitate communication both within the different language regions of Switzerland and among foreign capital. The investment documentation is based on the USA.
Ten years ago, startups were unusual. Today pitch competitions, incubators, accelerators, VCs and angel groups are multiplying.
The federal commission for technology and innovation (CTI) of the state supports CTI-Startup and CTI-Invest and offers startups investments and support. Venture Kick was founded in 2007 with the vision of doubling the number of spin-offs from Swiss universities and is composed of a jury of more than 150 leading startup experts in Switzerland. It grants up to CHF 130,000 per company. Fundraising platforms like Investiere have increased the support of the angel community for early funding rounds.
Swiss companies, like almost all European companies, tend to raise lower early phase rounds than US companies. A series A investment of CHF 1 to 2 million or a series B investment of CHF 5 million is common. This has led to smaller outputs and thus less development of the ecosystem.
These are the investors we interviewed:
- Jasmin Heimann, partner at Ringier Digital Ventures
- Katrin Siebenbuerger Hacki, founder, Medows
- Philipp Stauffer, Partner, FYRFLY Venture Partners
- Claude Donzé, partner, Tomahawk.VC
- Lucian Wagner, partner at Privilège Ventures
- Maximilian Spelmeyer, partner at SIX Fintech Ventures
- Olaf Hannemann, partner, CV VC AG
- Andreas Iten, partner, F10
- Michael Blank, Partner, Invest
- Ninja Struye de Swielande, partner, Lakestar
Jasmin Heimann, partner, Ringier Digital Ventures
In general, which trends are you most looking forward to?
Startups with customer contact and initial income.
What's your newest and most exciting investment?
AirConsole – a cloud gaming platform where you don't need a console and can play with all your friends and family.
Are there startups that you would like to see in the industry, but not? What are some overlooked opportunities right now?
I really wish that the business model for social and environmental startups would finally be proven (similar to what Oatly showed with the Blackstone investment). I also think that femtech is a hyped category, but there is still a lack of funding and well-known exits.
In general, what are you looking for in your next investment?
I'm looking for simple, scalable solutions with a great team.
Which areas are either oversaturated or would be too difficult to compete for a new startup at this point? What other types of products / services are you cautious or concerned about?
I think the entire scooter / mobility space is super hyped, but also super capital intensive, so I think it's difficult to survive in this market at this stage. I also think the whole Edtech space is an important area of investment, but there are quite a number of actors already and it often requires working with governments and schools, which makes it much more difficult to operate there. After all, I don't find out why people are still creating fitness startups since I think the market has reached its limits.
How much do you focus on investing in your local ecosystem compared to other startup hubs (or anywhere) in general? More than 50%? Fewer?
Switzerland makes a maximum of half of our investments. We are also interested in Germany and Austria as well as the Nordic countries.
Which industries in your city and region seem well positioned to thrive in the long term or not? Which companies are you looking forward to (your portfolio or not), which founders?
Zurich and Lausanne are certainly the most exciting cities just because they are home to great engineering universities. Bern is still lagging behind, but I hope that more startups will emerge from there, especially in the medical technology sector.
How should investors in other cities feel about the general investment climate and opportunities in your city?
Overall, Switzerland is a great market for a startup – although small, the purchasing power is huge! Investors should therefore always take this into account when considering coming to Switzerland. The startup scene is quite small and well connected, so it helps to get access through someone who is already familiar with the space. Unfortunately, typical B2C cases are rather rare for us.
Do you expect more founders from regions outside of the big cities to spike in the coming years, with start-up hubs losing people due to the pandemic and the ongoing concerns and appeal of remote working?
I think it's difficult to make any predictions. But on the one hand I could see that. On the other hand, I also think the magic of cities is that there are random moments when you can find your co-founder at a random networking dinner or come across a new business idea while talking to a stranger. These moments will most likely be much more difficult to experience now and for the next several months.
Which industry segments you are investing in look weaker or more exposed to potential changes in consumer and business behavior due to COVID-19? What opportunities can startups take advantage of in these unprecedented times?
I think travel is still a big question mark. Same goes for luxury goods as people are more concerned about the economic situation they are in. On the other hand, remote working has seen an increase in investment. Hopefully sustainability will also be put back on the agenda.
How has COVID-19 affected your investment strategy? What are the main concerns of the founders in your portfolio? What is your advice to startups in your portfolio right now?
Not much. I think we've given a little more to the existing portfolio, but otherwise we're continuing to look at and discuss the best cases. The biggest worries are the uncertainties about what the future might look like and the associated planning. We urge them to primarily secure cash flow.
Do you see “green shoots” in terms of sales growth, customer loyalty or other impulses in your portfolio when these adapt to the pandemic?
Total! Some portfolio companies have really benefited from the crisis, particularly our subscription-based models which offer a variety of different options for spending time at home. The challenge now is to keep the momentum going after the lockdown.
What's one moment that has given you hope in the last month or so? This can be professional, personal, or a mixture of both.
What gives me hope is to see people find ways to still work together – the number of online events, office hours, etc. is amazing. I also see the pandemic as a great opportunity to change the way we work and the state of affairs without ever questioning it.