Crypto Investing? Someone should be telling you all this

The pitch is always “crypto is a massive opportunity and will revolutionize everything”. It appeals to investors FOMO (Fear Of Missing Out). There’s a little footnote that it’s a bit volatile & uncertain but what the heck – the upside is huge!!

So … yes, you can make a lot of money. Yes, you can make shitloads of money very quickly. But it’s disingenuous to focus so much on the upside and neglect the risks and downside. But then maybe that’s how the financial world works anyway!

Up until Feb 2018 everyone holding Bitcoin was making shitloads of (paper) money very quickly. HODL was the word: Hold On for Dear Life and never sell. It hit over 15,000 USD per bitcoin. Remember: there was no way to short (to bet on it going down), and it was pretty difficult to sell them. The more it went up, the more buzz it made, the more people wanted part of the action, and the only way to get exposure to Bitcoin was to buy some, helping to propel it even higher. Virtuous circle, bubble, whatever…

Then came Bitcoin futures: financial products launched to make it easy to trade Bitcoin. You no longer had to buy Bitcoins but you could buy a regulated financial product that tracked Bitcoins (but didn’t buy or sell actual Bitcoins). Rather than propel Bitcoin higher, it turns out that the investors trading Bitcoin futures were more inclined to bet on it going down (shorting it). As I write this (March 2018) we are 2 months into this. And Bitcoin is trading within a band  8000 USD to 15000 USD with lots of volatility.

Up to now I’ve focused on Bitcoin. There’s thousands of other crypto currencies (altcoins) which are either:

  • Being marketed as a better/different/niche crypto currency than Bitcoin
  • Being marketed as a blockchain project where they are a medium of exchange for a revolutionary platform which in most cases hasn’t been built or tested yet.

Most ICOs are the latter. And I think it’s useful to make the comparison with the internet bubble of 1999.

Back in 1999 the new platforms each promised to dominate a market. Each pitch was that there was market which was going to be revolutionized by the Internet because the old way of doing business was no longer suited to the the Internet world. We all know how that ended: bubble, carnage, but a real revolution and long term value creation.

Now in 2018 it’s the same but just replace “Internet” with “blockchain”. Back in 1999, a team would create a startup, pitch to investors who would throw money at them. Most of the startups got a few millions before they really had a product. Then they built a product and spent an unsustainable amount of money acquiring each customer. If it all went to plan, they IPO’ed as a cash-burning but high-growth company. It was a land grab: “there is a finite percentage chance that we’ll own this enormous market therefore we’re already worth billions”.

Behind this 1999 madness there was some control. Most of the cash was coming from VCs who drove a Faustian bargain with the startup founders. We will give you loads of money BUT you’re signing this legal contract saying:

  • We get our money back and more before you get a penny (a.k.a. the Liquidation Preference)
  • This has to go up in value or we take control (a.k.a. Preference shares conversion, Anti-Dilution). You’ve pitched us crazy growth figures – so we’ll give you eg. 18 months to either IPO or raise far more money from other investors, or we’ll take it away from you.

Netscape’s successful IPO in 1995 was the model: haemorrhaging money, high growth, land grab. Fast forward to 2018. Replace all references of Internet with blockchain. Except that if you dig deeper there’s some subtle but very significant differences:

  • You are investing in a coin, not shares in a startup. Financial regulators (seem to) allow selling coins to anyone (provided it doesn’t give you shares in a business), but selling shares needs proper financial oversight and can only be done to accredited investors.
  • This time round, Investors don’t make the Faustian bargain with the startup founders. The startup founders are completely in control. They create the coin, they sell the coin to investors, they choose whether the investors’ money goes into their startup or their own pockets.

Why do investors agree to buy a coin and not shares in the underlying business?  The pitch is:

  • This market needs a distributed ledger (a.k.a. blockchain) rather than the way it’s managed today. It will be more efficient.
  • This distributed ledger will be oiled by its own crypto coin (which we’re selling to you now) and these coins should each have shitloads of value. I.e. rather than people buying and selling on our platform using US$ or Euros, they will buy and sell in our coin and somehow this coin will be valuable.

