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


Even Boston struggles to get some technology press

From Fortune magazine what’s really wrong with Boston tech says:

TechCrunch does not have a single Boston-based reporter. Neither does Re/Code, Pando. The Verge, nor VentureBeat. And the same goes for more mainstream business outlets like The Wall Street Journal, Bloomberg or Reuters. As for Fortune, I’m one of just two local reporters — and neither of us primarily cover technology.

If even the US’s second tech city is completely in the shadows of Silicon Valley/San Francisco, then there’s not much hope for Switzerland to get much of this international technology press.

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.

World-class startup pitches in Geneva

One of the criticisms often levelled on Swiss startups is that typically their pitches are very dry and not aspirational. They focus on features & engineering and not their passion: about what’s inspired them to solve their problem and why they are motivated.

in Feb there’s a rare opportunity to experience startup pitches from around the world here in Geneva. After a world-wide tour and a series of regional pitch competitions, Seedstars World are now bringing their regional winners to Geneva to select the winner. Here’s the list of finalists

The event is on the 4th Feb (the day before the LIFT conference & same location) and there are some discounted tickets available which means that it costs 50 CHF (price for startups) to come along and watch.

Why don’t Swiss pension funds invest in Swiss venture capital?

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 Venturekickkicking startups forward.

It will take a generation to fix Internet privacy

This week EPFL pulled together 6 world-renowned privacy experts for a one day conference. There’s a detailed transcript at the Guardian. Read the whole thing if you have time. I was at the conference and here’s my summary:

There’s a lot of surveillance

The US and some European states are doing this, and who knows what China and Russia are up to. Intelligence agencies have everyone’s social graph from phone calls (forcing the telcos to give them this), email (via sniffing the main internet cables), and social sites (public data and who knows what). They have your metadata, and some of your data: probably the text of your emails (as theses come through the main internet cables unencrypted); probably IM (eg. skype)  and possibly some encrypted traffic (through security weaknesses and having got hold of some server SSL keys).

Politically the US isn’t going to stop unrestricted spying on foreigners

Since the Snowden revelations, in the US there’s a backlash against unrestricted surveillance – this is a backlash both in the US government and grass roots. They’re focused on fixing this for US residents only. Foreign companies & individuals are not going to get any guarantees anytime soon about spying happening on their data in US clouds & internet companies.

One of the reasons for fixing it for only US residents is the interpretation of the 4th amendment:

 The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized

Recent judgements rule that the people refers to the people of the US only. So fixing excessive spying for US residents can be done starting with the US constitution, but for foreigners it can’t.

The political process is difficult enough anyway so to address spying on residents and foreigners together would slow down the process of protecting US citizens.  So that’s the way it’s heading and the US Internet industry will not be able to host foreign data safely for a long time. There’s an opportunity for Europe to build clouds to compete with Amazon AWS, MS Azure, etc.

Europe has a history of declaring rights but then not enforcing them

Europe is a mess too. The latest privacy legislation going through the EU covers businesses, doesn’t really cover police, and doesn’t even mention state intelligence organisations.

And we know a bunch of European countries are doing similar stuff to the US intelligence community and some even sharing data with them. So if Europeans put their data in European clouds we would not get any guarantees against unrestricted spying. It will take a big political process to change this. Will we see European businesses & individuals putting their data locally?

All in all it’s a big mess

We can’t solve privacy quickly with technology. Building a totally secure Internet architecture would be a gradual process.

None of the speakers thought privacy would be fixed anytime soon.

Switzerland needs more entrepreneurial investors & co-investment

Nicolas Berg of RedAlpine in Zurich has a great presentation about the momentum in the Swiss early-stage Ecosystem (embedded below). He says:

Wanted investor types for Switzerland

1. Serial entrepreneurs with at least one top exit

2. Micro VC funds

    • managed by serial entrepreneurs (age 25-45) and successful angels
    • very active investment approach in seed and early-stage
    • diversified portfolio of 15+
    • Entrepreneurial LPs (serial entrepreneurs 50+, family offices)

3. Co-investment and side-car funds

    • less active or passive investment manager approach
    • government and corporate funded
    • driven by economic impact, not returns only

The maturing of start-up markets

Recently announced:

Uber (taxi rental) getting $360m investment plus rumoured access to significant debt financing

NumberFour in Berlin gets $38m seed financing (yet to launch) for small business productivity apps

Smart investors are betting big

I suspect that this means they think well funded, well connected startups can dominate these sectors (Pandodaily speculates that’s why Uber wants this war chest). So it looks like these sectors are changing from emerging sectors to maturing sectors. These are investors who 3 or 4 years ago were saying that they see rapid change everywhere “its a great time to start a business”. What we’re seeing now is a logical follow on from that.

It’s worth watching to see if this trend picks up momentum. In which case I think it’s going to be difficult for regional or niche startups to convince investors that they’re be able to go big. Instead, these startups will have to seek out new sectors & ideas.


Kelblog has a good post on this

In the 1980s and 1990s VCs used to fund categories and cage-fights.  A new category would be identified, 5-10 companies would get created around it, each might raise $20-$30M in venture capital and then there would be one heck of a cage-fight for market leadership.

Today that seems less true.  VCs seem to prefer funding companies to categories.  (Does anyone know what category Box is in?  Does anyone care about any other vendor in it?)  Today, it seems that VCs fund fewer players, create fewer cage-fights, and prefer to invest much more, much later in a company that appears to be a clear winner.

This, so-called “momentum investing” itself helps to anoint winners because if Box can raise $309M, then it doesn’t really matter how smart the folks at WatchDox are or how clever their technology.