Buzz

The Venture Capital Process in Switzerland

Patrick Frei, Venture Valuation AG


Reprint Permission from Aspatore Inc., All Rights Reserved

Switzerland is a small country so everyone in the venture community knows each other quite well. Investors generally have close ties to the places where companies develop, such as universities, so companies usually develop relationships with investors over time. Once they make an investment, investors are somewhat hands-on, but they give the company a certain freedom and only step in when things do not move along as planned. They also know that not all companies can be winners.

Investors tend to stay with companies longer than they expect. They also have certain funds set aside for follow-up investments. Exits are primarily through mergers and acquisitions; a few are through IPOs. The timing of an investor's exit depends on the overall market conditions both here and in the U.S. and Europe.

Companies are the biggest venture investors. (editors note: for a comparison to the U.S. Corporate VC market, click here). Swiss pension funds only have about 1 percent in alternative investments. However, Swiss investors have been able to attract international pension funds which make a big portion of the investments. Private individuals generally act as angel investors.

Major Players (VCs, Entrepreneurs, Corporate VC Programs)

Investor Sector PE Capital
(m Eur)
Number of Portfolio Companies
Aravis LS*, HS* n/a 5
Aventic (UBS Group) Tech, IT, LS, HS n/a 30 +9
BioMedinvest AG LS, HS 33 5
CapVis (ABB) Tech, Med Tech 400+ 25+
HBM BioVentures AG LS, HS 700+ 44
Inventages (Nestle) LS, HS n/a n/a
Invision Tech, IT 200+ 21
sam (sust. asset mgmt) n/a 90 n/a
Schweizerhall Holding Chem, LS, HS 164 21
Ultreia Capital Ltd LS, HS 130 25
Venture Incubator Tech, LS, HS 100+ 10
Index Ventures LS, HS, IT 497 36
Novartis Venture Fund LS, HC 204 117
Partners Group n/a na n/a

*LS: Life Sciences; HC: Health Care

Identifying Potential Investment Companies

The Swiss Private Equity & Corporate Finance Association (SECA) is the representative body for Switzerland's private equity, venture capital and corporate finance industries. SECA's objective is to promote private equity and corporate finance activities in Switzerland. Its website (www.seca.ch) lists all members and their preferred investment area, size, region etc. Many entrepreneurs find us that way. Those who are most likely to receive venture funding are teams that represent industry professionals as well as young, enthusiastic entrepreneurs.

When we evaluate a potential investment, we look for sound management teams with complementary skills, an interesting, potential market (including size, competitors, substitutes, threat of entry, dependencies) and the company's technology (intellectual property and pipeline).

Term Sheets

As Switzerland is an internationally linked country, term sheets are on international standard. Still, there are some changes we are seeing. When it comes to compensation plans for management, there is more of a balance between fixed and performance-based salaries. When term sheets are written, these possible developments have to be taken into consideration.

The role of the board of directors is to provide seniority and to offer a good network of people. This is very important. We look for board members who do not just have a good name, but who also bring something to the table with contacts, networks and know-how.

Advice for Management Teams

I often tell entrepreneurs to "kiss": keep it simple, stupid. Be professional, be prepared and know both your advantages and your limits. Target a few VCs, but select them carefully. Do not just contact everybody. Use contacts and a network for connections. Referrals work much better. Finally, be patient and don't oversell yourself or your company.

Changes & Trends

Globalization has influenced our strategy in the last few years as the world has moved closer together. Telecommunications have made certain tasks and productions totally place-independent, such as software development in India. The move toward globalization will continue in the future, which will make both communications and security more important.

That said, venture investing is still a local, fragmented market. Switzerland is a bit different in this respect as it is very small, but people tend to speak at least two to four languages and are very internationally orientated. Switzerland is also very much integrated in the global economy.

As the economy improves, I think we will see people being less risk-averse and more willing to try to capitalize on their ideas. I think nanotechnology and security are two areas that will attract investors and I also expect to see VCs investing in the earlier stages of a company as the late-stage deals dry up.


About the Author

Patrik Frei is founder and partner of Venture Valuation AG, Switzerland (www.venturevaluation.com), a company that provides independent, third-party valuation of high growth firms in biotech and life sciences for investors as well as for the companies. The company also developed a reporting tool for investors (www.venformis.com) and created two databases on the life sciences industry in Switzerland (www.swisslifesciences.com) and France (www.frenchbiotech.com). Mr. Frei graduated from the University of St. Gall and is currently writing his dissertation called "Assessment, Valuation and Monitoring of High Growth Companies" at the Swiss Federal Institute of Technology, EPFL Lausanne. His previous occupations include CFO of a trucking company and training at several international corporations: LeCroy (Geneva, New York), Hans Merensky Holding (South Africa), Swatch Group - EM Microelectronic (Marin).