A Blockchain is a distributed ledger which enables “exchange of value without powerful intermediaries acting as arbiters of money and information” (so says Each blockchain implementation needs a crypto coin only if the blockchain is public.  If the blockchain is a private run project (where access is controlled by some entity) then there’s really no need to have a coin. Here’s IBM’s explanation.

Outside pure speculation, it gets very complicated to work out just where the long term value is going to be – if there’s value in the startup business operating the blockchain, the crypto coin, both or neither.

For a balanced view on Blockchains, don’t listen just to crypto coin speculators. Another side to Blockchains are the technology groups working on blockchains for business – businesses who’s business isn’t making money from crypto ICOs. They are led by and .  The trouble here is IBM is still trying to sell you something: consulting instead of coins so it’s still a marketing pitch.

But Hyperledger is a non-profit opensource project – they are not selling anything. So here’s an example from Hyperledger on how you could manage healthcare claims.  Today when there’s a claim the information is sent between the doctors, hospitals, insurances etc. systems: there’s no one master copy of the whole file – the information is held all over the place. It’s inefficient, plenty of delays, nobody knows what’s going on. A Blockchain based solution would mean one copy of the claim’s data held on the blockchain and enable all the participants to edit, approve, pay, reject, bundle, and take any action they want (and are allowed to) on the claim. In theory it’s far more efficient than the system we have today. Easy to implement? In practice there’s massive effort to figure out how to build this and deal with the resistance of many participants to lose control of their part of the data & work flow. Great idea, lots of work and problems to solve. No mention of ICO, crypto coin, etc.

My guess is this healthcare claims project could be either a public blockchain  or a private blockchain – either way each claim file would need to be encryption and access restricted. But who’s going to run it? Who’s going to do the work to build, maintain & police it? This is where I get confused. Is it really a startup opportunity backed by a crypto coin ICO (like some of these think)? Is it a consortium of the major players? Is it a non-profit NGO? Is it the government? How different would it really be from a well-managed centralized system?  Does it need an intermediate (or several intermediate) steps to get there? How does it get to critical mass if the major players won’t play ball, or even if they are just moving at different speeds?

Here’s an  interview (18 minute long) with Brian Behlendorf of Hyperledger putting the case for private blockchains.

For the public blockchain ICO approach the premise seems to be that the crypto coin will create strong enough incentives for people to use the platform and at the same time it will pay the operator (and whoever is running each blockchain node) to maintain and improve the whole platform. Everyone wins. Powerful stuff.

When many financial commentators are quoted that “raising money via ICOs is the future” they are being mis-quoted/mis-interpreted. Often they said “With regulatory acceptance, raising equity via ICOs is the future”. (eg. ). They are not talking about the speculating on crypto coins which is being done today, but a future where the register of shareholders  is a blockchain with smart contracts that can be bought and sold so that startups can raise money directly from investors. This can’t happen until there’s regulatory acceptance. When is that going to happen? Who knows…

Meanwhile back in 2018, the possible ways of making money on crypto are:

  • Go for it: spray and pray, pump & dump, don’t worry. Rely on the value of crypto being propelled higher due to greater demand. At some point this is a “finding greater-fools strategy” and will lead to a crash. Maybe you are the fool …. There’s only one way to find out.
  • Mining crypto coins – provided mining costs are less than the current tradable price of what you’re mining.
  • Trade volatility (bet on it going up and down, buy and sell).
  • Find the rare ICOs where there’s a proper project behind it with proper oversight.

Or throw your money at someone else. There’s now a whole bunch of investment vehicles that will take your money for a management and invest in a diversified way into the whole “crypto” space. Are they any good? Do they know what they are doing? Who knows. Nobody has a track record but they probably do more due diligence than individual investors are capable of.

What we do know is there are some hurdles for the whole crypto space to solve before it matures:

  • Can Bitcoin be financially stable enough and flexible enough to be used as a currency? Here’s Varoufakis saying no – a currency needs to be managed by a government. Period.
  • Has there been a whole load of mis-selling going on which will lead to a legal mess if/when the whole thing crashes down and people lose their life savings? Maybe…
  • Can it be made hack proof? There’s a lot of work to be done here and who knows what happens when quantum computers come along…
  • How to avert an environmental disaster? Mining is already using the electricity needs of a reasonable country.
  • Do each of these markets actually need an open blockchain solution with a crypto currency?
  • What new challenges does un-deletable public blockchain bring? eg. if it contains illegal content does it make it illegal to host a blockchain node?

