the investor's paradigm

You missed our continuous blog posts? Sorry for that, but we have been busy fixing another problem: the lack of Swiss venture capital.

Startup financing has become even more challenging as the private equity sector is still struggling after the financial crisis. According to Swiss private equity organisation SECA, annual investment volumes have decreased from 600 million CHF in 2007 to just about 400 million in 2009.

This decline is even more dramatic for new ventures if one takes into consideration that the lion’s share was used for later stage investments. Only about one third of 2009’s venture capital flowed into companies in seed or early stages – down from two thirds in 2007! As a result, lots of ideas and innovations simply could not be commercialized. “For our long-term competitiveness venture capital is essential”, SECA General Secretary Maurice Pedergnana, concluded in an interview for cash.ch.

Steffen mentioned in one of our previous posts that over a period of ten years (1998 – 2007), only 27% of ETH Zurich startups managed to obtain venture capital funding, whereas close to 60% of the UK university spin-offs were backed by venture capital. This puts the SECA figures in perspective - especially when taking into account that the data was collected before the financial crisis started to affect startup financing. So if the share of venture capital funded companies was already on an insufficient level before the crisis – with more potential capital available and a higher share of seed and early stage investments – we do have a real problem at the moment!

On the other side, Swiss Universities have done a good job fostering innovation. In particular the Ecole Polytechnique Fédérale de Lausanne (EPFL) has done a great job in linking research and business to bring technology transfer forward. Since Patrick Aebischer took over the presidency in 2000, EPFL diversified its portfolio both in technical sciences and the bio-tech/med-tech-sector. Despite the past turbulent years they were able to retain their annual numbers of about 30 spin-offs.

If it takes both innovation and early stage capital to substantiate Switzerland position as an innovation hub, then EPFL gives an wonderful example how the first aspect can be addressed. But with respect to the early stage capital needed, a paradigm shift in the early stage financing market is overdue! We should have a close look not only towards the US, where seed stage funding is comparatively strong, but also on alternative financing concepts coming up. We will be sharing some experience from the first funding rounds on investiere.ch in another blog post.

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