This was the subject of a short debate between Swiss VCs and pension fund managers at Le Réseau.
Investment managers at the pension funds don’t have the skills to invest in VCs (let alone Swiss focused VCs). Fundamentally the risk profile of Swiss pension funds investments is lower than in the US where 14% goes into VC and private equity. So, apart from a few exceptions, they don’t do it.
The view from the innovation ecosystem is: pension funds look long term, and so they need a strong economy long term, and this needs innovative companies, and so it’s in their interest to help finance this. The construction workers’ pension fund is alone in recognising this (they see that a healthy construction industry needs a strong economy that continues to innovate).
But it’s also a chicken and egg problem: The only VCs demonstrating good returns are the big US ones. If Swiss focused VCs could demonstrate good returns then some pension funds would try investing. Outside a few exceptions (eg. Vinci Capital who were represented at the discussion) there isn’t an asset class for investors. Many agreed with Vinci’s approach which is a mix of VC and private equity (using leverage to improve returns). Vinci’s opinion was that their model can scale up a bit (maybe to a few hundred million CHF of investment per year) but certainly not to even 1% of pension fund assets.
Another interesting model is Swisscom Ventures where it’s clearly part of the swiss ecosystem but achieves it’s scale by investing both in Switzerland and abroad (mainly in Silicon Valley).
Non of the panel thought that an alternative to later-stage investing is pump a lot more money into seed funding – there are not the returns to justify it. This is something I’ve never understood: each year there are reports showing that EPFL & ETZ spinouts are mostly successful (money raised, high long term survival rate, etc.) yet there’s no VC systematically investing in the seed funding of all this as a mini asset class and then following on with growth capital.
So even though Switzerland tops the innovation charts there is just not the scale for big investors to invest. So big investors are not going to jump-start a “silicon valley” here. Without the big investors, seed funding is going to remain a long slow process (as he seed investors have to be prepared to finance startups through to break-even).
Maybe the fundamental problem here is not about scale but the speed of value creation. If we created value quicker at the current scale then the returns will be better and the ecosystem would become more investible and would grow. This is a big focus of Venturekick: kicking startups forward.