Me: I bought a few of bitcoins in 2014 (the equivalent of buying Netscape shares just after their IPO). I sold most of it when the Bitcoin futures were launched and the prices stopped going up. I’m sad that I didn’t buy more in the first place. I’m happy that I didn’t buy more because the whole mining thing is an environmental disaster in the making. I’m not doing any ICO investing because I’m just not capable of due diligence on which ones are maybe interesting, which ones are being over-optimisitc and which ones are outright scams. They all look like in 1999 to me. And all the blockchain engineers and smart-contract lawyers I talk to all tell me there is a long, bumpy journey ahead to get this whole thing working.

So I’m missing out on the equivalent of Amazon, Ebay, Paypal for blockchain. Maybe I’m really wrong. Or maybe they haven’t been started yet. Or maybe they’ll never be started. Who really knows…

Update: here’s a very good explanation of smart contracts and their challenges by Jimmy Song: The Truth about Smart Contracts


Most new markets have matured – growing startups has become a serious business

Most new markets are ten years old, if not older. Ecommerce, Online apps, disintermediation platforms, social, mobile, games, enterprise SaaS, etc. are all mature or maturing markets. What this means to new startups is when they try to scale user acquisition they are up against serious competition:

  • Mature startups with a full product suite and a sales & marketing machine staffed with teams with a track record of growing, maintaining and monetising user bases. They are either already profitable, or have raised tens of millions of growth capital.
  • Mature global companies who, when it’s clear there’s a sizeable market opportunity, they move into this market.

Gone is the day where customers will mix together products from dozens of new startups. Apart from a few early adopters who will buy the best tool for each task, most see this as too complicated. Instead it’s easier, less risky, to by a product suite, one tool which does everything OK, works together and has enough customer references/online reviews to say it works.

These mature startups and global companies have mature sales and marketing operations – to them it doesn’t mater if it takes a couple of years before a new customer is generating revenue for them. Their products are bigger than the “minimum viable product” from a young startup – they can sell it for more so they can outbid the young startups in all user acquisition channels. This dynamic has always existed – it’s about scale. However in the past there’s been several paradigm shifts which have shifted the power from mature products towards startups:

  • Exponential growth of internet users starting in the 90s – a rising tide raises all boats meant success for many who were one of the first to see an opportunity
  • Disintermediation (many players in a value-chain were no-longer adding value in an online world and they could be easily disrupted by startups starting off small – eg. Ebay)
  • The first wave of agile product development (in 2000 mature products were built on Oracle & coded in C or Java, and along came Linux, Apache, PHP and Mysql which was free and easy to update your product continuously)
  • The techcrunch effect circa 2006 was strong enough to launch new products
  • The rise of social
  • The second wave of agile product development – the move to the cloud, SaaS, cheap and scalable
  • Exponetial growth of smart phones (Mature products were slow to adapt to building mobile versions)

Maybe there will be new paradigm shifts which will create opportunities again. However the main shift I see is working against startups. It’s the convergence of hardware, software and services with the internet of things, sensors, wearables, increasingly complex smart phones. It’s difficult to see what a “minimum viable product” is in a world where everything is converging and the tech giants (Google, Apple, etc.) are sucking in more and more data.

As a tech seed investor, it’s become increasingly difficult to judge what’s going to succeed. For a startup to see off the mature competitors it will need a VC to back it all the way and a team which is motivated to build out the product until it and the team have matured – its a long and uncertain journey. In this interconnected world, the halfway solution (that we’ve used in Europe where startups raise a tenth of what they raise in the US and find a niche) is going to be increasingly difficult to make work. Even if the IP (intellectual property) is compelling, it’s risky to try and build an industry from scratch unless you have access to the full US scale VC capital (tens of millions) and a team with a track record to scale startups big. The default European option will continue to be to sell the startup early to avoid the risks of going it alone.

My guess is somehow this maturing will play into the hands of the multinationals. They have the scale, and somehow the combination of them, their corporate VC teams, kickstarter/indigogo (as a means of testing product/market interest), accelerators/incubators (to process ideas in large batches), VCs and angels will have work together to get new products to scale.

