'Don't call us Silicon Alps': How Switzerland battled a healthy economy to grow its own startup scene

Sometimes, you really can have it too good - staying hungry and foolish hasn't always been easy for Switzerland's startups.
Written by Federico Guerrini, Contributor

Just don't call it 'Silicon Alps'. Nowadays, everyone's looking for the next Silicon Somewhere, and Switzerland, like lots of other countries, has found its startup scene nicknamed accordingly.

But it would be misleading to think that among its mountains, a nation of engineers and programmers is trying to mimic the Bay Area scene. In fact, while it's growing, multi-faceted, and full of brilliant ideas, the startup ecosystem in Switzerland is as far from the Valley's as that of any European nation can be.

If in California the spotlight (and the funds) are mainly directed towards companies developing ICT and B2C products, in Switzerland, it's more medtech and life sciences that investors are looking towards. And while in the Valley there is no scarcity of venture capitalists willing to shell out tens of millions of dollars in financing rounds, in Switzerland, the amounts being invested are significantly lower, except for a few lucky exceptions.

Yet there's no denying there's a lot going on with young businesses in the country and the nation is already a reservoir of talent - shown by its first place in the Global Innovation Index for four years in a row.

"Two federal polytechnics, the Polytechnic of Lausanne (EPFL) and the Swiss Federal Institute of Technology (ETH) in Zurich, produce very high quality spinoff companies that are then financed by all sorts of sources of venture capital and business angels," David Sidler of Verve Capital Partners' online startup investment platform Investiere told ZDNet.

According to the Swiss Venture Capital Report 2014, curated by the news portal Startupticker.ch in collaboration with the Swiss Private Equity and Finance Association, medtech startups generated CHF 150m (€143m), while ICT companies accounted for CHF 86m (€82m), down from CHF 91.5m (€87m) in 2013. This comes from a total of CHF 457m (€437m) invested over 92 rounds of financing during 2014 (a figure that rose 10 percent year on year),

This, of course, doesn't mean ICT companies are absent from the funding: the fifth largest deal was for online travel startup GetYourGuide, one of Switzerland's local online heroes. Scheduling service Doodle and HouseTrip, a holiday home marketplace, also received funded last year. But GetYourGuide, which raised CHF 23m last year, operates from Berlin, even if it's still headquartered in Zurich. The same goes for Doodle, which has offices in Germany, while HouseTrip has moved to the UK.

While high-tech companies tend to stay in Switzerland, close to the universities and the pharma industry, "ICT companies, when it gets into growth stage, tend to go abroad, for the simple reason that salaries are extremely high in Switzerland. If you have a financing round of two million and you want to grow, with that two million you can hire a lot more people of equal talent elsewhere than Switzerland," Sidler says. So, the very same lifestyle that makes Switzerland so enviable from the outside can also represent an obstacle for companies that would like to keep operations in their homeland.

Being a land of plenty has another potential downside: with no shortage of well-paid corporate jobs close at hand, following the 'stay hungry, stay foolish' advice might be a little harder in Switzerland than elsewhere. "In Switzerland with the economic market, it's still very possible to find a good job, and a well-paying one," Niels Rot, the program director of Impact Hub Zurich, an early stage incubator for social entrepreneurs, told ZDNet. "If you want to become an entrepreneur, you don't do it just to make some money, you really need to believe in it."

Perhaps that's why the rate at which new companies are created in Switzerland is significantly lower in the country than in the rest of Europe (3.6 percent of companies in the country are newcomers compared to 9.9 percent for the rest of the continent). It only saw an increase in 2008 and 2009, the worst years of the economic crisis. On the other hand, the rate at which companies close is equally low.

"Here in Switzerland you have a lot fewer startups compared to the US, but maybe more committed and serious startups. People don't move every six months from one project to another," says Sebastien Flury, who runs Startupolic, a blog on the Swiss start-up scene.

For those who do decide to commit, starting a business is far easier than in almost all other European countries, thanks to a network of business angels, initiatives, and organisations supporting entrepreneurial ideas and talents.

Programs like Innovate4climate, or the Venture Kick Initiative help companies take the first steps. Equally important is the De Vigier Foundation Entrepreneurship Prize, which awards as much as CHF 100,000 to the most innovative and future-looking business idea. The state also gives a lot of support: the Commission for Technology and Innovation (CTI) of the Swiss Confederation organizes courses for entrepreneurs, and coaching sessions.

There's a vast pool of talent to draw from as well, thanks to unique blend of culture and languages in the country. "If you walk down the street in certain neighborhoods in Zurich or in Geneva or in Lausanne, you hear a lot of English and you hear a lot of French. There's a lot of expats here. The Swiss community is very, very international, and that's something that does define the country, especially the startup ecosystem," Sidler says. Google, among others, took notice, and established its largest office outside the US in Zurich.

So there's no better place to be a young startupper than Switzerland, it seems.

The problems start when entrepreneurs try to go beyond early stage financing and collect higher sums, from $150,000 to $400,000, the so-called 'valley of death'. Later rounds, roughly between CHF 2m and CHF 10m, are traditionally difficult to complete in Switzerland as well, according to the Swiss Venture Capital Report.

It's a winner-takes-all situation, with few companies monopolizing all the resources. The top five funding rounds for Swiss start-ups in 2014 accounted for just under half of total capital expenditure for the year, and the top 20 largest venture capital rounds account for 86 percent of the whole pot. The remaining startups are left with only the crumbs.

The same is true, however, for almost anywhere else in Europe (except, perhaps, Berlin and London), so it's absolutely no reason to think less of the blooming Swiss startup scene. It might be no Valley, yet it's still (as Shakespeare put it) "as rare/ As any she belied with false compare".

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