But (except for the rare exceptions) it’s not going to be about startups going it alone. As markets mature, its brutal out there for startups.

P.S. Here’s an example of Apple’s software maturing and competing with many startups

The global hardware startup ecosystem in depth

The Silicon Valley/Shenzen based hardware accelerator haxlr8r has just published a 200 slide presentation “hardware trends 2015” on slideshare.

Masses of info showing trends, successes and failures – every slide has some key information that anyone involved in hardware startups needs to know. For example here’s an extensive list of traps to avoid:

hardware risks

Hardware innovation is happening very fast. You can see that there’s lots of elements driving this. Behind all this is also the commoditization of hardware components such as sensors, platforms such as Arduino, and a lot of software components (frameworks and algorithms) which are mature enough and modular enough to use as building blocks.

In Switzerland we’re doing well in intellectual property for components, but we are struggling to capture more of the value with complete products or even just subsystems. The only example of a Swiss product I can find in the presentation is Gimball (due later this year) – I think the other Swiss drones are still research projects.

The Silicon Valley seed-investing bubble deflates

Mattermark has just published a report showing that Amid Pre-IPO Mega Deals, Overall Q4 2014 Startup Deal Volume Returns to Late 2011 Levels with Seed Rounds Slowing Dramatically – here’s a couple of graphs from that report (linked from their site) which show it clearly.

I think this lower volume makes sense when you consider the following:

For low-funded startups its difficult impossible to retain rockstar engineers in Silicon Valley – they all want to work at somewhere like Uber where they think that their stock options are more valuable. Note: this is a silicon Valley specific problem – elsewhere it’s not the case.

As sectors mature, it’s difficult impossible to launch a startup with a tiny team of 2 or 3 founders – a hacker (programmer), a hustler (deal maker, biz dev) and a hipster (designer). Eg. in order to get visibility on the app store you also need a marketing budget of $50k/month to build traction and in a lot of sectors it’s now extremely difficult to launch an app which is really just a feature solving one pain-point – users are expecting something more fully-featured from day one. For many sectors to build,test and support a minimum viable product and to create enough mindshare amongst users to get growth needs a team of 10 or more.

There’s serious momentum investing (I’ve written about this before) where one startup in each sector gets $ tens of millions and, unless they screw up big time, this cash gives them enough power to crush all competition and dominate their market. Seed investing in this environment is high risk unless you’re sure you’re backing the one which will attract the momentum investors.

Why raising money for Hardware startups is hard

Here’s my attempt to summarising the investment ecosystem for hardware startups (with my European bias, but it does seem to be a similar position in the US). It’s based on what I saw and heard at the Invest in Photonics (photonics is lasers, displays, LEDs, etc.) conference recently in France, plus my own experience as an angel investor in several Swiss hardware startups.

On the face of it, it’s all very contradictory. For example, in the same presentation at Invest in Photonics a US VC said:

  • Optics + IT will save more lives than doctors.
  • VCs won’t invest in the hard part (the optics).

The discussions, presentations & roundtables at the conference did provide some logic to this. VCs get a better return on investing money in software, so they focus on that. Hard stuff is just too hard for VCs to finance and to get a return comparable with software. If they do invest in hardware then it’s startups who are mostly just packaging up components and building a brand – eg. Occulus Rift, Nest, GoPro, etc. or, occasionally materials.

In addition to the lack of proven returns is another less-obvious issue: traditional VCs don’t have the network to do proper due diligence on most hardware startups. Doing DD involves getting actionable data on the market, how it is going to evolve, what the completion will look like and which tech is going to win out. Only industry insiders have this. A VC can’t act on the limited data that he can get hold of.

Even European success stories like Novaled’s recent exit (to Samsung) for 260M EUR hasn’t change the VCs’ lack of interest. The general consensus from speakers & panels (including Novaled’s outgoing CEO) is that it’s got even more difficult to finance hardware startups the last few years.

Most of the advice was pointing to this strategy for startups:

  1. raise initial funding from a combination of government grants & angels.
  2. be very capital efficient
  3. raise follow on from Corporate VCs and/or family offices.

Wellington Partners said they see all photonics fundraising post-series-A coming from family offices (what they call “unconventional sources”). But it’s not that simple – matching a family office to a deal can’t be done systematically – it has to be opportunistic networking on a case by case basis.

Corporate VCs also seem to be getting involved at a late stage and filing some of the void of traditional VCs (my guess is at this later stage they can do the due diligence that traditional VCs can’t). The general feeling is that getting a corporate VC onboard works well unless there’s a conflict over strategy between the startup and the corporate VC, therefore a corporate VC who operates independently of the mother ship should be best.

All this uncertainty in the investment ecosystem means that the initial investors have to expect that there is a high probability that they will have to lead the follow-on investing all the way until the startup reaches break even. And the new normal is the hardware CEO is always in full-time fundraising mode. Although for really exceptional startups it can be a lot easier than all this.

And finally: although financing hardware innovation is a bit pessimistic, the technology continues to advance. In the near future Airbus thinks we’ll see drones powered from laser beams on the ground and other fun stuff!

Tech Innovation in China

A quick report from the LIFT China conference & maker tour of Shanghai and Shenzen.

Anyone following high-tech innovation in Europe also needs to follow what happens in the US (mainly Silicon Valley) and Israel (mainly Tel-Aviv). We know things are happening in China but does it need to be on this watchlist? In September 2014 I headed to the LIFT China conference and LIFT’s tour of the maker/kickstarter ecosystem to better understand what’s happening there.

I’d been to Shanghai 6 years ago (when we were setting up manufacturing for Poken). It’s still the same city but I think since then it feels that there’s a lot more Chinese who have exposure to the west (speaking excellent English, easy to have in-depth discussions about China vs. the West, etc.). There’s also about 1M Westerners in China, many of these working in high-tech.

We had a tour of DFrobot in Shanghai. DFrobot sell robot kits (and related things) online, distributing worldwide. Because their cost base is lower than Europe and also because they are in such a big efficient manufacturing ecosystem, they can design & build products so much cheaper, they can just throw them out there (like this DIY spider bot for $6) and because it’s great value there’s a market. Whereas the Swiss approach would be to beautifully engineer something and then struggle to sell a few of them at $200 each.

I started to think that maybe in the same way that Silicon Valley has built an engine which sucks in data, capital and brains, China has built an engine which produces electronics.

When we moved on to Shenzen, we met some of the team from Seeed studio. Seeed in an electronics manufacturing operation which helps design and manufactures hardware products for many of the Kickstarter startups. Again, a very efficient organisation.

We were invited for a tour and discussion of Foxconn. Usually it’s impossible to get a tour of Foxconn, but now they have decided to reach out to the kickstarter/maker community. Foxconn say they want to be innovators, not just assemblers & copycats. They want to enable some of their 1 million employees to start prototyping ideas (as people would in a hacker space), and to also have makers bring ideas to them. They have set up a site where anyone can pitch ideas to them called This site is in Chinese only because they are not ready to process world-wide applications.

Clearly Foxconn is in a dominant position for doing large scale high-tech manufacturing. When you see the scale of what they have, it seems possible that Foxconn and Shenzen could turn this manufacturing dominance into an engine which sucks in innovation and progressively more of the value chain (and finally rid themselves of their employee-exploitive past).

So maybe the US and China both have powerful engines which increase their dominance in tech, and Europe will be powerless to compete.

Thanks to the LIFT conferece and David Li  from the XinCheJian hacker space for organizing the tour.

Bilan & Le Réseau’s manifesto for Swiss startups

Bilan and Le Réseau have published a 10 point manifesto (in french) for the Swiss government to make some simple changes to improve the startup ecosystem:

  1. Allow private individuals to make tax free investments into startups. Tax would be paid if the investment is subsequently successful (sounds similar in principle to the UK EIS scheme)
  2. Improve the fiscal system for startups. Encourage R&D and the generation of revenue from IP
  3. Improve the system for share options. Granting options has been made easier, but the tax status on exercising options when startups are still loss making is currently unclear.
  4. Create a VC fund of funds. Get the pension funds to invest into local high-tech.
  5. Create a Swiss “second market”. Lower the barriers of entry for IPO or create a separate segment.
  6. Legislate for crowd-funding and the sharing economy.
  7. Create an “entrepreneur’s visa”. Like several other countries are doing/have done.
  8. Have a small business act. Improve the ability for SMEs to bit on public projects.
  9. Reform the CTI. Streamline the Commission for Technology & Innovation, and make it more accessible for startups who aren’t spinouts.
  10. Create a Swiss “DARPA”.  Use military spending to help create disruptive technologies.

It all seems pretty logical and would make a massive difference to the ecosystem. The petition can be signed here

Full disclosure: I am a passive member of Le Réseau.

How the Israeli government’s tech investments complement private money

Israel is on a bit of a roll with 2 recent near billion dollar exits (Waze and Viber). So it’s interesting to see some details in the FT about how the Israeli government supports innovation funding through the Office of the Chief Scientist (OCS). The OCS has similarities to the Commission for Technology and Innovation (CTI) here in Switzerland because they both offer state money to fund research/engineering which is very innovative.

The Office of the Chief Scientist is continually addressing market failure – areas of broad economic benefit that private investors do not serve – rather than cherry-picking opportunities venture capital companies might well have taken on by themselves.

Waze: it lent about $1m to the company, and got about $3m back; the Israeli tax authority also reclaimed about $230m on the sale to Google in taxes paid to transfer the company’s intellectual property overseas


European Startup Accelerators: the Hy! Demo day

Saturday Jan 18th 2014 was the first Hy! Demo day, gathering accelerators from around Europe. The format was each accelerator introducing themselves and showcasing their best 3 startups, each with a 3 minute pitch. The wacky Berlin location (disused swimming baths) was overwhelmed with 800 people showing up.

The blogger Robin Wauters kicked off the day with some research about the European accelerator ecosystem. He said:

Entrepreneurs don’t care where they are based. They will move to the best location.

Re: the debate about whether there are too many or too few accelerators: everyone has an opinion, but accelerators themselves say there should be more (but keep the quality high). It’s like saying “can there be too many angel investors?”

What makes a successful accelerator? The possible criteria for judging it are: exits, investment raised, follow on valuations, job creation, IP created…. Exits and valuations provide the strongest justification of a viable ecosystem, however, the ecosystem is still too young to have generated these figures. Even in the US, Y Combinator is an outlier.

Its the mentors who really make the difference. The rest (eg. office space, a bit of investment, etc.) are low barriers.

The culture of the city doesn’t matter. But start-ups should move to where’s best.

Back on the quality vs quantity question. Nobody can judge it. However, the more accelerators, the fewer great start-ups who fall through the net. Poaching does go on between accelerators.

The accelerators

(I ducked in and out of the presentations as there were other networking areas, so this list of accelerators present is incomplete)

Techstars talked about their experience in London: 1,500 applications for 10 places. David Cohen started Techstars (in the US) because being an angel is hard: drinking lots of coffee, reading lots of bad pitches, crossing your fingers…Creating an accelerator was a better solution.

Techstars thought that Europe would be different. It’s not: Techstars US start-ups raise on average $1.5m each – Techstars UK is similar.

Corporates are frightened. A corporate can take 90 days to organize a strategy meeting. In the same 90 days a start-up can go through an entire accelerator program and come out with a viable product. This is why Barclays has built a fintech accelerator in London (and committed to 6 programs over 3 years) – the corporates know that they themselves can’t innovate at this speed.

Adam Wiggins from 
Heroku talked aobut his experience at Ycombinator in 2006. He said “Ycombinator really took us up a level”.

Helsinki Startup Sauna. We are getting the brightest people in. We are 3 years old, no big exits yet. 
Finland had a big-corporate culture: now this has changed.

Y Combinator took 6 years before getting exits.

One of the main benefits of an accelerator is as a support group for entrepreneurs. If you realise you’re not going to make it then you can fold into a more successful startup.

Deutsche Telecom’ accelerator is called hub:raum and offers financing (100-300k equity),
Helping by promoting (mobile) apps on their network.

Startup sauna (Finland) runs a 5 week program, then silicon valley, then demo day. 
8 batches so far. 
Non-profit, takes no equity, for free, invests 10k + 30k government money

Axel Springer’s accelerator is a joint venture with plug & play from the US.

Pro7Sat1 accelerator offers EUR 25K, 3 months on campus. 1 wildcard for EUR 7M of TV advertising.
 All for 5% equity.

Not just mobile apps

Berlin hardware accelerator was present and one of the other accelerators had a robotic startup.

The relevance of all this to Switzerland

We shouldn’t try and hold on to every start-up – they should go to where makes sense. Many will come back, or at least ‘build bridges’.

We should have our own accelerators focused on what we do best: think medtech, micro-technology… and attract the best startups in these domains from all over Europe.

A great start-up pitch is not “here’s our idea”. Instead, it’s “we’ve cracked it: we have the best product, the right team and we’ve found our market”.

Comparing what I learnt from these 3 minute pitches vs. what I know about eg. the early stage startups at la Forge at PSE I don’t think Switzerland has a problem generating ideas which are good enough.

Obviously there’s still a discussion on accelerators vs. incubators or one-to-one coaching/mentoring. But its clear that there’s a lot of momentum towards accelerators: I’ve mentioned several corporates in this blog post who are taking it seriously and articles about this ‘revolution’ are appearing in the serious business press

Thanks to Go Beyond for a free ticket.

The Angel Investor Ecosystem in Switzerland

As a Swiss-based Angel Investor I’m continually asked about this so this is my attempt at a coherent answer. It’s a bit biased towards the Swiss French part of Switzerland.

Where are the angels?

The main active Angel Networks in Switzerland are (alphabetically):

A3 angels ( based at EPFL and focusing on EPFL spinouts. A3 has a strong tech focus.

Business Angels Switzerland ( with an active group in Lausanne and a less active one in Zurich. BAS is a traditional Angel Network and most of it’s members are successful business people.

Go Beyond ( with groups in Geneva, Lausanne, and a couple of separate groups in Zurich (as well as groups internationally). There’s a mix of people. Go Beyond have done a lot of ground work to make Angel networks scale and open Angel investing to a wider group of people.

Start Angels ( based in Zurich.

Here’s a list with a few more.

Updated: B-to-V is based in Switzerland (St Gallen) and is both an angel Network and VC. They are actively sourcing deal-flow in Switzerland but most of their recent angel investments have been outside Switzerland.

Angel Networks are dedicated but they’re small

The total investment across all these networks is less than 10M CHF per year in Switzerland. Typically 200k to 500k CHF are invested per deal, but a couple of times per year it’s over 1M CHF. (2014 has already started strong so it could be a good year!).

What these figures show is that:

Most deals are done outside the Angel Networks

Looking at the EPFL spinouts (currently the biggest source of Swiss startups) there’s seems to be an equal number who have taken seed money from formal networks (Angel Networks, seed funds like Swisscom, Debiopharm, etc.) and those who have taken money from FFF (friends, family and fools) or an individual High Net Worth person who’s making a one-off investment. And the EPFL spinouts are generally the startups which are most attractive to Angel Networks.

AngelList has 3642 Investors in (or focused on) Switzerland (registration required) – most of these are outside the Angel Networks.

It’s hard to hunt out Angels who are not part of Angel Networks, but a lot of angel-style funding comes from them. They probably won’t advertise the fact they invest, and any startup who has found one will keep their investor to themselves rather than recommend other deals (in case they need him/her for a further investment).

FFF are Angels too

Because Switzerland is a rich country a lot of startups have access to FFF (Friends, Family & Fools) money for the first seed round.  These people wouldn’t call themselves Angels but they invest similar amounts to Angels and are behaving a lot like Angels.

Spinouts with IP from the tech universities can get up to 500k CHF or even more as grants & loans as their first financing – effectively replacing the need for an Angel financed seed A round.

Other “Angel-like” Investors

There are a couple of investment platforms who are crowd sourcing investors in Switzerland (eg. c-crowd, Investiere). This is a potential way to get investment or to connect to those elusive individual Angel investors because there are a lot of passive members.

There are several seed funds run by corporates. Swisscom ventures and Debiopharm are the most active.

Updated: And Red Alpine sits somewhere here – it’s an Entrepreneur run seed fund based in Zurich with a Swiss and International focus.

There are no Super Angels

There are several people investing in Swiss startups who are close to being Super Angels. But instead of building a big Angel portfolio, they limit themselves to one or two deals per year where they are very hands on. For example at an A3 Angels event in 2013, Martin Valesco said that he’s done a lot of Angel investing in the past but now he’s focused on co-founding startups. Serial entrepreneurs are increasingly trying this Personal Incubator model.

I suspect the following factors are stopping anyone building a big Angel portfolio:

  1. There are not enough exits and the valuations are not high enough. Eg. Venturekick has supported over 200 startups and only 3 have exited so far. Note. This is a Europe-wide problem: eg. Seedcamp has a similar ratio.
  2. Most startups don’t have the right DNA (lacking business, sales, network). It’s a lot of effort to sort this out. Unlike Silicon Valley, there isn’t a supply of business people with a track record of scaling startups.
  3. The very-high-tech startups are difficult to invest in. They tend to have a very specific product which is difficult to understand (unless you’re an expert in that sector) and it can take a lot of cash and time to get to being a viable business. And each exit is different. From an investor perspective, it’s difficult to get synergies and the investment cycles are too long.
  4. The tax situation is really unclear. In Switzerland if you are a private investor then you pay zero capital gains tax. If you’re classified as a professional investor for tax then you pay ~50% tax (income tax & social charges) on capital gains. In fact it’s even more complex than this and there are no clear rules from the tax authorities – you may have to wait years before you know. If you are trying to recycle money to the next investment this is exactly the situation you don’t want.

How Angels Networks invest

The Networks typically have a monthly meeting where 2 or 3 startups each give a short presentation (10 to 15 minutes) followed by questions and networking.

After the startups have left the Angels discuss the merits of each startup and whether they want to start due diligence (assessing the product, market, business & investment structure) with a view to making an investment. Most of the time they don’t proceed. If they do invest then the whole process typically takes 3 months, sometimes much longer – in fact I’d say the average at the moment is 6 months. It takes this long because:

  • Unless the deal gets put on super high priority, the Angel Network process relies on the monthly meeting to push the deal forward to the next step.
  • In the most cases startups have some work to do – eg. Their team needs strengthening, they need to understand their market better, they need to fix some legal/IP/shareholder issue.
  • Also it takes a while for investors to be comfortable with the founders – it’s a dating process.

Swiss wide there are about (my estimate) 15 to 20 startups financed by Angel Networks per year. The investment amounts vary between 300k and 1M CHF. In addition to this there are several more startups who had a single Angel invest who met the startup through a pitch at an Angel Network.

Angel networks can only cope with evaluating a handful of startups. If you are unlucky and they already have a bunch of startups that they’ve been looking at for a couple of months then the network will have no bandwidth to increase the list until they either close (sign) or drop one of their current deals.

What do Angel Networks invest in?

A broad range of technology: software/Internet, some hardware/microtechnology and occasionally medtech.  And mostly spinouts from ETZ and EPFL which have been “packaged up” by the CTI and others. By “packaged” I mean:

  • They have been given a lot of business coaching by the university tech transfer team, the CTI (government), and organisations like venturekick/ventureleaders
  • They’ve had a couple of 100k CHF of grants to progress the business (and in some cases launch the product)
  • The technology has already been properly evaluated (tech transfer and CTI) by good patent agents. “Freedom to operate” searches have also been done.

The concerns of the Angels are usually are on the go-to-market strategy and the capabilities of the team to deliver.

Swiss Angel Networks didn’t invest in Housetrip or GetYourGuide, but some individual Swiss Angels did. it’s difficult for networks to judge these super high potential startups and to move quick enough for them. The Angel Networks are mostly focused on slightly less risky startups who have solid technology.

How to approach Angel Networks

You need to fill out the formal application (details on each of the Network’s web site) otherwise you wont get into their process. This is still true if you have met a member of the Network and he/she will introduce you to the Network.

If you hang out at startup events you are likely to meet Angels who are members of the Networks and you should be able to get some valuable feedback about how to pitch your startup to the Angel Networks.

It’s difficult. Some startups have left Switzerland because they can’t find investors. Some startups come to Switzerland and find investors. There are no rules.